Nickelodeon Monkeying Around with Online Games, Stock Upside is Limited

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Symbols: CBS , DIS , NWS , TWX , VIA

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