Moody’s Investors Service said that Viacom is unlikely to retain the current Baa2 rating on its debt unless it reduces its dividend or gets new cash by exercising strategic alternatives, such as the sale of an equity stake in its Paramount movie studio.
Viacom reports earnings this week and previously said its profit will be sharply lower than a year ago because of a poor performance by the latest Teenage Mutant Ninja Turtles movie, lower ad revenues and the failure to renew an SVOD rights deal.
Moody’s, in a report dated Monday, said that a turnaround at Viacom could take longer than it previously anticipated. That will hurt financial flexibility and Viacom’s ability to reduce debt.
“Due to its young demographic, continued weakness in viewer ratings and lack of compelling and competitive programming, we believe Viacom is increasingly vulnerable to the ongoing transformation in the traditional media landscape,” Moody’s said.
Viacom is also under scrutiny because of the battle going on between controlling shareholder Sumner Redstone and CEO Philippe Dauman (pictured) over control of the company and the rest of Redstone’s media empire.
The Redstone matter is the subject of three court cases. Viacom’s ability to make strategic decisions is hampered by the uncertainty caused by the ownership battle.
“Clarity on Viacom’s direction will not come until the court case over the company’s board membership is decided, but the governance problems come at a time when the media company is vulnerable,” Moody’s noted. “The court verdict, whether the dividend is cut, whether part of Paramount is sold and the proceeds used to pay debt, and how quickly the company is able to improve operating performance will play a role in our assessment of Viacom.”
Moody’s looks at four possible outcomes for Viacom, including a merger with CBS, also controlled by Redstone.
“The merged entity would benefit under [CBS CEO Les] Moonves’ stewardship and success in programming networks, and from significant cost and revenue synergies,” Moody’s said.