Viacom's Home Entertainment Struggles May Be Temporary

By
A A A

Viacom ( VIA ), which competes with studios owned by media conglomerates like Time Warner ( TWX ) and News Corp ( NWS ), suffered significant declines in its home entertainment revenues during the 9 month period ended Sept 30 2010. The disappointment stems from its primary home entertainment product - DVDs that the company sells under the Paramount Pictures brand.

There is hope, however, as the decline may not be indicative of an overbearing long-term trend. The issue actually appears to have developed from a slowdown in Viacom's DVD releases.

We maintain a price estimate of $52.26 for Viacom stock , which is about 10% above market price. We estimate that Viacom generates 5% of its stock value from DVDs and film licensing.

DVD Revenue Declines Primarily Due to Market Share Loss

While the DVD market has witnessed a general softness due to the emergence of alternative online distribution platforms, Viacom's revenue declines are primarily a function of losses in its DVD market share. The company released significantly fewer titles during the first nine months of 2010 vs. the same period in 2009, and fewer options available to consumers from the studio has resulted in weaker sales numbers for Viacom. Despite the fact that Viacom released 9 films in the box office, it only released 5 titles for home entertainment. Accordingly, we now expect the company to record significant DVD share declines for both domestic and international markets in its 2010 earnings report.

However we anticipate this trend to reverse in 2011, as an increase in DVD releases triggers market share recovery. Viacom will likely look to cash in on the expected success of upcoming Paramount Pictures films like Kung Fu Panda 2, and should benefit from a weak comparison base in 2010.

Viacom Revenues Can Also Get a Lift from Additional Content Licensing Deals

Viacom may also look to reap additional profits by increased licensing to alternative distribution platforms like Netflix ( NFLX ), with which the company's joint venture Epix has already signed a $1 billion deal. Viacom might look to supplement its licensing revenues with similar deals going forward, independent of any continued slowdown or pickup in the DVD market.

Whether DVD market softness continues or not, Viacom might be willing to boost its licensing revenues with more such deals. We currently project a slight increase in Viacom's film licensing revenues in the years ahead, permitting the possibility of upside to our base forecasts.

What do you forecast for Viacom's DVD and licensing revenue outlook in the years ahead? Let us know your thoughts by providing feedback in the comment box below. You can drag the trend lines in the modifiable charts above to see how your projections for DVD market share or licensing revenues might impact Viacom's stock value.

Register to win a free iPad. Visit our home page at trefis.com for details.

You can see the complete $52.26 Trefis price estimate for Viacom's stock here.

‎@raikul - tp kar rahe hai dost, ab itni thand main Kya aur karen
@ janak - why do say so ?
@ maalik - specify karne ki Kya jarorat hai ki kiske saath Gaye the :P ….. vaise tumhara band baaja kab baj raha hai :D ?



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



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: NFLX , NWS , TWX , VIA

Trefis

Trefis

More from Trefis:

Related Videos

Stocks

Referenced

Most Active by Volume

56,834,794
    $15.52 unch
47,736,761
  • $94.72 ▲ 0.83%
41,992,984
  • $2.47 ▲ 11.76%
40,893,734
  • $34.7901 ▲ 2.14%
39,324,803
  • $69.27 ▼ 0.19%
39,276,613
  • $7.28 ▲ 2.68%
39,084,483
  • $44.83 ▼ 0.01%
33,527,212
  • $26.02 ▲ 0.15%
As of 7/22/2014, 04:03 PM