Viacom Pulls Channels from iPad App Raising Stakes in the Streaming Standoff
Viacom (NYSE:VIA) was one of the content owners that pulled its channels from Time Warner Cable’s (NYSE:TWC) iPad app recently. This combined with its changing stance regarding Hulu points to the growing friction between content owners and those companies involved in distribution through new streaming platforms like Netflix (NASDAQ:NFLX), Hulu and now tablets. As the landscape changes for delivering content, we expect to see Viacom along with competitors like News Corp (NASDAQ:NWS), Time Warner (NYSE:TWX) CBS (NYSE:CBS) and Disney (NYSE:DIS) position for a greater share of the revenues and benefit from providing content to through these new channels.
Our price estimate for Viacom’s stock stands at $58.36 which is roughly a premium of 8% to the market price.
We interpret Viacom’s move to pull its channels from the iPad app as a signal of its opposition to provide its content for free through new channels like streaming through Hulu and Netflix — or even the iPad.
Streaming Deals – Broken, Made, Opposed
Time Warner Cable recently decided to drop some channels from its iPad app that allowed live streaming of channels for its customers. The decision was triggered by the opposition that content owners like News Corp, Viacom and Discovery Communications voiced over this topic. Their argument is that the value of its content gets diluted if consumers can access it from different mediums without having to pay extra.
If we rewind, Viacom ended its partnership with Hulu in early 2010 due to concerns over possibility of revenue generation. The company felt that a platform like Hulu was not equipped to offer it enough money for its content and so the company saw limited benefit from this arrangement. However the deal has been renewed as Hulu and Viacom seem to have reached an agreement regarding revenue shares from the expected contribution of paying subscriber in 2011. [1]
Control the Threat
Aside from the obvious motive that Viacom wants to make money on its content, the company likely also wants to better control the dilution risk that platforms like Hulu and Netflix pose since they offer content for free or cheaply. These business models threaten the traditional pay-TV business model, which is of course where content and media companies derive the majority of this business. The ultimate aim is to find the right balance by finding ways that cheap or free online platforms can still generate meaningful value for companies like Viacom.
Viacom’s Crown Jewels
We estimate that the channels Nickelodeon, MTV and Comedy central bring most value on individual basis to Viacom. These channels constitute an estimated 16%, 12% and 7% to Viacom’s value, and this highlights how important it is for Viacom to find a way to position these assets in the best value generating way as it feels its way into the streaming business.
You can see the complete analysis for Viacom here.
- Hulu eyeing half a billion in sales this year, CNET News, Apr 5 2011 [↩]