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Columbia Broadcasting System (CBS) created Viacom in 1970 in order to comply with Federal Communications Commission (FCC) regulations prohibiting television networks from owning cable TV systems or from syndicating their own programs within the United States. In 1971, Viacom became its own company with 70,000 stockholders and about 90,000 cable subscribers. The large subscriber base is largely due to syndicated CBS programs (“Viacom Inc.”).
Showtime movie network was created to compete with Home Box Office (HBO), which had become a leading outlet for films by 1976. Viacom shared interest in Showtime with Warner Amex. Showtime helped the growth of Viacom’s cable systems, which had grown to about 350,000 subscribers by 1977.To continue competing with HBO, Showtime began transmitting programming to local cable stations via satellite in 1977. In 1978, it struck a deal with Teleprompter Corp., the largest cable operator in the country at the time, to offer customers Showtime instead of HBO. Showtime also created a service called Front Row, which was dedicated to family programming, such as classic movies and children’s shows. This service offered an alternative for customers at less than $5 a month (“Viacom Inc.”).
Viacom also invested money in building its own infrastructure through mergers and acquisitions. In 1981, it bought WLAK-FM, a Chicago based radio station, and Video Corp. of America, which saved Viacom money on production costs, as well as disclosed its minority stake in Cable Health Network, an advertiser supported cable service. This growth may have served to help prevent takeover attempts. The acquisitions put Viacom in debt, and purchasing television and radio stations added broadcast licenses to Viacom’s legal obligations. Transferring these licenses was a laborious process, thereby slowing down any attempts to take over Viacom (“Viacom Inc.”).
By 1982, Showtime had 3.4 million subscribers, but the growth rate for syndication, still 45% of Viacom’s profits, was declining. By 1984 Showtime became a sister station to Warner Amex’s The Movie Channel in an attempt to raise sales for both, however HBO and its sister Channel Cinemax were being offered on 5,000 of the 5,800 cable markets in the country, compared to 2,700 offering Showtime or The Movie Channel. HBO had a larger share of the market and already featured many of the films featured on Showtime or The Movie Channel, which removed much of the incentive to pay for both groups (“Viacom Inc.”).
In September of 1985, Viacom purchased MTV Networks and the remaining half interest of Showtime from Warner Communications, increasing their debt load. MTV Networks included MTV, Nickelodeon, and VH-1. Viacom restyled Nickelodeon, creating a style that mirrored that of the more successful MTV. Viacom also created “Nick at Night” to appeal to an adult audience. These changes helped Nickelodeon become the most popular channel on basic cable (“Viacom Inc.”).
Showtime continued losing customers between 1985 and 1986, so it began gaining exclusive rights to popular movies, promising viewers a new film every week that could only be seen on Showtime. This led to an increase in cost of programming and in the cost of marketing (“Viacom Inc.”).
Viacom continued to lose money, attracting the attention of buyers. Viacom was bought by Sumner M. Redstone, president of the National Amusements Inc. movie theatre chain in 1986. Under new management, Showtime obtained exclusive contracts with Paramount Pictures and Walt Disney films (“Viacom Inc.”).
Shortly after the buyout, interest in syndicating grew, allowing Viacom to make profits through syndication. In 19898, Redstone sold some of Viacom’s assets for huge sums of money, including selling Viacom’s Long Island and Cleveland cable systems, as well as stakes in Showtime. Viacom’s increasing success was also due in part to the huge success of MTV, which was continually growing internationally. Viacom branched out, creating Lifetime, a channel geared towards women, as well as its own productions operations. Viacom was then able to produce content for its own use or to sell (“Viacom Inc.”).
In 1989, Viacom sold 50% of Showtime to a cable systems operator, TCI, in hopes of increasing TCI’s incentive to market Showtime. Viacom introduced HA! months after HBO introduced its Comedy Channel. It became evident that only one channel would survive, so the two considered merging. HBO’s parent company, Time Warner, would not allow the merge unless Viacom would settle an antitrust suit against HBO. The suit, filed in 1989 by Showtime, alleged that HBO was trying to put Showtime out of business. The suit was settled, with Time Warner paying Viacom $75 million, agreeing to distribute Showtime and The Movie Channel on Time Warner’s cable systems, and creating a joint marketing campaign to revive the damaged image of cable. The two also agreed to merge HA! And the Comedy Channel into Comedy Central (“Viacom Inc.”).
In 1994, Viacom purchased Paramount Communications Inc., a production company, which also granted Viacom ownership of Simon & Shuster, Inc., a book publisher. Later that year, Viacom purchased Blockbuster, a quickly growing enterprise. These acquisitions left the company in significant debt, so Viacom began downsizing other segments of its operation, including radio stations and operations at Madison Square Garden (“Viacom Inc.”).
1998 proved to be a hugely successful year, due to the success of Titanic as well as a sale of most of Simon & Shuster book publishing. Viacom later merged with former parent company CBS, and then split again in 2005 into two independent public companies. Blockbuster had become a separate company in 2004. Viacom then had to face the effects of the Internet on their business, where they are still struggling to regain the large success they had in previous years (“Viacom Inc.”).
Viacom’s current subsidiaries include over 400 companies worldwide. A complete list of subsidiaries can be seen in Table 1: Viacom Subsidiaries (Mergent Online). The principal subsidiaries include Paramount Classics; Paramount Pictures; Paramount Vantage; MTV Films; MTV Networks; Nickelodeon Movies; BET Networks; and VH-1, Inc. Many of these subsidiaries also include international branches, such as MTV India, or production branches, such as Nickelodeon Animation Studios. These branches further divide into magazine companies, music labels, and acquisition companies. These subsidiaries can be categorized into two main segments: Media Networks, including MTV, CMT, VH1; and Filmed Entertainment, including Paramount Pictures, MTV Films, Nickelodeon Movies (Mergent Online).
Sumner M. Redstone, who acquired the company in 1986, serves as the Chairman Emeritus. Robert Bakish serves as acting president. Wade Davis serves as Chief Financial Officer. Philippe P. Dauman serves as Chief Executive Officer. James W. Barge, Carl D. Folta, Michael D. Fricklas, DeDe Lea, and Scott M. Mills serve as Executive Vice Presidents. Katherine Gill-Charest serves as Senior Vice President. Viacom also has a Board of Directors with 12 directors, Redstone as Chairman Emeritus, Thomas May as the non-executive chairman, and Shari Redstone as the non-executive vice chairman (Mergent Online).
Viacom’s mission statement is:
“Viacom’s goal is to be the world’s leading branded entertainment company across television, motion pictures and digital media platforms. What sets our portfolio apart is that we are consistently first with fans, sustaining deep connections with distinct audiences to create value for our brands and partners. Our award-winning programming, long-term focus and industry-leading solutions create unparalleled fan engagement – every minute, on every platform, all around the world. By capitalizing on our creative strengths and deepening our relationships with audiences, advertisers, distribution affiliates, talent and licensees, Viacom is positioned to achieve global success in a changing media landscape” (“Investor Relations”).
Through this mission statement, Viacom shows its desire to be on top of the media industry through many different media channels, as well as a desire to adapt to the technological advances. To its stockholders, Viacom stresses three main goals: the investment in original programming, global reach, and innovation in data and technology (Dauman). Viacom also briefly addresses the importance of adaptation to change due to the young nature of its audience.
Viacom’s letter to stockholders stresses its original content investments, from feature length films to 10-second videos for mobile platforms. The letter justifies spending more on original content by highlighting the successes of programming in 2015: Comedy Central earned 26 Emmy nominations and 8 wins, Nickelodeon ranked first in children’s entertainment, MTV’s 2015 Video Music Awards was the most tweeted entertainment program to date, and Spike’s series Tut averaged 2.2 million viewers which generated 81% new channel viewership. Viacom also discusses Paramount’s heightened content production, with ten shows ordered to production in addition to twelve projects for other networks and digital outlets. Paramount also committed to fifteen film releases in 2016 (Dauman).
Viacom also focuses on expanding Viacom’s various brands on and international level. The company is expanding across the globe, namely in the U.K., India, Africa, Latin America, and Asia. The U.K. is the fastest-growing developed economy outside the U.S., and Viacom’s 2014 acquisition of Channel 5 boosted Viacom to be the second largest privately held commercial media network group in the U.K. India is also a huge market for Viacom’s developments, with has 10 Viacom channels including MTV, Nickelodeon, Comedy Central, and Colors, a Hindi entertainment brand. Viacom also obtained interest in Prism TV, a very popular Indian channel, which the company hopes will help grow Viacom’s presence in the rapidly evolving television market. The company also mentions expansion in Africa, where Viacom is already the largest media company, Latin America, and Asia, all considered to be growth markets for Viacom. Viacom believes that its 3.7 billion subscriber reach can continue to grow (Dauman).
The letter to stockholders also stresses the importance of continuous innovation to identify and reach more targeted audiences. Viacom recently launched Viacom Vantage, an ad effectiveness tool with capabilities that exceed traditional demographic targeting. Viacom plans to continue using this tool to reach millennials, who make up a large portion of the audience for Viacom’s programming but are often unmeasured. Viacom is also looking to continue developing innovative ways of reaching viewers through social media. By doing so, the company hopes to better connect advertisers with targeted audiences. In addition to data innovations, Viacom is looking to work with various distributors and social media platforms to expand streaming and mobile distribution services internationally. By turning a large focus to social media distribution, Viacom is showing the importance of reaching a millennial audience. Through Viacom’s desire to continue expanding the use of data and technology, the company shows its goal of expanding its brands and creating an enhanced customer experience (Dauman).
Viacom also has a large diversification of media products. The company produces content of various lengths and formats and distributes them to television channels within their network. In addition to this, Viacom’s production companies create feature films to be distributed through typical movie distribution channels. Beyond television and movie content, Viacom produces apps, games, social media experiences, and other entertainment content across 180 countries. This diversification and global reach, as stressed in the letter to stakeholders, allows Viacom to continue growing and creating content that pushes technological innovations forward as well as delivering content that a millennial audience wants (Dauman).
Viacom’s television profits come primarily from both advertisers and license fees, paid by the multichannel video programming distributors. In addition to the television branches of the company, Viacom’s diverse portfolio allows the company to gain profits from other areas as well, such as through box office successes in movies and mobile phone based gaming. The introduction of Viacom Vantage provides a new method of increasing advertiser-based profits, allowing data based decisions to be made by advertisers. Viacom hopes that this new targeting data product is able to increase the amount advertisers are willing to pay for specific audiences. While Viacom does have a largely diverse portfolio of products and subsidiaries, the company has been experiencing decreases in profit over the past few years, leaving investors nervous about the company’s future (Hagey and Beilfuss).
As stated previously, Viacom has been experiencing general decreases in profits from 2013 to 2016. Revenues are down from $13,794,000,000 in 2013 to $12,488,000,000 in 2016, a decrease of $1,306,000,000. Viacom’s total expenses have remained fairly constant throughout these years, ranging from $9,958,000,000 in 2013 to $10,156,000,000 in 2015. The decrease in revenue is larger than the changes in expenses, showing that Viacom is not making as much money as they have in years past. This decrease in profits is worrying to Viacom and to investors (Income Statement As-Reported).
The total amount of assets is also decreasing from 2013 to 2016, with slight recovery from 2015 to 2016. The assets in 2013 totaled $23,829,000,000 while the assets in 2016 totaled $22,508,000,000, a decrease of $1,321,000,000. The 2016 total is up $365,000,000 from 2015’s total of $22,143,000,000. This relatively small increase may be seen as a beneficial, however an increase in assets signify expansion that could lead to debt (Balance Sheet As-Reported).
Viacom’s cash flow is also very telling of the company’s recent misfortunes. The net flow from 2013 to 2016 has only been positive once, and that positive cash flow occurred in 2013. Viacom’s 2013 cash flow totaled $1,555,000,000, compared to net losses in 2014, 2015, and 2016: $1,403,000, $494,000,000, and $127,000,000 respectively. While the losses are decreasing in size, suggesting a positive cash flow in the near future, these negative numbers are very troubling to Viacom and to investors, as the company is spending more money than they are making annually (Cash Flow As-Reported).
In recent Viacom developments, the company lost a very important distribution channel in Sony’s PlayStation Vue, who stopped providing users with Viacom content entirely. This includes Comedy Central, MTV, and Spike, among many others (Ali). Vice President of PlayStation Dwayne Benefield said that the decision came from ongoing evaluations of the content provided to users, determining that removing Viacom content was the best way to serve users (Benefield).
As stressed in Viacom’s letter to shareholders, the subsidiary channels posted some impressive numbers and had varying degrees of success in 2015. The letter specifically notes the success of Paramount’s movies Terminator: Genysis and Mission Impossible: Rouge Nation, as well as recognizing TV Land and Spike for the launches of their most successful series, Younger and Lip Sync Battle, respectively. Viacom also boasts their success in bridging social media with television, with their MTV “Video Music Awards” earning the title of most tweeted entertainment program ever (Dauman).
The core conversation of Viacom currently is the prospect of a new merger with CBS, its former parent company. National Amusements, Inc. owns a majority of the voting stock in both Viacom and CBS, and has recommended a merger to help both companies better adapt to the challenges of the evolving media business. This merger would follow the original creation of Viacom by CBS as well as an acquisition and subsequent split between the companies in the early 2000s (Ingram).
With the election of Donald Trump, the merger between CBS and Viacom may face a halt. Trump has stated that his administration will block a merger between AT&T and Time Warner Inc., and this proposed blockage would likely cause the CBS Viacom merger to fail as well. Trump argues that the proposed media deal between AT&T and Time Warner Inc. would leave too much concentration of power in a small amount of company’s hands. Both democrats and republicans largely support this stance, so it is likely that the FCC and the Department of Justice will do anything in their power to block these media mergers (de la Merced and Kang).
The Viacom CBS merger seems to be largely out of desire to reduce competition rather than to increase production and distribution capabilities. The companies have been merged and split multiple times in the past, and a merger now would likely not produce any new results for either company.
Viacom’s recent struggles have been in part due to their target audience, millennials, moving to cord cutting. As more potential subscribers look to other methods of receiving entertainment content, Viacom’s networks lose subscribers. With decreased subscribers comes decreased license fees and less interest from advertisers, meaning less profits for Viacom. Dedication to look to new distribution channels is a positive outlook, however Viacom is not at the top of this new industry, as shown by PlayStation Vue’s decision to drop all Viacom content.
Viacom continuously spends increasing amounts on original content production, from movies to television shows and beyond, but they fail to make a large return on these programs. As shown in Viacom’s recent financial statements, the company is spending more and making less, which is not the goal for any company.
In order to turn the company’s future to a more positive light, Viacom should continue to develop and explore distribution channels beyond the tradition medium, as well as focus production costs on a more selective group of shows, movies, or channels. If Viacom decides that MTV or Nickelodeon are the channels where there is room for more growth and more profits, then expenditures should be placed in developing content there. Viacom should also work to develop new distribution channels to attract cord cutters.
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