VIAB - Viacom

[LowIQinvestor]

Disney-Discovery? Fox-Viacom? Michael Wolff Predicts M&A Mania and a New Wave of Consolidation

 

http://www.hollywoodreporter.com/print/786744

 

 

[Phaceliacapital]

The more content you own — or, that is, the more sought-after content you own — the stronger you are in a morphing distribution world.

 

■ Everyone needs a hedge against advertising — in other words, the heft to negotiate higher licensing fees.

[rogermunibond]

Disney has a JV with Hearst for A&E and I could see Disney teaming up with Hearst again to acquire Discovery and fold it into the A&E cable networks.

 

Fox was in talks with TWX and if it's true that Vivendi would like to acquire SkyTV then that would leave Fox with a lot of cash to try to acquire TWX or VIA.

[LowIQinvestor]

Liberty’s John Malone Eyes Content Consolidation:

 

"At the investor meeting, Mr. Malone was asked about a bigger fish: CBS Corp. He called the broadcaster a great asset and noted that its sister company, Viacom Inc., owner of Paramount Pictures and several cable channels, is also valuable despite some of its recent challenges, according to people who attended. Mr. Malone didn’t announce any plans with respect to those companies. He noted both are controlled by 92-year-old Sumner Redstone. If Mr. Redstone were to die, a trust involving the mogul’s associates and members of his family would manage his nearly 80% voting stakes in Viacom and CBS.

 

CBS and Viacom declined to comment"

 

http://www.wsj.com/articles/libertys-john-malone-eyes-content-consolidation-1433360774

[LowIQinvestor]

Media Industry Bloodbath today.

 

VIAB down 8% at a 9 PE!? I am amazed.

Earnings out tomorrow. Seems like if anyone on the conference call has a pulse (no offense to Sumner Redstone) this stock should be higher.

 

 

[berkshire101]

Media Industry Bloodbath today.

 

VIAB down 8% at a 9 PE!? I am amazed.

Earnings out tomorrow. Seems like if anyone on the conference call has a pulse (no offense to Sumner Redstone) this stock should be higher.

 

So is DIS, TWX, and SNI.  Wonder why?

[rishig]

Media Industry Bloodbath today.

 

VIAB down 8% at a 9 PE!? I am amazed.

Earnings out tomorrow. Seems like if anyone on the conference call has a pulse (no offense to Sumner Redstone) this stock should be higher.

 

So is DIS, TWX, and SNI.  Wonder why?

 

"Wonder why" - Not saying it's justified, but listen to Bob Iger's latest call (DIS) to understand how Wall Street is interpreting ESPN sub losses.

[Guest Schwab711]

@LowIQ: I'm guessing you don't think current earnings represent peak earnings? Where do you think future organic growth will come from?

 

They aren't that cheap from an EV/FCF perspective (even worse if you include acquisitions as part of CapEx, which I think is necessary for this industry). TBV is -$9.4b, so there's very little flexibility with their balance sheet. I don't think it's a surprise that they are the "cheapest" of the media companies given the content they own.

 

I believe part of the "pricing power" held by content creators relied on the fact that the distribution system (for tv content) involved a capital-intensive network on "lines" and these distributors would pay anything to make sure they could generate revenue from these lines (content fees were a small % of total costs for distributors). In the digital world, business models based on frugal content spending may be possible, which could be detrimental to content creators (the pie permanently shrinks). Without the lines, the majority of costs for distribution are from content, so the incentive for distribution seems to lie with the content providers themselves (create and distribute their own services or partner with Comcast/TW somehow). I think all the broadcasters now provide their channels digitally for ~$6-$8/mth and Sling TV is testing whether ESPN and a few other channels can sell cable for $20/mth (pretty good sign for ESPN/DIS that the only independent "digital cable" offing is basically an ESPN channel for $20/mth and it's growing subs each month). Hulu is another example of testing a new business model as that collaborates multiple company's content. I'm not sure VIAB has strong enough content to charge more than $5-$10/mth for all their and the subscriber base is likely to be significantly lower than current cable customers. Sling TV may have inadvertently set a cap on what a la carte prices can be.

[bizaro86]

ESPN is the most popular channel by far, but its acquisition costs are pretty high. I love the business of Disney, and would have made it a big piece of my portfolio years ago if it wasn't for ESPN being such a huge part of the value. I think they're likely to get squeezed in two ways.

1) The sports leagues continue to grab more economics for "the only content that is always watched live"

2) The higher and higher prices they charge for ESPN hurt them if/when de-bundling occurs. While there are lots of people who would pay $20/month for ESPN, there are many, many households who get it as part of a cable package and would never dream of subscribing separately.

[valueyoda]

I think that activist shareholders will target the large and smaller content media companies, such as CBS, Time Warner and AMC Networks to start another consolidation round to fortify themselves against increased bargaining power of cable companies and telecoms that have consolidated and against the secular trend of cord cutting. Time Warner and CBS would be perfect complements.

[Phaceliacapital]

https://next.ft.com/f363152c-3b90-11e5-8613-07d16aad2152

 

Media companies are grappling with changes in distribution as viewers seek better value for money from their cable and satellite packages. Some viewers are “cutting the cord” in favour of online alternatives, such as Netflix, or choosing cheaper “skinny bundles” — slimmed-down, cheaper packages of channels.

 

Fox has good numbers and extra buyback of USD 5 bn, I am happy and fingers crossed for a FOX/TW merger.

[Phaceliacapital]

Which channels do you want to buy from Viacom? Their audience doesn't want to watch "unscripted" shows anymore...

[valueyoda]

VIACOM has the cheapest valuation, but also the biggest carrier risk. It makes sense for media companies to bundle less favorable channels with must-haves in skinny bundles. Therefore consolidation makes even more sense. A TWX/FOX merger is not going to happen anymore. I think that TWX would pull a TWX/CBS merger out of the hat to prevent that. Furthermore, a showtime/HBO bundle makes sense. TWX doesn't have a network, plus CBS could consolidate tv production and ownership of its programs. CNN would fit right in with CBS news.

 

FOX should look at Discovery. And Disney should even think about buying privately owned Hearst Media which in turns owns a minority stake in ESPS and A&E Networks. AMC Networks will see rating constrainsts now Mad Men & Breaking have ended, and should sell itself. Viacom has no logical merger candidate.

[Jurgis]

Perhaps we should have taken a hint when STRZA found no suitors last year. (Perhaps some of us did. I did not.)

 

I agree that this sector needs consolidation. It's just not clear whether consolidation will occur, at what prices and whether it will drive pricing power.

 

I hold some STRZA and DISCA (+ other Malone companies that are doing better than these thank you very much).

 

Edit: BTW, follow the money. Is Malone buying back STRZA and DISCA into Liberty fold? No? So perhaps the prices on content companies are not that cheap yet. (Although at some point he might jump in and gobble and then it's gonna be too late ;))

[valueyoda]

With all due respect, Starz content is far from must have, so very different dynamics from Discovery. Malone wouldn't mind swapping Disca for FOX paper e.g. at a decent premium, so that he can avoid capital gain taxes again.

[Jurgis]

With all due respect, Starz content is far from must have, so very different dynamics from Discovery.

 

Right. You don't have to apologize. I know this. It has been reflected in the price differential too (at least in the past, I have not compared today).

[valueyoda]

It is even possible that due to Sumner Redstone's control of both CBS and Viacom he might force Viacom to buy back CBS. Since MTV's, Nickelodeon and BET's ratings are dismal and not essential, he could force to them to be included in any skinny bundle that contains CBS, which is highly essential to any bundle as the premier network. CBS might be hesistant to do that deal, as it is stronger as a standalone company or prefers to merge with Time Warner. However, from a Sumner perspective, it could be a smart defensive move to preserve both control and retain value.

[rishig]

Which channels do you want to buy from Viacom? Their audience doesn't want to watch "unscripted" shows anymore...

 

May be this is just one data point - I have two young kids. Both watch Nick shows regurlarly - one Peppa pig and other Dora the Explorer. I didn't pick these, they did on their own. The audience for Viacom's main income generator - Nick - is not you and me, but young adult in ages 2 to 11. To say no one wants to watch Viacom's shows is a bit exaggerated.

 

A more valid point, in my opinion, is to a young adult is Dora from 2008 is the same as one from 2015. With the explosion of multi platforms (Youtube Kids, Netflix etc), the demand for newer content is not the same as it used to be.

 

Tomorrow is going to be interesting when VIAB reports.

[Phaceliacapital]

I agree but it is my understanding that age category 2 to 11 is not as important for advertising dollars as is the 18 - 49 category, where Viacom used to be popular with MTV.

[Spekulatius]

With all due respect, Starz content is far from must have, so very different dynamics from Discovery.

 

Right. You don't have to apologize. I know this. It has been reflected in the price differential too (at least in the past, I have not compared today).

 

The valuation  differential between STRZA and DISCA has shrunk quite a bit. I did purchase some more SNI and DISCK yesterday. The cord cutting trend as well as the reduction in TV viewing time is something to watch for. The risk is that these media properties are losing relevancy over time.

[valueyoda]

After peak newspapers, peak tv stations and peak radio stations, this could eventually mean peak cable networks. Cash flows can still be very robust after consolidation going forward. It would be interesting to short these consolidated tv station plays, such as Sinclair and Linn tv that would face incremental challenges in the years ahead after having taken on substantial debt to fund these purchases; same goes for the remaining newspaper companies and consolidated radio plays, aside from Sirius XM.

[Jurgis]

With all due respect, Starz content is far from must have, so very different dynamics from Discovery.

 

Right. You don't have to apologize. I know this. It has been reflected in the price differential too (at least in the past, I have not compared today).

 

The valuation  differential between STRZA and DISCA has shrunk quite a bit.

 

Yes, I looked at that and I plan to swap some/most of STRZA to DISCA.

[dwy000]

Down to $16bn market cap?  This is a company that should have $3bn in free cash flow this year.  I get the concerns about long term but the knee jerk reaction by the market is excessive. 

[Phaceliacapital]

VIACOM has the cheapest valuation, but also the biggest carrier risk. It makes sense for media companies to bundle less favorable channels with must-haves in skinny bundles. Therefore consolidation makes even more sense. A TWX/FOX merger is not going to happen anymore. I think that TWX would pull a TWX/CBS merger out of the hat to prevent that. Furthermore, a showtime/HBO bundle makes sense. TWX doesn't have a network, plus CBS could consolidate tv production and ownership of its programs. CNN would fit right in with CBS news.

 

FOX should look at Discovery. And Disney should even think about buying privately owned Hearst Media which in turns owns a minority stake in ESPS and A&E Networks. AMC Networks will see rating constrainsts now Mad Men & Breaking have ended, and should sell itself. Viacom has no logical merger candidate.

 

HBO/Showtime makes a lot of sense, but add Fox and TWX and you have the best sports bundle in the world (whether you decide to go over the top or not). I could live with Discovery, it blends in nice with Nat Geo, decreases some competition and allows the company to up the fees for Discovery as it is packaged under the Fox umbrella. I could not live with Viacom, that's going to be taken out at sucker levels (if Malone thinks there is value, why doesn't he buy it himself? Look at what he does, not what he says).

 

 

 

[rishig]

I could not live with Viacom, that's going to be taken out at sucker levels (if Malone thinks there is value, why doesn't he buy it himself? Look at what he does, not what he says).

 

Viacom majority controlling shares are with Redstone, who is 92. I don't think anyone can buy it, regardless of price, until Redstone dies and his family wants to give up control or he changes his mind.