Zacks_Analysts' Blog : Viacom Set to Combine Movie Business - Analyst Blog

Viacom Inc’s(VIA.B) film division Paramount Picture is set to integrate its DVD and Blu-ray disc sales unit along with its digital video licensing division to create a brand new division called the Home Media Distribution. Such a move on the company’s part was mainly on the back of reduced DVD sales increased video streaming services from cheaper online video distribution companies.

Apart from streamlining its film division assets, Paramount will also shift its staff from London to the Los Angeles unit. Management believes that the integration of the entire unit will help the company improve its work flow and gain better control, as well as allow them to seize more overseas opportunities.

Paramount recorded excellent summer box office collection mainly driven by the release of "Transformers: Dark of the Moon", which garnered nearly $1.1 billion worldwide. Recently, the company is also planning to develop its own animation unit, which in turn will help the company to create as well as distribute its own animated movies, and reduce its dependency on Dreamworks Animation SKG, Inc (DWA) for distribution.

Viacom, the leading media conglomerate in the U.S, recently reported blockbuster financial results for the third quarter of 2011, where both the top line and bottom line exceeded the Zacks Consensus Estimate by a significant margin. The significant upside in revenue was primarily attributable to the significant improvement in its affiliated, advertising and television license fees.

Viacom is well positioned for long-term growth as it continues to benefit from its predominately cable networks-based business model; strong affiliate fee revenue growth, global brands, multi-platform content, and being the fastest growing traditional ad media.

However, stiff competitions from other media companies like News Corp. (NWSA) and Time Warner Inc. (TWX) coupled with slow economic recovery are headwinds for the stock going forward.

We, thus, maintain our long-term Neutral recommendation for Viacom. Currently, Viacom has a Zacks#2 Rank, implying a short-term Buy rating on the stock.