Viacom Inspires Confidence

Jan 9, 2006  •  Post A Comment

Wall Street is betting that the new Viacom, fueled by the performance of its cable networks, will live up to its label as a growth company.

That’s thanks to revenue growth of 22 percent through the 2005 third quarter and a belief that Viacom’s cable assets-including MTV, Comedy Central and BET-have significant growth opportunities left in them, particularly overseas. What’s more, Viacom’s Paramount Pictures unit got a last-minute boost in December when it reached a deal to acquire DreamWorks SKG.

The new Viacom was created after the media giant, which counted MTV, CBS and Infinity Broadcasting among its holdings, split itself into two companies in an attempt to boost shareholder value. The strategy was to create one company that would have a fast-growing stock and another that would focus on paying investors dividends. Viacom, with its cable assets and film studio, is viewed as the growth company.

Merrill Lynch media analyst Jessica Reif Cohen said that cable network growth should continue to enjoy double-digit revenue growth thanks to a strong advertising scatter market, continued expansion of digital channels and affiliate-revenue increases.

However, it remains to be seen whether these growth prospects will lead to an increase in shareholder value. Wall Street remains lukewarm toward media stocks.