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Agenda Summary Industry Overview Porter’s 5 Forces Company Overview

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Presentation on theme: "Agenda Summary Industry Overview Porter’s 5 Forces Company Overview"— Presentation transcript:

1 Group Members: Ang Li Tim Schmelzle Tyson Banbury Ye (Fred) Tian Xinglong (Malone) Ma

2 Agenda Summary Industry Overview Porter’s 5 Forces Company Overview
SWOT Analysis Competitors Valuation Recommendation

3 Summary Goal: To be the world’s leading branded entertainment company across television, motion pictures, and digital media platforms. Two main segments Media Networks Filmed Entertainment Ticker: VIA – Class A, Voting shares ($27.4 billion) VIA.B – Class B, Non-voting shares ($23.7 billion) Targets wide range of age demographics including kids, tweens, teens and adults

4 Industry Overview CAGR=0.9%
United States media industry value: $ billion, 2006–10 CAGR=0.9% Source: Datamonitor Ntt=media&Ntx=mode%2bmatchall&D=media&No=25&Nty=1&N=210&Ntk=All

5 Industry Overview United States media industry segmentation in 2010
Source: Datamonitor Ntt=movie&Ntx=mode%2bmatchall&Nty=1&D=movie&Ntk=All&Ns=

6 Porter’s Five Forces Broadcasting & Cable TV
Supplier Power —— Medium Production companies form a major supplier Typically depends upon the quality of content Barriers to Entry —— High Big players are able to maintain high levels of capital expenditure in purchasing rights to the most popular content Difficult for new entrants to secure the rights to popular programs New entrants also have to ensure that they comply with regulations as monitored by the Federal Communications Commission (FCC) Threat of Substitute —— Medium High A significant increase in popularity of other entertainment A rise of downloading programs through the internet, both legally and illegally TV is still the most effective form of advertising

7 Porter’s Five Forces Broadcasting & Cable TV
Bargaining Power of Buyers —— Medium High Sensitive to the increasing concentration and dominance of cable and satellite program distributors Distributors are demanding higher-quality program productions in the HD digital format, to satisfy subscribers' unique interests Industry Rivalry —— Very High Rivalry is strong between broadcasters to purchase the broadcasting rights for the most popular programs, events and sporting events Players within the market are typically large, owning multiple television channels so that they have a high level of assets, with high fixed costs and exit costs Rivalry is greater between players broadcasting shows and events of similar genres

8 Porter’s Five Forces Movies & Entertainment
Supplier Power —— Medium Low Supplies required by film production companies include: scripts, costumes, make-up, props, sets, cameras, film stock, lighting, and stunt and action equipment. Revenue highly rely on movie industry Barriers to Entry —— Medium High Diversity of audiences provides chances for both big and smaller players Fixed costs do not have to be high as independent films can be made on a low budget, giving a successful independent film a high profit-to- cost ratio, while a failure would incur minimal losses Current market situation does not offer an attractive prospect Threat of Substitute —— Medium Illegal downloading through the internet and video piracy Cinema experience is still attractive

9 Porter’s Five Forces Movies & Entertainment
Bargaining Power of Buyers —— Low Large number of potential customers Industry Rivalry —— Medium There are a number of large market players, movie production companies and independent companies The wide range and diversity of audience tastes allows films scope for significant differentiation in terms of genre and content

10 Company Overview – Business Strategy
Expanding brand through creation of programming, channels, motion pictures, and other entertainments Invest in programming content that will grow ratings across networks Strengthen relationships with advertising, cable, satellite, online, mobile and licensing partners Develop new ways of reaching audiences Maintain cost-savings while executing key ‘tentpole’ films supplemented by other smaller productions and acquisitions Build international presence through both Media Networks and Filmed Entertainment businesses Viacom K, pg.2

11 Company Overview - History
1971: Viacom spun off from CBS, establishing itself as a public company 1985: Acquired 66% of MTV Networks 1987: National Amusements Inc. acquires 83% of Viacom 1991: Acquired controlling interests of MTV Europe 1994: $9.9 billion merger with Paramount Communications Inc. 1999: Viacom starts trading on NYSE (VIA, VIA.B) 2000: Viacom merges with CBS 2001: Acquired BET Holdings II Inc. 2005: Viacom (new) spun off, remaining company (old Viacom) changes name to CBS Corporation 2006: Acquired several interactive platforms 2010: Announced regular quarterly cash dividend and recommences stock repurchase program Viacom Website, History

12 Company Overview – Business Segments
Media Networks MTV Networks Approximately 160 Networks worldwide including: MTV, VH1, Nickelodeon, Comedy Central, CMT, Spike TV, Logo, and TV Land Digital Assets that provide interactive entertainment such as videogames and virtual pets include: Neopets, Atom, and Harmonix BET Networks Provides content focused on Black media and entertainment to over 100 million homes including BET, Centric, and Filmed Entertainment Paramount Pictures Corporation – brands include Paramount Pictures, Paramount Vintage, MTV Films, Nickelodeon Movies and Paramount Home Entertainment

13 Company Overview – Segment Revenues
Media Networks Advertising Revenues – Sale of advertising time on program services and digital properties Key factors: number of subscribers, viewer demographics, program ratings by third party researchers Revenues fluctuate seasonally, generally highest in Q4 calendar year Affiliate Fees – Affiliates pay Viacom for the use of their content Contracts with affiliate distributors are typically multi-year with staggered end dates, providing a more stable source of income Ancillary Revenues – Revenues derived from content licensing and sales of home entertainment products (DVD’s, Video-On-Demand, etc.) Data from K, pg. 3

14 Company Overview – Segment Revenues
Filmed Entertainment Theatrical – Release approximately films per year domestically Volatile revenues due to incurring larges costs prior to recouping revenues to cover expenses Revenues are cyclical, rising during summer months Films often use third party financing Home Entertainment – Sale of DVD’s and Blue-ray discs for films distributed by Paramount, other Viacom brands, and third parties Licensing – Films owned or distributed by Paramount are licensed to video on demand, basic cable, and TV syndicates Data from K, pg. 11

15 Company Overview – Recent News
Fiscal Year - Change of fiscal year end from December 31 to September 30 Better aligns financial reporting and budget planning with business cycle (cable broadcast year) Compare pro forma 9-month statements Sale of Harmonix – Board authorizes management to proceed with sale of Harmonix, developer of music-based games (Rock Band) $299 million write-down in Q Originally purchased in 2006 for $175 million plus payouts based on 2007 and 2008 performance1 EPIX-Netflix Deal – EPIX, a joint venture between Viacom, MGM, and Lionsgate that offers films to subscribers, enters a multi-year deal with Netflix to license its content to Netflix 1

16 Controlling Interest Executive Chairman Sumner Redstone controls National Amusements, Inc. (NAI) which has voting control of VIA In 2008 and 2009, NAI converted a portion of Class A shares to Class B shares which it then sold to meet requirements under its restructuring indebtedness NAI does not currently have plans to continue converting and selling VIA stock; however, this does not guarantee this will not reoccur Also as part of this restructuring, NAI has collateralized all of its Class A VIA shares This creates the potential creditors to foreclose on the collateral in the event of a default by NAI, converting Class A stock to Class B stock and subsequently selling the Class B shares, driving down the stock price Source: Bloomberg

17 Company Overview – Recent Performance
Yahoo Finance:

18 Management • Viacom is overhauling its business structure

19 Fading Management • Primary shareholder and Executive Chairman
• A lifetime of experience / education • Considered a visionary and enigmatic • Lifelong philosophy is that content, not distribution medium is the key to success. • Controlling stock interest is in an irrevocable trust with his grandchildren being the beneficiaries. Sumner M. Redstone (87)

20 New Management • Friend and Legal advisor to Redstone
• Been with Viacom since 1993 • Yale undergraduate and Columbia Law graduate • Scored a perfect 1600 on SATs at the age of 13 • Significant legal and financial experience, but little experience in managing entertainment Phillippe Dauman, Viacom CEO since 2006

21 SWOT • Strength: Scale and scope of business
Strong brand name & copyrights • Weakness: The size of the conglomerate Declining profitability • Opportunities: Have a more effectively constructed management team Develop a worldwide strategy The outlook for broadcasting market is very lucrative • Threats: Audience Acceptance Global Economic Conditions Competitive Industries Theft of Our Entertainment Content

22 Major Players Competitors: Viacom $13,770
Market Share by Rev. (Millions) $38,063 $17,868 $32,778 $13,200 $26,505 Viacom $13,770 Competitors: Disney Time Warner Cable News Corp CBS Time Warner Inc

23 Revenue Streams Dollar figures are in Millions Viacom Disney
Time Warner Cable News Corp. CBS Corporation Time Warner Inc. Various Media Networks: 8,288.0 17,162.0 17,868.0 15,068.0 10,683.6 11,703.0 Filmed Entertainment: 5,482.0 6,701.0 7,631.0 11,066.0 Parks and Resorts: 10,761.0 Consumer Products: 2,678.0 Interactive Media: 761.0 Publishing: 8,548.0 793.5 3,736.0 Other: 1,531.0 Outdoor: 1,722.6 Total: 13,770.0 38,063.0 32,778.0 13,199.7 26,505.0 Dollar figures are in Millions

24 60% of Viacom’s Revenue Media Networks
Assets 16,189.0 N/A 43,694.0 21,214.0 11,326.6 36,143.0 Revenue 8,288.0 17,162.0 17,868.0 15,068.0 10,683.6 11,703.0 Profit 2,934.0 5,825.0 1,1912.0 2,718.0 649.8 3,545.0 Dollar figures are in Millions

25 40% of Viacom’s Revenue Filmed Entertainment
Assets 5,549.0 N/A 7,122.0 17,060.0 Revenue 5,482.0 17,162.0 7,631.0 11,066.0 Profit 219.0 1,349.0 1,084.0 Dollar figures are in Millions

26 Valuation

27 Valuation

28 Valuation

29 Valuation

30 Recommendation DCF Model Price $36.32 +/- 10% $32.69 - $39.95
+/- 10% $ $39.95 Sensitivity Analysis Price Range $ $40.98 Price as of December 1, 2010 $39.22 Recommendation Not Recommended for Purchase and Watchlist

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