Viacom (VIAB) - Get Viacom Inc. Class B Report, which was battered for more than two years by a bitter internal battle over corporate control, finally has a turnaround plan that new CEO Bob Bakish says can work.
Exhibiting a newfound sense of purpose for the company, Bakish, who took over in December following about a month as acting CEO, said Viacom will concentrate its energy and investments on six of its more than 16 cable TV channels: BET, Comedy Central, MTV, Nickelodeon, Nick Jr. and Spike TV, which will change its name in early 2018 to the Paramount Network to better brand the company and expand its offerings to general entertainment.
The unveiling came as Viacom reported yet another quarter of declining profit. While revenue of $3.32 billion for the fiscal first quarter was 5% higher than the same period a year earlier, adjusted operating income fell 11% to $748 million. Revenue for the quarter did beat the analyst forecast of $3.18 billion, helping to bolster investor sentiment.
Shares of Viacom were up 3.4% Thursday morning to $43.48 after climbing as high as $45.
Investors clearly were downplaying the bottom-line results in the quarter ended Dec. 31. Net income slipped 12% to $396 million, and earnings per share came in at $1.04, a decline of 12% from a year earlier.
A particular problem for Viacom is its Paramount studio, which remains a money-losing business. Adjusted operating income fell 24% to negative $180 million, compared with a loss of $146 million in the year-earlier quarter.
The turnaround plan calls for Paramount Pictures to work more closely with the company's cable TV networks to co-develop films. It's a strategy that Time Warner (TWX) has applied for years, having its Warner Bros. film studio produce shows for its cable networks and even for HBO. Paramount will develop four feature films with Nickelodeon, the first, Amusement Park, scheduled to be released in summer 2018.
All isn't lost for Paramount. The studio released two films during the final three months of 2016 that were nominated for a best picture Oscar: Arrival, a science-fiction drama with Amy Adams, and Fences, an adaption of the August Wilson play starring Denzel Washington and Viola Davis. Paramount received 18 Academy Award nominations, with winners to be announced on Feb. 26.
"The reality is we now have a clear path forward, which we as a management team are absolutely convinced will create value and a competitive advantage for the company," Bakish said on an investor conference call Thursday. "That said, there are a lot of pieces we have to execute on."
Viacom's turnaround plan follows a two-year fight between former CEO Philippe Dauman and Shari Redstone, daughter of the company's controlling shareholder, Sumner Redstone. As the elder Redstone's health deteriorated, Shari attempted to take a larger role in the company as its finances and employee morale worsened.
But Dauman insisted that he had the support of Sumner Redstone, who was going through his own legal battles with former girlfriends over allegedly promised payments for care and camaraderie. Ultimately, Viacom's board was forced to reverse course and remove Dauman, who nonetheless secured a severance package of a whopping $93 million.
Unlike Dauman, who held the CEO post for 10 years until being forced out in August, Bakish is fast winning over Wall Street media analysts with a clearer strategy that also admits past failings. Bakish took over as acting CEO on Nov. 15, succeeding Tom Dooley.
"We think today's results and strategic overview are enough to move Street numbers higher and to boost Viacom's severely discounted valuation," Wells Fargo media analyst Marci Ryvicker said in an investor note published Thursday morning.
As for MTV, Viacom will introduce more unscripted programming into its lineup as well as music and live events, Bakish said. The network is planning to introduce a new slate of programming for the fall season. MTV has struggled against a slew of newer youth-focused competitors including Vice Media, which took the unusual step of launchinga cable TV channel, Viceland, a year ago.
But Vice's aggressive foray into digital video -- producing a nightly and weekly show for Time Warner's HBO -- provides a model for what Bakish appears to want to do with MTV. The network already has a large international operation, a business that Vice is building through partnerships with local pay-TV and wireless operators. Internationally, MTV has increased its audience for three straight years.
Bakish, who headed Viacom's international operation for a decade before being promoted, was frank in acknowledging that MTV, once the country's preeminent youth-focused network, needs a better mix of programming.
"MTV embarked on a very heavy scripted plan some years back," Bakish added. "It was a strategy which didn't really work." Viacom's lower-profile channels such as VH1, TV Land, CMT and Logo will become "flanker" brands, the company said. Bakish insisted the networks wouldn't go dark though acknowledged that some operations could be merged.
As expected, U.S. advertising sales at Viacom's cable TV group fell 3% in the first quarter to $991 million, while revenue from pay-TV operators to carry the networks rose 2% to $985 million.
Viacom shares trade at 11.7 times earnings, well below the multiples of its historic peers of Disney (DIS) - Get Walt Disney Company Report , CBS (CBS) - Get CBS Corporation Class B Report and 21st Century Fox (FOXA) - Get Fox Corporation Class A Report , which all trade above 17.5 times earnings.