Group Members:

Ang Li
Tim Schmelzle
Tyson Banbury
Ye (Fred) Tian
Xinglong (Malone)
Ma

Agenda

Summary
Industry Overview
Porters 5 Forces
Company Overview
SWOT Analysis
Competitors
Valuation
Recommendation

Summary
Goal: To be the worlds leading branded
entertainment company across television,
motion pictures, and digital media platforms.
Two main segments
Media Networks
Filmed Entertainment
Ticker: VIA Class A, Voting shares ($27.4
billion)
VIA.B Class B, Non-voting shares
($23.7 billion)
Targets wide range of age demographics
including kids,
tweens, teens and
adults

Industry Overview
United States media industry value: $ billion,
200610

CAGR=0.9%
Source: Datamonitor http://library.marketlineinfo.com/library/DisplayContent.aspx?
Ntt=media&Ntx=mode%2bmatchall&D=media&No=25&Nty=1&N=210&Ntk=All

Industry Overview
United States media industry segmentation in 2010

Source: Datamonitor http://library.marketlineinfo.com/library/DisplayContent.aspx?

Ntt=movie&Ntx=mode%2bmatchall&Nty=1&D=movie&Ntk=All&Ns=

Porters Five Forces

Broadcasting & Cable TV
Supplier Power Medium
Production companies form a major supplier
Typically depends upon the quality of content
Barriers to Entry High
Big players are able to maintain high levels of capital
expenditure in
purchasing rights to the most popular
content
Difficult for new entrants to secure the rights to popular
programs
New entrants also have to ensure that they comply with
regulations as
monitored by the Federal
Communications Commission (FCC)
Threat of Substitute Medium High
A significant increase in popularity of other entertainment
A rise of downloading programs through the internet,
both legally and illegally

Porters Five Forces

Broadcasting & Cable TV
Bargaining Power of Buyers Medium High
Sensitive to the increasing concentration and dominance
of cable and
satellite program distributors
Distributors are demanding higher-quality program
productions in the
HD digital format, to satisfy
subscribers' unique interests
Industry Rivalry Very High
Rivalry is strong between broadcasters to purchase the
broadcasting
rights for the most popular programs,
events and sporting events
Players within the market are typically large, owning
multiple television
channels so that they have a high
level of assets, with high fixed costs
and exit costs
Rivalry is greater between players broadcasting shows
and events of
similar genres

Porters Five Forces

Movies & Entertainment
Supplier Power Medium Low
Supplies required by film production companies include:
scripts,
costumes, make-up, props, sets, cameras, film
stock, lighting, and
stunt and action equipment.
Revenue highly rely on movie industry
Barriers to Entry Medium High
Diversity of audiences provides chances for both big and
smaller players
Fixed costs do not have to be high as independent films
can be made on a low budget, giving a successful
independent film a high profit-tocost ratio, while a
failure would incur minimal losses
Current market situation does not offer an attractive
prospect
Threat of Substitute Medium
Illegal downloading through the internet and video piracy

Porters Five Forces

Movies & Entertainment
Bargaining Power of Buyers Low
Large number of potential customers
Industry Rivalry Medium
There are a number of large market players, movie
production
companies and independent companies
The wide range and diversity of audience tastes allows
films scope for
significant differentiation in terms of
genre and content

Company Overview Business

Strategy

Expanding brand through creation of

programming, channels, motion pictures, and
other entertainments
Invest in programming content that will grow
ratings across networks
Strengthen relationships with advertising,
cable, satellite, online, mobile and licensing
partners
Develop new ways of reaching audiences
Maintain cost-savings while executing key
tentpole films supplemented by other
smaller productions and acquisitions
Build international presence through both
Media Networks and Filmed Entertainment
businesses
Viacom 2010
10-K, pg.2

Company Overview - History

1971: Viacom spun off from CBS, establishing itself as a
public company
1985: Acquired 66% of MTV Networks
1987: National Amusements Inc. acquires 83% of Viacom
1991: Acquired controlling interests of MTV Europe
1994: $9.9 billion merger with Paramount Communications
Inc.
1999: Viacom starts trading on NYSE (VIA, VIA.B)
2000: Viacom merges with CBS
2001: Acquired BET Holdings II Inc.
2005: Viacom (new) spun off, remaining company (old
Viacom) changes name to CBS Corporation
2006: Acquired several interactive platforms
2010: Announced regular quarterly cash dividend and
recommences stock repurchase program
Viacom Website, History http://www.viacom.com/aboutviacom/Pages/history.aspx

Company Overview Business

Segments

Media Networks
MTV Networks
Approximately 160 Networks worldwide including:
MTV, VH1, Nickelodeon, Comedy Central, CMT, Spike
TV, Logo, and TV Land
Digital Assets that provide interactive entertainment
such as videogames and virtual pets include: Neopets,
Atom, and Harmonix
BET Networks
Provides content focused on Black media and
entertainment to over 100 million homes including
BET, Centric, and BET.com
Filmed Entertainment
Paramount Pictures Corporation brands include
Paramount Pictures, Paramount Vintage, MTV Films,
Nickelodeon Movies and Paramount Home Entertainment

Company Overview Segment

Revenues
Media Networks

Advertising Revenues Sale of advertising time on

program services and digital properties
Key factors: number of subscribers, viewer
demographics, program ratings by third party
researchers
Revenues fluctuate seasonally, generally highest in Q4
calendar year
Affiliate Fees Affiliates pay Viacom for the use of their
content
Contracts with affiliate distributors are typically multiyear with staggered end dates, providing a more
stable source of income
Ancillary Revenues Revenues derived from content
licensing and sales of home entertainment products
(DVDs, Video-On-Demand, etc.)

Data from 2010 10-K, pg. 3

Company Overview Segment

Revenues
Filmed Entertainment

Theatrical Release approximately 14-16 films per year

domestically
Volatile revenues due to incurring larges costs prior to
recouping revenues to cover expenses
Revenues are cyclical, rising during summer months
Films often use third party financing
Home Entertainment Sale of DVDs and Blue-ray discs
for films
distributed by Paramount, other
Viacom brands, and third parties
Licensing Films owned or distributed by Paramount are
licensed to video on demand, basic cable, and TV
syndicates

Data from 2010 10-K, pg. 11

Company Overview Recent News

Fiscal Year - Change of fiscal year end from December 31 to
September 30
Better aligns financial reporting and budget planning
with business cycle (cable broadcast year)
Compare pro forma 9-month statements
Sale of Harmonix Board authorizes management to
proceed with sale of Harmonix, developer of music-based
games (Rock Band)
$299 million write-down in Q3 20101
Originally purchased in 2006 for $175 million plus
payouts based on 2007 and 2008 performance 1
EPIX-Netflix Deal EPIX, a joint venture between Viacom,
1 MGM, and Lionsgate that offers films to subscribers,
http://paidcontent.org/article/419-viacom-selling-rock-band-maker-harmonix-profits-fall-onenters
a multi-year deal with Netflix to license its content
writedowns/

Controlling Interest

Executive Chairman Sumner Redstone controls National

Amusements, Inc. (NAI) which has voting control of VIA
In 2008 and 2009, NAI converted a portion of Class A shares to
Class B shares which it then sold to meet requirements under its
restructuring indebtedness
NAI does not currently have plans to continue converting and
selling VIA stock; however, this does not guarantee this will not
reoccur
Also as part of this restructuring, NAI has collateralized all of its
Class A VIA shares
This creates the potential creditors to foreclose on the collateral
in the event of a default by NAI, converting Class A stock to
Class B stock and subsequently selling the Class B shares,
driving down the stock price

Source: Bloomberg

Company Overview Recent

Performance

Yahoo Finance: http://finance.yahoo.com/echarts?s=VIA-B+Interactive#chart9:symbol=viab;range=1y;compare=^gspc;indicator=sma(20,200)+volume;charttype=line;crosshair=on;ohlcvalues=0;logs

cale=on;source=undefined

Management
Viacom is overhauling its business structure

Viacom:

Fading Management
Primary shareholder and Executive Chairman
A lifetime of experience / education
Considered a visionary and enigmatic
Lifelong philosophy is that content, not
distribution medium is the key to success.
Controlling stock interest is in an irrevocable
trust with his grandchildren being the Sumner M. Redstone
(87)
beneficiaries.

New Management
Friend and Legal advisor to Redstone
Been with Viacom since 1993
Yale undergraduate and Columbia Law graduate
Scored a perfect 1600 on SATs at the age of 13
Significant legal and financial experience, but
little experience in managing entertainment

Phillippe Dauman,
Viacom CEO since
2006

SWOT
Strength:
Scale and scope of business
Strong brand name & copyrights
Weakness:
The size of the conglomerate
Declining profitability
Opportunities:
Have a more effectively constructed management
team
Develop a worldwide strategy
The outlook for broadcasting market is very lucrative
Threats:
Audience Acceptance
Global Economic Conditions
Competitive Industries
Theft of Our Entertainment Content

Major Players
Viacom

Market Share by Rev.

(Millions) $13,770

Competitors:
Disney
Time Warner
Cable
News Corp
CBS
Time Warner Inc

$38,063
$17,868
$32,778
$13,200
$26,505

Revenue Streams
Viacom Disney
Various Media
Networks:
Filmed
Entertainment:
Parks and Resorts:

8,288.0
5,482.0

17,162.0

Time
Warner
Cable

17,868.0

6,701.0

CBS
News Corporati
Corp.
on

15,068.0
7,631.0

11,703.0
11,066.0

10,761.0

Consumer Products:

2,678.0

Interactive Media:

761.0

Publishing:

8,548.0

Other:
Outdoor:

1,531.0

Total:

10,683.6

Time
Warner Inc.

793.5

3,736.0

1,722.6

13,770.0 38,063.0

Dollar figures are in

17,868.0

32,778.0

13,199.7

26,505.0

60% of Viacoms Revenue

Media Networks

Assets

Revenu
e

16,189.
0

N/A

43,694.
0

21,214.
0

11,326.
6

36,143.
0

8,288.0

17,162.
0

17,868.
0

15,068.
0

10,683.
6

11,703.
0

2,934.0

5,825.0

1,1912.
0

2,718.0

649.8

3,545.0

Profit

Dollar figures are in

40% of Viacoms Revenue

Filmed Entertainment

Assets

N/A

5,549.0
Revenu
e

5,482.0

Profit

7,122.0
17,162.
0
N/A

219.0

Dollar figures are in

17,060.
0
0

7,631.0
0

11,066.
0

0
1,349.0

1,084.0

Valuation

Valuation

Valuation

Valuation

Recommendation
DCF Model Price
+/- 10%
$39.95

$36.32
$32.69 -

Sensitivity Analysis Price Range

$33.32 - $40.98
Price as of December 1, 2010
$39.22
Recommendation
Not Recommended
for
Purchase and
Watchlist