Should Viacom Sell Paramount? Analyst Pressure Builds
CEO Philippe Dauman may need to act soon as the stock sinks, but a $5.5 billion price tag might not be what the ailing company needs most.
This story first appeared in the Feb. 26 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
Philippe Dauman has been on the job less than a month as Viacom's executive chairman, and already his leadership is being tested by a trifecta of troubles: a bludgeoned stock price, lagging financials and a crisis of confidence about his command.
Now Wall Street openly is calling for something that would have been unheard of during the heyday of the media conglomerate's run under Sumner Redstone: selling off assets to raise cash. It would mark the deconstruction of a film and television company the ailing 92-year-old mogul pieced together over the span of nearly three decades.
Perhaps the most unthinkable move swirling around Hollywood corner offices is jettisoning Paramount, the once-crown jewel of Viacom's sprawling empire that has turned out such hit franchises as Mission: Impossible, Star Trek and Transformers. Dauman says he wants to stay the course and weather a turbulent period that's seen the value of Viacom slashed by half in mere months. He blames the latest upheaval on "naysayers, self-interested critics and publicity seekers" unfairly bashing Viacom.
But that might not be enough to stop the steady drumbeat of analysts and investors calling for asset sales, funneling money raised into propping up Viacom's main cable TV business. After all, Nickelodeon, MTV, BET, Spike TV and Comedy Central still are dominant brands among younger viewers, and those channels are expanding rapidly overseas.
Analysts figure Paramount, which Viacom acquired for $9.8 billion in 1994, is worth from $3.5 billion to $5.5 billion today. There's also speculation that Viacom could get something near the top of that valuation by selling to Alibaba, Wanda or another cash-rich Asia company looking to jump into the movie business.
Paramount has been underearning and has not put out as much product as its rival studios have and is therefore "not important to keep," says Danny Leibowitz of media hedge fund Act II Partners. "It's unrelated to the rest of the company, other than maybe some TV production." Indeed, the soft movie slate at Paramount has led to a slump in earnings. For the quarter ended Dec. 31, Paramount posted a $146 million operating loss that Dauman bemoaned during a conference call with analysts as a "brief income slump" that left the studio "significantly undervalued."
However, Dauman flagged to Wall Street in 2015 that the turmoil would be short-lived as Paramount is committed to returning to a full 15-film slate in 2016. The studio has been picking up more projects lately (a George Clooney movie, Suburbicon, in Berlin, and Vin Diesel's next xXx project, taken from Sony). And on Feb. 12, the studio dated three more Transformers films (one each June in 2017, 2018 and 2019). Some observers speculate this activity is a way to boost the value of the studio in preparation for a sale.
Still, some on Wall Street don't see a sale of Paramount as a solution to what ails Viacom. "People are asking Viacom to sell Paramount because they think the cable networks business is falling apart, but raising a little more cash does nothing to change that," says Doug Creutz of Cowen and Co. "If someone wants to buy a movie studio, go buy Lionsgate. Their stock was killed, too, and you could get a studio plus a nice TV production business on top."
Mario Gabelli, who owns more voting shares of Viacom than any entity not controlled by Redstone, prefers Viacom sell just a portion of Paramount. He posits that Chinese web giant Alibaba would be interested given its desire to plunge more heavily into filmmaking. In fact, Alibaba already has a relationship with Paramount; both partnered on Mission: Impossible — Rogue Nation. As Gabelli sees it, Viacom could sell between 10 to 50 percent of Paramount to the tech giant and use the money to invest more heavily in original TV shows. On a more drastic note, some even call for an outright sale of all of Viacom: "The entire company, in my opinion, ought to be sold and the prospective buyer can then sort it all out and jettison whatever doesn't fit," says Hal Vogel of Vogel Capital Management.
The one thing that's certain about Viacom's troubles is that Wall Street doesn't appear willing to play a long waiting game for Dauman to turn the company around. He dismissed some of the recent criticism as "noise" when Viacom released disappointing quarterly earnings Feb. 9 — then defended his leadership as CEO. Investors responded by sending shares down 21 percent, a monumental one-day plunge for a major media conglomerate.
That drop unsettles BTIG analyst Rich Greenfield, who tangled with Dauman during the conference call. "I got 30 calls from people wondering what the 'noise' is. I really don't know," says Greenfield. "Viacom has underperformed because its ratings are bad, its movie studio basically stopped producing movies, they've lost a tremendous amount of creative executives and advertisers are finding alternatives."
He adds: "That's not 'noise.' That's fact."
Georg Szalai contributed to this report.