Viacom Sinks as MTV Owner Sees More Subscriber Losses AheadBy
Shares drop most since Feb. 2016 as investors look past profit
Subscriber losses make CEO’s turnaround attempt more difficult
Viacom Inc. said subscribers to its cable-TV networks will drop by about 3 percent this quarter, another hurdle for the owner of MTV and Nickelodeon.
Shares dropped as much as 11 percent, the most in 18 months, in New York as investors took little solace despite quarterly sales and profit that beat analysts’ estimates. The potential exit of a movie-financing partner in China also weighed on the stock.
The subscriber losses add to the tasks facing Chief Executive Officer Bob Bakish as he attempts to turn around Viacom, the beleaguered media company just emerging from a fight for control and a period of executive turnover. TV networks MTV, Comedy Central and BET have been losing viewers, and the Paramount Pictures film division has been losing money.
In the U.S., payments from cable and satellite providers, known as affiliate fees, will decline this quarter, Chief Financial Officer Wade Davis said on a conference call. Domestic advertising revenue will drop, as it did last quarter, because the company is reducing the airtime devoted to commercials to keep viewers from changing the channel, Davis said.
“With both affiliate and advertising negative, and content costs increasing, that can only mean one direction for the earnings contribution from domestic networks (down),” Sanford C. Bernstein & Co. analysts Todd Juenger and George Zhao said in a note to clients. They rate the stock underperform.
Viacom is already suffering declines in U.S. advertising sales, and fighting with one of its biggest partners, Charter Communications Inc., over channels being relegated to less popular tiers.
While the rate of subscriber losses in the current period would be better than last quarter’s 3.5 percent decline, according to Viacom, the figures reflect the difficulties ahead for the company, which makes almost 80 percent of its sales from its TV networks. Ratings have suffered as young viewers watch more and more video online.
Viacom posted its highest quarterly revenue in almost two years, boosted by the acquisition of an Argentine TV network and the improved performance of Paramount. A 2 percent gain in global advertising sales and higher fees charged to cable and satellite providers also contributed to the growth.
Fiscal third-quarter sales jumped 8.3 percent from a year earlier to $3.36 billion, compared with the $3.3 billion average of analysts’ estimates. Paramount posted its first profit since the final quarter of 2015, and boosted sales thanks to “Transformers: The Last Knight,” the fifth film in the franchise.
Telefe, the Argentine television network Viacom agreed to acquire late last year, helped increase international revenue 13 percent, leaving out currency fluctuations.
Third-quarter earnings rose to $1.17 a share, compared with the $1.05 average estimate of analysts. Net income was hurt by $59 million in charges for Paramount, including severance for former Paramount chief Brad Grey, who died in May shortly after his exit from the company. A $285 million boost from the sale of a stake in the Epix TV network to MGM Holdings Inc. added to net income.
Thanks to audiences in China, “The Last Knight” was a win for the studio even though the movie was the lowest-grossing of any “Transformers” film, with $570 million worldwide. But a financing deal with Huahua Media, a Chinese investor, has been delayed, Bakish said on the call.
The agreement with Huahua remains in place, he said. “They’ve been a fantastic operating partner in China. They’ve really moved the needle for us on a number of the pictures that have been highly successful in China,” he said. “Everything’s on track.”
But the delayed payment, combined with subscriber losses and intensifying competition with Netflix and other online services, means “the clock is ticking fast” on Bakish’s turnaround plan, said Omar Sheikh, an analyst at Credit Suisse, in a note.
— With assistance by Reade Pickert