Viacom's (NYSE: VIA, VIAB) stock is down significantly from its 52-week high. The company has had issues with leadership, especially with Sumner Redstone and CEO Philippe Dauman. While a reality show centering on that whole affair would probably generate some economic value for the company's media platforms, chances are it won't be receiving the green light; instead, other solutions are being proffered to revive Viacom's shares, including a desire by Dauman to sell a minority stake in the Paramount Pictures studio.
Paramount could certainly use more hits, but it had a successful opening with its latest multiplex feature 10 Cloverfield Lane. According to Box Office Mojo, the movie grossed $24.7 million in its opening weekend, which placed it second to Disney's (NYSE: DIS) Zootopia cartoon. Had that film not been in the marketplace, it's entirely conceivable, perhaps even probable, that Lane would have taken in more box office dollars.
For the second weekend, Lane grossed over $12 million, bringing its total gross to about $45 million. Not bad for the type of movie it is (read: relatively inexpensive horror feature).
The company's movie studio, while not in the same league as Disney's own film/TV operations, actually isn't in the worst of shape, but it has been struggling with tough comparisons with previous slates. Viacom as a whole is coping with a lot of debt. When you consider that it has over $12 billion in debt and that last year, according to the most recent annual earnings release, the company generated about $13.3 billion of top line revenue, a number that represents a slight decrease over the previous fiscal year's sales figure, and adjusted continuing operations income of $2.2 billion (also slightly down), you begin to wonder how management views the future. This is why, in part, the CEO is considering some sort of transaction.
Which brings me back to Lane. The film was produced by J.J. Abrams, a Spielberg of his day. Abrams' Bad Robot shingle enjoys putting out mainstream product that has some mystery attached to it. In defiance of normal marketing protocols, Abrams announced the existence of Lane and its odd pseudo-connection to the Cloverfield back in January of this year - not a long time to hype the film, but it didn't matter; why should it, when you can just slap "Cloverfield" on it and call it a day. That isn't an exercise in sarcasm; it's actually a straight expression of admiration. The movie is reported to have cost $15 million, according to Variety, and it probably doesn't need too expensive, or too long, of a marketing campaign to sell it.
Paramount would be wise to try for a moment to step outside of the usual Hollywood mentality and think like a disruptive, smaller player. It should certainly remember to make bets on its franchises - make more Transformers, Mission: Impossible, Star Trek blockbusters - but it should also place Lane under intense scrutiny and thoroughly reverse-engineer how its use of social media and mystery created value for the concept in a short period of time.
Paramount attempted an interesting experiment back in the fall with its latest Paranormal Activity entry in which it created a scheme to place the film in digital distribution on a sooner-than-normal schedule. The studio was right to try something different. It should continue to test new ways of marketing and creating concepts so that it can get Viacom back in media-fighting shape. While TV series are important in this new golden age of episodic programming, movies are still a big driver of pop-culture consumerism.
Going back to the idea of the minority stake, here's an honest question: Who would want to step up and buy a bit of Paramount? There obviously are some entities that would be willing to do so, but it would be odd to justify any reasoning for doing so; consider that the minority stake wouldn't really allow much control for the buyer - if that is the case, then it would be strange for something like a private equity fund to place its trust in a CEO who is arguably not doing a solid job for Viacom shareholders.
Hollywood, though, is attractive, even if the returns generated oftentimes come with a lot of risk from the hit-or-miss nature of content generation. If Dauman keeps promoting Paramount, he may indeed get the value he wants.
If he doesn't, though, there is always the Lane strategy to employ. Sometimes doubling down on innovative thinking is even better than chasing after transactions. Those who enjoy rolling the dice from time to time could take a look at the stock based on its decline and the idea that, once all the leadership/Paramount issues are sorted out, it will start to rise again. It would be beneficial, though, for the current CEO to perhaps come up with some better strategies for lowering the costs of making and marketing movies; that aspect of entertainment shouldn't always be a horror flick.
Disclosure: I am/we are long DIS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.