Viacom Overview

Viacom

What is Viacom Inc.?

Viacom, Inc. is a global entertainment content company, which connects with audiences through compelling television programs, motion pictures, short-form video, applications, games, brands for consumer products, social media and other entertainment content. The company operates business through two segments: Media Networks and Filmed Entertainment. The Media Networks segment provides entertainment content and related branded products for consumers in targeted demographics attractive to advertisers, content distributors and retailers. It creates, acquires and distributes programming and other content to its audiences across multiple platforms. The Media Networks segment produces, finances, acquires and distributes motion pictures, television programming and other entertainment content under the Paramount Pictures, Paramount Vantage, Paramount Classics, Insurge Pictures, MTV Films, Nickelodeon Movies and Paramount Television brands.

Viacom

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Viacom Management Has Under Performed for Years With No Accountability

The Viacom Board Is Too Large, Too Cozy, and Too Overpaid For Under Performance

  • Viacom’s Board of 11 is Among the Largest in the Media Sector
  • Deborah Norville – host of CBS-produced Inside Edition – is Classified by Viacom as an Independent Director
  • We Believe that Almost 75% of the Board Should be Classified as Not Independent
  • Outside Directors are Among the Highest Paid in the Media Sector, Perhaps Explaining their Generosity Towards Viacom’s CEO and COO

Sumner Redstone is an Absent Chair. It’s No Way To Run a Board

  • Part of the Explanation for the Stock’s Chronic Under Performance, in our Opinion, Relative to its Peers is Lack of Clarity Around the Succession Plans for Sumner Redstone
  • Redstone’s Recent Absence From Earnings Calls and Shareholder meetings Only Exacerbate the Discount to the Stock.
  • A New Chair May Help Remove the Heavy Discount Attached to the Stock

The CEO & COO Are Far Too Richly Compensated Given Their Lagging Five- Year Performance

  • In the Last 5 Years, Viacom Shareholders Have Paid CEO Philippe Dauman and COO Thomas Dooley a combined $432 million in compensation, Far Ahead of Any Other Media Company
  • Yet, Viacom’s Stock Performance has Been Nearly the Worst Among its Media Peers Over That Same Period

Wholesale Leadership Change Is Needed Now To Change Non-Creative Culture

  • Viacom Needs a New Chair, CEO, COO, and Board
  • The company’s Bloated Cost Structure Lags Behind Peers
  • We Believe That a new Board and Management Team Can Put an End to Viacom’s Disappointing Performance Compared to its Peers

Missing The Shift To Digital & Creatively Bankrupt Culture

Viacom Sped Its Destruction When CEO Dauman Heavily Licensed Content to Netflix In 2011

  • Netflix Didn’t Just Come Along and Disrupt Viacom; Viacom Helped Make Netflix as Powerful as it is
  • In 2011, Dauman Heavily Licensed Viacom Content to Netflix to Boost Revenues
  • In Doing so, he Heavily Trained a Generation of Nick Viewers to go to Netflix for Dora Instead of Nick

Dauman Sued YouTube Instead of Using YouTube to Promote Viacom

  • In 2010, Dauman Decided to Sue YouTube for Copyright Infringement
  • Since then, Viacom Brands Miss Out on the Opportunity to Promote Themselves on YouTube Compared to Their Competitors

Viacom Has Been Asleep At The Switch In The Shift To Digital

  • Unlike its Peers, Viacom has Made no Investments in Digital Companies or M&A
  • Viacom Actually Owned half of Vice Media in 2006 but Decided to Sell it Back to Vice for $3m in 2007; Fox, Disney & Hearst are Now all Major Investors in Vice
  • While Most of their Peers Have Strong Over The Top (OTT) Offerings, Viacom Only has Noggin for Pre-Schoolers at $5.99 a Month

Viacom Isn’t Going Through A Creative Lull; It’s Creatively Bankrupt

  • We Believe Its Most Creative Executives Have Quit
  • Its Most Successful Shows Were all Developed Before Dauman Assumed the CEO Role in 2006
  • The Viacom Culture Today is: Keep Your High-paying Job With Fancy Perks

Viacom Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis

Strengths:

  • Big Cable Networks in The U.S.
  • Locked in, High Margin Cash Flows for Next Few Years Despite Recent Market Concerns Over Future of Big Media
  • Paramount still a major studio
  • Strong International Assets
  • Lowest of Peers Trough Multiple – Ability to Move Up Considerably Relative to Peers on Good Events

Weaknesses

  • Controlling Shareholder
  • Perceived poor Management
  • Missed Move To Digital
  • MTV & Nick Hurt by SVOD Growth Disproportionately
  • Had No TV Production Company post-split – Had to Build from Scratch
  • Smaller Size of Paramount to Peers
  • Over-Levered To Buyback of Shares earlier at Inflated Prices

Opportunities

  • Change in Management and Board
  • International Growth
  • Renewal of Carriage Deals
  • Clarity on Controlling Shareholder
  • Digital Growth/Investment
  • Merger With an AMC to Help Strengthen Creativity and Management Talent
  • Alibaba Pictures or Amazon Investment in Paramount
  • Hit New Shows Can Have Dramatic Impact

Threats

  • Continued Advertising Decline To Media Sector and Nick/ MTV/CC Specifically
  • No Renewal with DISH
  • Ratings Declines
  • General Economic Slowdown
  • Not Possible To Buy Back Many Shares Without Threatening Credit Rating

Yet Viacom Has Meaningful Upside

  • It is Our Belief There is a “Poor Governance” Discount Applied to this Company Relative to its Peers Due to Sumner Redstone’s Being an absent Chair and a perception of ensconced inferior management
  • We Believe Simply Removing the Overhang of the Absent Chair and Bringing in Improved Management Could Result in a Meaningful Re-rate of the Stock
  • There are still Considerable Operating Expenses Which Should be Cut to Bring Viacom Into Line With its Peers
  • The Viacom Platform Could Achieve Meaningfully More Ad and Affiliate Fee Revenue With More Hits Stemming From a Creative Culture Not Occurring Now
  • The Company Has Made Minimal Inroads Into OTT and Other Digital Platforms
  • It has Made Virtually no Digital Investments or Acquisitions
  • We Strongly Support Mario Gabelli’s Recent Public Comments Urging Company to Unlock Value

We Believe That Viacom is Significantly Undervalued Relative to its Peers and Assets and Can Deliver Material Returns Over The Long-term For its Shareholders With Changes Made to its Leadership and Board of Directors

See full slides below.

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