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Viacom’s filmed-entertainment segment continues to grow weaker

An investor's guide to Viacom (Part 3 of 5)

(Continued from Part 2)

The filmed-entertainment segment revenues accounted for 31% to Viacom’s total revenues for fiscal years 2013 (2010 in the graph reflects January 1 to September 30, 2010, data due to change in fiscal year).

Viacom’s filmed-entertainment segment continues to grow weakerThe segment generates revenues worldwide principally from:

  • Theatrical release and/or distribution of motion pictures,
  • Home entertainment, which includes sales of DVDs and Blu-ray discs relating to the motion pictures released theatrically and direct-to-DVD, as well as content distributed on behalf of Viacom and third parties,
  • Licensing of film exhibition rights to television services, including video-on-demand, subscription video-on-demand, pay and basic cable television, broadcast television, and syndicated television. The EPIX joint venture with Metro-Goldwyn-Mayer Studios Inc. and Lions Gate Films, Inc. provides a multiplatform premium entertainment service offering Paramount, Lionsgate, MGM Studios, and certain third party films to cable, satellite, subscription video-on-demand, and other subscribers through a premium pay television channel and television and digital video-on-demand services, and
  • Ancillary revenues from licensing of film exhibition rights to digital platforms, providing production services to third parties, primarily at Paramount’s studio lot, licensing of its brands for consumer products and theme parks, and distribution of content specifically developed for digital platforms and game distribution.

Total revenue declined 30% in 1Q14 to $681 million driven by lower theatrical and home entertainment revenues. Worldwide theatrical revenues decreased $169 million, or 52%, to $159 million in 1Q14. The segment generated an adjusted operating loss of $74 million, a 47% improvement over the prior year quarter, reflecting lower expenses associated with the reduced number of theatrical releases in the current quarter.

Despite fewer movies and declining home entertainment sales, the company has maintained its profit margins with cost cutting efforts. The Big Six studios (Disney, Fox, Paramount, Sony, Universal, and Warner Bros.) have been reducing costs for improving profits. The focus is also on tentpole releases, franchise films with huge production budgets but are blockbusters when they work. Viacom said Paramount continues to develop tentpole franchises, and the company is “excited” about the upcoming slate and development pipeline, as well as the studios plans to develop new revenue streams.

The company released five titles this year compared to eight titles in the prior December quarter. Viacom said that with high-profile films in the quarter in Anchorman 2: The Legend Continues, Jackass Presents: Bad Grandpa, Nebraska, and The Wolf of Wall Street, Paramount is off to a strong start as the studio continues building its animation and television production capabilities alongside a promising slate for fiscal 2014. In the U.S., in 2013, Viacom ranked seventh with total box-office grossing of close to $1 billion, accounting for a 9% market share. Viacom ranks second with total box office grossing of approximately $186.8 million, representing 19.1% market share, according to boxofficemojo.com data between January 1 and February 6, 2014.

Looking ahead into 2014, Paramount has Darren Aronofsky’s Noah, starring Russell Crowe, debuting in March. The upcoming summer season tentpole releases include Michael Bay’s Transformers: Age of Extinction, and Teenage Mutant Ninja Turtles, as well as Hercules. With reference to the studio’s production and development pipeline, the company has wrapped production on Interstellar, which is directed by Chris Nolan and stars Matthew McConaughey. There is also development on a number of sequels to existing franchises including Mission: Impossible, Star Trek, G.I. Joe, and World War Z. In terms of the animation label, Paramount has a number of projects in the pipeline with SpongeBob and Monster Trucks scheduled for release in 2015.

Continue to Part 4

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