group members: ang li tim schmelzle tyson banbury ye (fred) tian xinglong (malone) ma
TRANSCRIPT
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Group Members:Ang Li
Tim Schmelzle Tyson BanburyYe (Fred) Tian
Xinglong (Malone) Ma
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Agenda• Summary• Industry Overview• Porter’s 5 Forces• Company Overview• SWOT Analysis• Competitors• Valuation• Recommendation
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SummaryGoal: To be the world’s leading branded entertainment
company across television, motion pictures, and digital media platforms.
• Two main segments• Media Networks• Filmed Entertainment
• Ticker: VIA – Class A, Voting shares ($27.4 billion) VIA.B – Class B, Non-voting shares ($23.7 billion)
• Targets wide range of age demographics including kids, tweens, teens and adults
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Industry OverviewUnited States media industry value: $ billion, 2006–10
CAGR=0.9%
Source: Datamonitor http://library.marketlineinfo.com/library/DisplayContent.aspx?Ntt=media&Ntx=mode%2bmatchall&D=media&No=25&Nty=1&N=210&Ntk=All
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Industry OverviewUnited States media industry segmentation in 2010
Source: Datamonitor http://library.marketlineinfo.com/library/DisplayContent.aspx?Ntt=movie&Ntx=mode%2bmatchall&Nty=1&D=movie&Ntk=All&Ns=
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Porter’s Five Forces Broadcasting & Cable TV
Supplier Power —— Medium• Production companies form a major supplier • Typically depends upon the quality of content
Barriers to Entry —— High• Big players are able to maintain high levels of capital expenditure in purchasing rights to the most popular content• Difficult for new entrants to secure the rights to popular programs• New entrants also have to ensure that they comply with regulations as
monitored by the Federal Communications Commission (FCC)
Threat of Substitute —— Medium High• A significant increase in popularity of other entertainment • A rise of downloading programs through the internet, both legally and
illegally• TV is still the most effective form of advertising
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Porter’s Five ForcesBroadcasting & Cable TV
Bargaining Power of Buyers —— Medium High• Sensitive to the increasing concentration and dominance of cable and
satellite program distributors• Distributors are demanding higher-quality program productions in the
HD digital format, to satisfy subscribers' unique interests
Industry Rivalry —— Very High• Rivalry is strong between broadcasters to purchase the broadcasting
rights for the most popular programs, events and sporting events• Players within the market are typically large, owning multiple television
channels so that they have a high level of assets, with high fixed costs and exit costs• Rivalry is greater between players broadcasting shows and events of
similar genres
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Porter’s Five Forces Movies & Entertainment
Supplier Power —— Medium Low• Supplies required by film production companies include: scripts, costumes, make-up, props, sets, cameras, film stock, lighting, and stunt and action equipment. • Revenue highly rely on movie industry
Barriers to Entry —— Medium High• Diversity of audiences provides chances for both big and smaller players• Fixed costs do not have to be high as independent films can be made on
a low budget, giving a successful independent film a high profit-to- cost ratio, while a failure would incur minimal losses• Current market situation does not offer an attractive prospect
Threat of Substitute —— Medium• Illegal downloading through the internet and video piracy• Cinema experience is still attractive
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Porter’s Five Forces Movies & Entertainment
Bargaining Power of Buyers —— Low• Large number of potential customers
Industry Rivalry —— Medium• There are a number of large market players, movie production companies and independent companies• The wide range and diversity of audience tastes allows films scope for
significant differentiation in terms of genre and content
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Company Overview – Business Strategy• Expanding brand through creation of programming,
channels, motion pictures, and other entertainments• Invest in programming content that will grow ratings
across networks• Strengthen relationships with advertising, cable,
satellite, online, mobile and licensing partners• Develop new ways of reaching audiences• Maintain cost-savings while executing key ‘tentpole’
films supplemented by other smaller productions and acquisitions
• Build international presence through both Media Networks and Filmed Entertainment businesses
Viacom 2010 10-K, pg.2
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Company Overview - History1971: Viacom spun off from CBS, establishing itself as a public company1985: Acquired 66% of MTV Networks1987: National Amusements Inc. acquires 83% of Viacom1991: Acquired controlling interests of MTV Europe1994: $9.9 billion merger with Paramount Communications Inc.1999: Viacom starts trading on NYSE (VIA, VIA.B)2000: Viacom merges with CBS2001: Acquired BET Holdings II Inc.2005: Viacom (new) spun off, remaining company (old Viacom) changes
name to CBS Corporation2006: Acquired several interactive platforms2010: Announced regular quarterly cash dividend and recommences stock
repurchase program
Viacom Website, History http://www.viacom.com/aboutviacom/Pages/history.aspx
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Company Overview – Business SegmentsMedia Networks• MTV Networks
• Approximately 160 Networks worldwide including: MTV, VH1, Nickelodeon, Comedy Central, CMT, Spike TV, Logo, and TV Land
• Digital Assets that provide interactive entertainment such as videogames and virtual pets include: Neopets, Atom, and Harmonix
• BET Networks• Provides content focused on Black media and entertainment to
over 100 million homes including BET, Centric, and BET.com
Filmed Entertainment• Paramount Pictures Corporation – brands include Paramount Pictures,
Paramount Vintage, MTV Films, Nickelodeon Movies and Paramount Home Entertainment
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Company Overview – Segment RevenuesMedia Networks• Advertising Revenues – Sale of advertising time on program services
and digital properties• Key factors: number of subscribers, viewer demographics, program
ratings by third party researchers• Revenues fluctuate seasonally, generally highest in Q4 calendar
year• Affiliate Fees – Affiliates pay Viacom for the use of their content
• Contracts with affiliate distributors are typically multi-year with staggered end dates, providing a more stable source of income
• Ancillary Revenues – Revenues derived from content licensing and sales of home entertainment products (DVD’s, Video-On-Demand, etc.)
Data from 2010 10-K, pg. 3
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Company Overview – Segment RevenuesFilmed Entertainment• Theatrical – Release approximately 14-16 films per year domestically
• Volatile revenues due to incurring larges costs prior to recouping revenues to cover expenses
• Revenues are cyclical, rising during summer months• Films often use third party financing
• Home Entertainment – Sale of DVD’s and Blue-ray discs for films distributed by Paramount, other Viacom brands, and third
parties• Licensing – Films owned or distributed by Paramount are licensed to
video on demand, basic cable, and TV syndicates
Data from 2010 10-K, pg. 11
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Company Overview – Recent NewsFiscal Year - Change of fiscal year end from December 31 to September 30
• Better aligns financial reporting and budget planning with business cycle (cable broadcast year)
• Compare pro forma 9-month statements
Sale of Harmonix – Board authorizes management to proceed with sale of Harmonix, developer of music-based games (Rock Band)• $299 million write-down in Q3 20101
• Originally purchased in 2006 for $175 million plus payouts based on 2007 and 2008 performance1
EPIX-Netflix Deal – EPIX, a joint venture between Viacom, MGM, and Lionsgate that offers films to subscribers, enters a multi-year deal with Netflix to license its content to Netflix
1 http://paidcontent.org/article/419-viacom-selling-rock-band-maker-harmonix-profits-fall-on-writedowns/
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Controlling Interest• Executive Chairman Sumner Redstone controls National Amusements, Inc. (NAI)
which has voting control of VIA• In 2008 and 2009, NAI converted a portion of Class A shares to Class B shares
which it then sold to meet requirements under its restructuring indebtedness• NAI does not currently have plans to continue converting and selling VIA stock;
however, this does not guarantee this will not reoccur• Also as part of this restructuring, NAI has collateralized all of its Class A VIA
shares• This creates the potential creditors to foreclose on the collateral in the event of
a default by NAI, converting Class A stock to Class B stock and subsequently selling the Class B shares, driving down the stock price
Source: Bloomberg
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Company Overview – Recent Performance
Yahoo Finance: http://finance.yahoo.com/echarts?s=VIA-B+Interactive#chart9:symbol=via-b;range=1y;compare=^gspc;indicator=sma(20,200)+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
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Management• Viacom is overhauling its business structure
Viacom: http://www.bsu.edu/web/tsstewart2/profile.html
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Fading Management
• Primary shareholder and Executive Chairman
• A lifetime of experience / education
• Considered a visionary and enigmatic
• Lifelong philosophy is that content, not distribution medium is the key to success.
• Controlling stock interest is in an irrevocable trust with his grandchildren being the beneficiaries.
Sumner M. Redstone (87)
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New Management
• Friend and Legal advisor to Redstone
• Been with Viacom since 1993
• Yale undergraduate and Columbia Law graduate
• Scored a perfect 1600 on SATs at the age of 13
• Significant legal and financial experience, but little experience in managing entertainment
Phillippe Dauman, Viacom CEO since 2006
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SWOT• Strength:
Scale and scope of businessStrong brand name & copyrights
• Weakness:The size of the conglomerateDeclining profitability
• Opportunities:Have a more effectively constructed management teamDevelop a worldwide strategyThe outlook for broadcasting market is very lucrative
• Threats:Audience Acceptance Global Economic Conditions Competitive IndustriesTheft of Our Entertainment Content
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Major Players
• Disney• Time Warner Cable• News Corp• CBS• Time Warner Inc
Market Share by Rev. (Millions)
$38,063$17,868$32,778$13,200$26,505
Viacom $13,770
Competitors:
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Revenue StreamsViacom Disney
Time Warner Cable
News Corp.
CBS Corporation
Time Warner Inc.
Various Media Networks:
8,288.0
17,162.0
17,868.0 15,068.0 10,683.6
11,703.0
Filmed Entertainment:
5,482.0
6,701.0 7,631.0
11,066.0
Parks and Resorts: 10,761.0
Consumer Products: 2,678.0
Interactive Media: 761.0
Publishing: 8,548.0 793.5
3,736.0
Other: 1,531.0
Outdoor: 1,722.6
Total: 13,770.0
38,063.0
17,868.0
32,778.0
13,199.7
26,505.0
Dollar figures are in Millions
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60% of Viacom’s Revenue Media Networks
Assets 16,189.0 N/A 43,694.0 21,214.0 11,326.6 36,143.0
Revenue 8,288.0 17,162.0 17,868.0 15,068.0 10,683.6 11,703.0
Profit 2,934.0 5,825.0 1,1912.0 2,718.0 649.8 3,545.0
Dollar figures are in Millions
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40% of Viacom’s Revenue Filmed Entertainment
Assets 5,549.0 N/A 0 7,122.0 0 17,060.0
Revenue 5,482.0 17,162.0 0 7,631.0 0 11,066.0
Profit 219.0 N/A 0 1,349.0 0 1,084.0
Dollar figures are in Millions
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Valuation
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Valuation
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Valuation
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Valuation
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Recommendation
DCF Model Price $36.32+/- 10% $32.69 - $39.95
Sensitivity Analysis Price Range$33.32 - $40.98
Price as of December 1, 2010$39.22
RecommendationNot Recommended for
Purchase and Watchlist