Viacom Opting for Headcount Cut – Analyst Blog

Viacom Inc. (VIA.B) continues to struggle with its Filmed Entertainment businesses. Recently, management has decided to reduce headcount by 53 (2% of total workforce) in its Paramount Pictures division. The slumping U.S. movie box-office has taken a huge toll on Viacom. Paramount Pictures continues to face sales decline primarily due to a massive drop in DVD sales.

 

As a restructuring initiative, Licensing and consumer products will merge into the Motion Picture Promotions unit. The production and development of home entertainment and digital formats will remain under Paramount Digital Entertainment division, whereas the Paramount Pictures Worldwide Television Distribution will manage the distribution of movies on digital platforms.

 

In the last quarter, revenue from the Filmed Entertainment segment was down 10% year over year. This was primarily due to fewer films released by Paramount movie studio. In contrast, during the same quarter, NBC Universal studio, Warner Brother studio, and Disney studio significantly increased their respective revenues.

 

The future-generation consumer taste has shifted toward mobile PDA (Pocket Digital Assistance) and online videos. Significant growth of smartphones is a major challenge to DVDs since these devices offers high-speed movie download facility. Furthermore, in recent days, Netflix Inc. (NFLX), Apple TV of Apple Inc. (AAPL), and Google TV of Google Inc. (GOOG) are offering online services that will enable viewers to stream movies and TV shown over the Internet and watched on television screens.

 

An improving advertising market is in turn benefiting the media companies and Viacom is no exception. However, the company’s advertisement revenue growth was far below its closest competitors. In the last quarter, Viacom’s domestic advertisement revenue grew by a mere 4% compared with a massive 14% of Time Warner Inc. (TWX) and 11% of News Corp. (NWS).

 

Nevertheless, we believe an improving U.S. economy and strong rating for the cable TV channels will enable Viacom to maintain profitability in the long run. Strong rating for the flagship MTV network resulted in solid growth of affiliate fees. Increase in advertisement expenses by several enterprises will benefit the media companies in the near term including Viacom.

 

We maintain our long-term Neutral recommendation for Viacom. Currently it is a short-term Zacks #3 Rank (Hold) stock.