Media

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Better late than never.

Viacom Inc. is finally narrowing its focus to six main channels: MTV, Nickelodeon, Nick Jr., BET, Comedy Central and Paramount. That last one is new as the company is converting its male-focused Spike TV -- a channel that suffered a 13 percent ratings drop last year -- into the Paramount Network in early 2018. It sounds like an attempt at Viacom's own version of HBO with a promise of high-end scripted shows and content from its Paramount Pictures movie studio, as well as third parties. The cable networks and Paramount will also have a more symbiotic relationship as a result of the restructuring, producing movies based on TV shows.

Seeking Stability
Viacom's profitability has fluctuated more than its peers. Here are quarterly Ebitda margins:
Source: Bloomberg

Yesterday I joked that Viacom isn't interesting yet. And while it is still too early to know whether CEO Bob Bakish's new strategy can restore the beleaguered company, his ideas are spot-on. In fact, he could probably take them further by selling or shutting down some of the smaller cable networks that aren't carrying their weight. Lesser-known channels include TeenNick, TV Land and Logo. Even ratings at BET, one of the six flagship brands, plummeted 27 percent last year among ages 18 to 49. Meanwhile, Nickelodeon and Nick Jr. have been the recent bright spots.

Stay Tuned
Viacom began showing modest progress in December and January under new CEO Bob Bakish, following a rough 2016 for just about all its networks:
Source: Nielsen, Bloomberg Intelligence

Bakish, who was promoted to CEO in November after running the international media networks division, has been a breath of fresh air for the company and investors. He brings an enthusiasm that was lost under his predecessor Philippe Dauman, who along with the Redstone family, allowed Viacom to become the industry's punchline. (And to think Dauman wanted to get rid of Paramount Pictures, around which Bakish is now concentrating his turnaround efforts...)

The company should have had a hold on younger audiences with MTV and VH1, but years of missteps went uncorrected. Even its recent decision to air "Friends" re-runs on MTV in the 6 p.m. to 8 p.m. block seemed questionable since a chunk of its audience were toddlers when the series' final episode aired in 2004. Nonetheless, the show has provided a much-needed boost to MTV, so the experimentation is showing signs of progress.

Digging Out
Viacom was dragged down by weak ad sales and affiliate fees, operating losses and ratings declines. But it's slowly staging a recovery and is the top-performer in its peer group this year:
Source: Bloomberg

To see Bakish in action underscores how Viacom could have saved investors a year of headaches by pushing out Dauman sooner and not allowing the corporate infighting between him and Shari Redstone to dominate headlines throughout much of 2016. Time was wasted and executives were needlessly distracted.

I.O.U.
Viacom's net debt of almost $12 billion is more than four times its Ebitda, making it the most leveraged company in its peer group:
Source: Bloomberg
*Discovery and CBS haven't reported last quarters' figures yet.

While Redstone's original plan to recombine CBS Corp. and Viacom made sense, with Bakish at the helm it's clearer now why they switched gears and opted for Viacom to plot its own path. (Plus, CBS CEO Les Moonves would rather not be bothered with Viacom's struggling networks, especially if that were to stand in the way of a megamerger involving CBS and, say, Apple Inc.?) 

Viacom has a long way to go. Even with Thursday's gains the stock is down 50 percent from a closing high almost three years ago, and more than $20 billion of shareholder value was destroyed in that span. With fresh blood and an intriguing remix, the worst is probably behind it. Still -- and this may sound like a broken record to frustrated investors -- just a little more patience is needed as these changes are implemented. 

--Rani Molla assisted with graphics.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net