Cable-TV operators are going through their worst stretch in history. Subscriber declines accelerated to record levels in the first quarter, according to a report from media analyst firm MoffettNathanson on Wednesday. Owners of niche networks like Viacom, portfolios that don't include sports, are particularly vulnerable to changes buffeting the entire industry as consumers opt for skinny bundles, or create their own.
In a much-needed sign of progress, Viacom posted revenue for its fiscal second quarter on Thursday that beat analysts' forecasts, providing Bakish more time to execute his turnaround plan. Yet Bakish's first full quarter as CEO also was met with red flags. Advertising revenue, which accounts for about one-third of Viacom's sales, slipped 1% to $1.1 billion for the quarter ended March 31.
Adding to questions about his turnaround plan, Bakish confirmed reports that Charter Communications (CHTR - Get Report) , the country's second-largest cable-TV provider, had moved many of the company's networks to a higher-priced tier among its service packages for new customers. The upshot is that Viacom is likely to see a decline in affiliate fees as the majority of Charter's customers opt for the operator's standard package.
Bakish said the company was still in talks with Charter about where its networks will be placed among the cable-TV operator's service packages.
"With respect to Charter in particular, we are aware of the issue," Bakish said on an investor conference call. "Worth noting, it appears to affect new subs only. It's not a broad re-tiering. We have a very strong point of view and are in conversations about it. And I believe this will get resolved."
Shares of the owner of MTV, Nickelodeon and Paramount Pictures were down 5.9% on Thursday morning to $36.69, a day after the stock plummeted 7.5% as the MoffettNathanson report sparked declines across media stocks.
Yet coming on the heels of ad sale declines at Time Warner's (TWX) Turner networks and Comcast's (CMCSA - Get Report) NBC cable TV unit, the Viacom result heightened concerns that media companies face an unusually uncertain future.
Importantly, Viacom did announce that it had secured a so-called slate financing agreement for Paramount with two Chinese media conglomerates. The financing agreement appeared to be in jeopardy earlier this year as the Chinese government restricted capital outflows amid peppery relations with the incoming Trump administration.
Shanghai Film Group and Huahua Media have agreed to increase their contribution to finance Paramount's film slate as part of a three-year deal that was originally valued at $1 billion, Viacom Finance Chief Wade Davis said on an investor conference call. Davis said the Chinese partners will make a cash payment this quarter on the film financing deal.
Viacom posted earnings per share of 79 cents for the second quarter, beating an average estimate of Wall Street analysts of just 60 cents. Revenue totaled $3.3 billion, also surpassing analysts' forecasts that called for $3 billion. Viacom's media networks group, its largest division, reported a 1% increase in revenue to $2.39 billion as affiliate fees, money that network owners receive from pay-TV providers, increased 2%.
Bakish is in the early months of making broad changes to a company that failed to leverage its early position as a young consumer favorite. MTV, in particular, struggled to connect with Millennials under former CEO Philippe Dauman, and Bakish has made leadership changes and a refocus on unscripted programming at the network a high priority. Dauman left the company in August after 10 years in the company's top job.
Earlier this year, Bakish announced that Viacom would heretofore focus its investments around six flagship networks: MTV, Nickelodeon, Nick Jr., Comedy Central, BET and a rebranding of Spike as the Paramount channel. Other smaller channels will get less attention and less money for new programming.
Paramount Pictures likewise is going through its own reorganization after the firing of Brad Grey, the studio's longtime chief under Dauman, and the hiring of Jim Gianopulos, a former head of 20th Century Fox studios, a unit of 21st Century Fox (FOXA) . First-quarter revenue at Paramount jumped 37% to $895 million, reflecting the solid performance of xXx: Return of Xander Cage.
Despite accelerating declines in cable TV subscribers, Bakish said Viacom elected not to join Hulu's live TV service unveiled on Wednesday at a New York event. Viacom shows are available on Hulu's video-on-demand service. Viacom also isn't a part of Alphabet's (GOOGL - Get Report) YouTube TV, which began rolling out nationwide last month, or Sony's (SNE - Get Report) PlayStation Vue.
Jim Cramer and the AAP team have plenty of thoughts about Facebook's (FB - Get Report) latest results. Find out what they're telling their investment club members, and get a free trial subscription to Action Alerts PLUS.