Wall Street Buying Bakish Plan for Viacom

Analysts like new distribution approach

After getting his strategic plan for turning around troubled media company Viacom approved by the company’s board, new CEO Bob Bakish is also earning plaudits on Wall Street.

Viacom’s previous CEO, Philippe Dauman, was ousted as CEO by the family of Sumner Redstone, which owns a controlling stack in the company. After the idea of merging Viacom with CBS, putting TV guru Les Moonves in charge, fell through, the Redstone’s tapped Bakish, who ran Viacom’s international business.

Bakish laid out his blueprint on Thursday when Viacom reported its quarterly earnings, and the reviews from analysts were mostly positive.

“We Think Management Is Saying And Doing All The Right Things,” was the headline on a report from Marci Ryvicker of Wells Fargo.

“We view today’s [earnings report] and conversation as just the ‘beginning.’ And while this is clearly not a straight line up, we do think we will see the benefits of the turnaround later this year and into fiscal 2018,” said Ryvicker who upgraded Viacom stock to “Outperform.”

“We applaud the new CEO’s efforts to articulate and implement a new vision,” said Tom Eagan of Telsey Advisory Group.

“At this time, the financial implications of this new strategy remain unclear. And until these are better understood, we maintain our MP rating. This is clearly the opening act of new CEO Bob Bakish and Viacom’s turnaround story,” he said.

Similarly, Omar Sheikh of Credit Suisse, noted that “we continue to see significant recovery potential in Viacom's earnings long term, which the new strategy looks well-placed to deliver.” Sheikh retained its outperform ratings on Viacom share.

Michael Nathanson of MoffettNathanson Research, remained a bit more skeptical.

“It looks good on paper and is the right thing to do from a competitive standpoint. Going through Viacom’s five-point plan, it is hard to argue with the logic of narrowing the focus down to six core networks,” Nathanson said.

“However, here is the problem: How will this change the rate of EBITDA growth at Viacom’s U.S. Cable Networks? While we like the tone and direction of the new management team, we wonder when its new strategic plan will materially show up in the Cable Networks results,” Nathanson said.

“Barring strategic alternatives for the company, we believe Viacom needs to show meaningful acceleration in core affiliate fee growth to prove it is on the right path for a turnaround. Given our concerns on the industry as a whole, we remain skeptical that this can be achieved,” he said.

Todd Juenger of Sanford C. Bernstein, remained downright gloomy about the company’s future.

“Viacom's key networks serve audiences who are rapidly abandoning linear TV in favor of digital, on-demand options. We believe Viacom will struggle to keep their network brands relevant in that environment—but even if they succeed, the economic returns will pale in comparison to the legacy business, amplified by financial leverage,” said Juenger, who rates the stock as underperform.

Analysts also approved of Bakish’s approach to distribution.

“The new strategy of supporting live streaming (DTV Now, Sling TV, perhaps Hulu Live) but being more selective in licensing to SVOD services makes sense. This new strategy should serve to lessen the cannibalization of the Viacom networks on the MVPD platform, “ said Eagan.

“Bakish also won points by saying that they want to deepen partnerships with traditional partners,” observed Nathanson. “This means that the zero-sum mentality of past MVPD negotiations will give way to, perhaps, more sensible solutions going forward. Maybe we will also see an end to the jamming of commercial loads and SVOD deals simply to make quarterly numbers.”

After rising more than 5% on Thursday, Viacom shares were down slightly in mid-day trading Friday.