Viacom's Cable Empire Faces Challenges as Split Imminent

Strategic Insights -

Viacom's decision to break its media conglomerate into two public companies has been met with skepticism by some Wall Street analysts, who fear that the company has waited too long to capitalize on its thriving cable unit. The cable business, which includes MTV, Nickelodeon, and VH1, has long been a profit engine for Viacom, posting double-digit sales increases and producing hits like "The Osbournes" and "Rugrats." However, analysts are predicting a slowdown in the coming years, citing changes in audience habits and the rise of digital video recorders.

Key Takeaways:

  • Viacom's cable division, which generated $6.5 billion in revenue last year, is expected to slow down due to changes in audience habits and the rise of digital video recorders.
  • Analysts at Sanford C. Bernstein project that sales at Viacom's cable division will rise at an annualized rate of 7 percent for the next five years, compared with roughly 17 percent for the past five.
  • Even at that rate, sales at the cable division are expected to rise roughly twice as fast as in the broadcast TV unit.
  • MTV, the core of the cable division, has dismissed suggestions of a slowdown, citing its strong connection to young people and the potential for growth in new platforms.
  • MTV has maintained its hot streak with innovative and inexpensive programming, reaching roughly 87 million households and sustaining high profit margins of around 57 percent.

Statistics:

  • Viacom's cable division generated $6.5 billion in revenue last year.
  • Analysts at Sanford C. Bernstein project that sales at Viacom's cable division will rise at an annualized rate of 7 percent for the next five years.
  • MTV reaches roughly 87 million households.
  • MTV earned cash flow of roughly $620 million last year on sales of $1.09 billion, a margin of roughly 57 percent.

Sources:

  • Michael Nathanson, a media analyst who tracks Viacom for Sanford C. Bernstein, stated that "it's a mathematical certainty that cable's going to slow down."
  • Sanford C. Bernstein's report projecting 7 percent annualized growth rate for Viacom's cable division.
  • Kagan Research in Monterey, California, estimated that MTV earned cash flow of roughly $620 million last year on sales of $1.09 billion.
  • EchoStar Communications, a satellite provider with whom Viacom reached an impasse in talks last year.