Viacom (VIA, VIAB) recently stated during an investor conference that in the past few weeks, its flagship channels Nickelodeon and MTV have registered ratings growth compared to the same period last year.  This is a positive news as both networks have been battered in 2012 due to decline in programming appeal, competition from other channels and Viacom’s dispute with DirecTV (NASDAQ:DTV) that resulted in a channel blackout. To address this, the company has invested in bringing more original programming on the table than before and that seems to be working so far. While Teenage Mutant Ninja Turtles has helped Nickelodeon, Catfish seems to be doing well for Viacom. (Viacom CEO Touts Recent Nickelodeon, MTV Ratings Gains, The Hollywood Reporter)
We estimate that the Nickelodeon’s U.S. operations constitute close to 13% of Viacom’s value. This is based on our estimate that Nickelodeon earns close to $1.4 billion in revenues in the U.S. with EBITDA margins of around 43%. Combining that with other networks such as Teen Nick, Nick Jr., and Nickelodeon in international markets, the value contribution could reach as high as 25% to 30%. Similarly, while MTV’s U.S. operations constitute roughly 8% to Viacom’s value, the percentage contribution could reach as high as 15-20% if we included related networks and global operations.
While MTV reaches close to 600 million subscribers globally across 150 countries, Nickelodeon is present across 330 million households in 110 countries. Clearly, these two networks are of utmost importance to Viacom. The worst may be over as improved programming and growth in ad pricing could lead to ad revenue growth next year.
Additionally, the advertising environment in Europe continues to be weak, but there is opportunity to expand in emerging markets. In the calendar year 2009, about 10% of Viacom’s revenues came from international markets, excluding Europe and the U.S. This figure rose to 12% in the fiscal year 2011.  There is a growing appetite for pay-TV services in the emerging markets of Asia and Latin America, and Viacom will look to leverage this growth.
Our price estimate for Viacom stands at $68, implying a premium of more than 30% to the market price.
- Viacom CEO Touts Recent Nickelodeon, MTV Ratings Gains, The Hollywood Reporter
- Viacom’s SEC Filings
Disclosure: No positions