After-hour trading on Monday saw a 1% dip in the shares, to $67.50, of New York-based media company Viacom Inc. (VIA.B, Financial), as it announced plans to take on $785 million pre-tax reorganization charges during the second quarter of 2015. The company declared that the changes would reflect the cost of cutting close to 400 jobs; underwriting the value of failing shows such as "CSI" and "Community" that are continuously losing ratings and regrouping its marketing and branding strategy. An approximate $430 million of the charges are to account for underwriting these and some other acquired shows. The competition for these shows, Viacom admitted, comes from Internet TV such as Netflix Inc. (NFLX, Financial). Changing consumer tastes as game shows and reality shows become less popular with viewers, is also a source of concern for the media company.
The driving equations
This strategic and operations overhaul comes after an exhaustive company review across Viacom’s worldwide Media Networks, Filmed Entertainment operations and corporate functions. Viacom is struggling with weak ratings of TV channels, such as Nickelodeon, MTV and Comedy Central, across all major networks. FactSet compiled analysts’ estimates to predict a 15% fall in net income to $429 million in the second quarter of this fiscal year. In the same quarter last year, the U.S.-based company made $502 million in profits on $3.17 billion revenue earned.
The company has also put the brakes on its $20 billion share buyback program for restructuring purposes and to provide for possible acquisitions in 2015. Shareholders have been returned $15 billion through the repurchase programme since October 2010. The first half of 2015 has already seen $1.5 billion going back to shareholders. The program is expected to restart latest by October 2015.
Change for long term gain
The restructuring is anticipated to bring sales, marketing, creative and support based alignment in the media company, as well as, improve programme and product development efficiencies. Announced in the earnings call for the first quarter in February, the restructuring is expected to save Viacom approximately $350 million a year on an ongoing basis. It expects to save $175 in the current fiscal.
The company will go from two groups of television networks to three, post the restructure, which was heralded by the potential exit of executive Van Toffler. Toffler, headed network group which included MTV, VH1 and CMT, is scheduled to exit the company in April while the TV channels under him will be absorbed into the two newly reorganized groups.
“This strategic realignment, which is largely completed, will allow us to sharpen our focus on driving long-term growth in a rapidly changing industry. We will transition rapidly into the future, generate substantial cost savings and continue to increase our investment in original programming to bring our audiences great content in new and ground-breaking ways,” President and CEO Philippe Dauman said in a company release.
The release went on to claim that the company is "reallocating resources to expand its capabilities in critical business areas including data analysis, technology development and consumer insights, reflecting the rapidly changing media marketplace, shifting consumer behaviour and evolving measurement practices."
Matter of fact
Thomson Reuters analysts are expecting Viacom to make a second-quarter profit of $428.3 million on $3.26 billion of revenue earned. Sumner Redstone-led Viacom’s shares have fallen 9% in this year. Shares closed 98 cents up at $68.92 in NASDAQ trading on Monday.
