Viacom (
VIA
) competes with Time Warner (
TWX
), News Corp (
NWS
), CBS (
CBS
) and Disney (
DIS
) in the media and entertainment business.
Our price estimate for Viacom's stock stands at
$58.36
, about a 10% premium to market price.
Viacom recently announced that it will be entering MMO game
space (massively multi-player online games) with its upcoming
launch of Monkey Quest. How does this fit into Viacom's
strategy?
Building Upon the Nickelodeon Brand
The upcoming launch of Monkey Quest is an initiative from
Viacom's Nickelodeon brand and geared towards kids in the 8-12 age
range. Nickelodeon is the highest rated kid's channel in the United
States, offering immensely popular animation series like Spongebob
and Dora the Explorer.
We estimate that
Nickelodeon constitutes nearly 16% of Viacom's stock
value
. The channel has close to 98% penetration of U.S. households,
highlighting its brand strength and popularity. Given its reach, it
makes sense for Viacom to further monetize the brand through the
recent MMO offering. Media companies typically look for additional
revenue streams by offering derivative consumer products that
relate in some form to their popular shows, movies, and
characters.
Online multi-player games have attracted millions of players,
with still-growing popularity, and Viacom is looking to capitalize
on this trend with its own product. And it's not just the free
games. Even games that require monthly subscriptions have seen
remarkable success. One such example is World Of Warcraft, which
charges as much as $14.99 per month to its users and has attracted
roughly 12 million subscribers, generating total revenue of close
to $2 billion annually for Activision Blizzard.
Value Impact Potential is Low
Although Monkey Quest will be available for free, players can
pay for additional content and features. Since the game is yet to
be launched, it remains uncertain as to how many paying users it
can attract. Nevertheless, if we assume that it attracts 1 million
paying users, it would result in annual revenues of over $100
million (given premium subscription pricing of $9.95 per
month).
See our full analysis and $58.36 price estimate
for Viacom
How big this is for Viacom? We account for revenues from
complimentary businesses under the "TV Show DVDs, Video Games &
Other" division, which constitutes just 7% of our
$58.36 price estimate for Viacom stock
. An additional $100 million in revenues has only a slight impact
on Viacom (note that, for the purpose of this analysis, we're
assuming subscription revenues are the only revenue stream from
Monkey Quest). You can gauge this effect by modifying the trend
line in the interactive chart above.