Viacom’s Downturns Have Gotten So Predictable They’re an Easy Buck for Investors

Conglom is trying to figure out the multiplatform game

As usual, Viacom is doomed.

People have been preaching the End of Days for the company since Tom Freston left and was replaced by Philippe Dauman in 2006, and yet it still trundles along, making quite a bit of money despite myriad objections to its programming decisions, its executive appointments and its advertising strategy (Spike, at one point, was airing a 38-minute hour).

Union: Manny Hernandez/Getty Images; Minaj: Jason

Not only does none of this matter, but the conventional wisdom presents an incredible opportunity for investors, according to Michael Nathanson of research firm MoffettNathanson.

"For the third time in less than seven years, Viacom is again beset by collapsing ratings … negative advertising … and a free fall in its relative valuation," Nathanson wrote in a report. "Historically, this sequence of events has given contrarian and patient investors a ‘fat-pitch’ way to make money."

None of this is to say that Viacom (or, indeed, cable TV) is doing well—PUT (Persons Using Television) levels fell dramatically in the third quarter of this year, both across the board and particularly seriously at Viacom’s networks, with demo declines, too, at MTV (which is off by a full 25 percent) and Nick (off by 20). Those two are the company’s bread and butter, and they’ve tended to rely disproportionately on individual franchises. In Nick’s case, it simply had an amazing third quarter last year—the network ranked No. 1 not just in the demo but in total viewers—and in MTV’s case, it was the Teen Mom franchise that tanked. (The network went through much the same thing when Jersey Shore got canceled.) All of this makes the network appear volatile. But the truth is that it manages to pull in disproportionate numbers of viewers in a demo that is fast abandoning television with buzzy series; the model looks more like a win-some-lose-some film studio strategy than a television network, especially with the largely unsung Comedy Central (which recently had three consecutive quarters of monster growth—33.8 percent up in Q3 of last year alone).

This week’s earnings report from the company should prove interesting. Dauman had to field questions about the weak ad market last quarter; this time he’s pretty much certain to get grief about low ratings. But Nathanson observes that Viacom isn’t merely experiencing speed bumps like PUT and ad revenue declines—it’s at the vanguard of an industry that is going to have to cope with those problems en masse.

Viacom is also fighting with small cable operators, who are simply dropping its package in an effort to keep costs down as carriage agreement renewals rear their heads, but you can bet the company’s strategies on this front are being analyzed carefully by all of its competitors. AMC Networks, A+E Networks and Scripps are all in a similar boat. Either Viacom will figure out an effective strategy or it will consolidate until it’s part of an entity big enough to get its way. For Nathanson, that spells sound investment.