Sub Fee Hit Stalls Viacom’s Recovery Plan

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Not so fast. Having averted disaster by renewing its distribution deal with Charter Communications, Viacom CEO Bob Bakish wanted to talk during the company’s fourth-quarter earnings call about accelerating the struggling media company’s outlook for growing revenues and profits.

But the road to growth looks pretty bumpy to Wall Street, which focused on a troubling outlook for subscriber and advertising revenue in 2018.

Bakish and Viacom chief financial officer Wade Davis warned on the Nov. 16 call that, after the Charter deal, affiliate fees would be down by mid-single digits in 2018.

Resetting Charter’s rates and a loss of subscribers because some Viacom networks had been re-tiered hurt, plus a shift away from selling content to subscriber video-on-demand services hit distribution revenue, which is being depressed industry-wide by cord-cutting and skinny bundles.

With no more major deals on the horizon, distribution revenue should be back on the upswing by 2019, the Viacom executives said. Still, the terms of the Charter deals seemed less positive than first thought, analysts said.

“It is quite interesting to see Viacom management pointing to lack of renewals until 2019 as a source of downside protection. This speaks to the degree of challenges faced by the company,” Barclays analyst Kannan Venkateshwar noted.

Viacom also said that after reporting a flat fourth quarter for advertising sales — ending a nearly three-year streak of declining ad revenue — ad revenue would fall again in Q1 because of ratings weakness. The short-term news would result in “meaningfully” reduced earnings estimates for Viacom on Wall Street, Venkateshwar said.

For Bakish, who took the reins of the Redstone family’s floundering media company a year ago, getting the Charter deal done closed the book on stabilizing the company and ushered in an acceleration phase of implementing his strategy. He ourtlined plans to create content for new platforms including direct-to-consumer, over-the-top and mobile, expand advanced advertising and grow revenue beyond the traditional media business. He pointed to potential short-term revenue gains of $200 million and a cost-saving effort that could be worth $100 million in 2018.

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