Viacom's India Joint Venture in Spotlight After Stake Sale

Courtesy of Viacom18
Viacom18 Group CEO Sudhanshu Vats

Wall Street observers say Viacom's deal to sell a stake in India's Viacom18 could help show the entity's value ahead of a recombination with CBS.

Viacom is hoping investors, and possibly CBS Corp., will give it more credit for its position in India, which several analysts have called "fast-growing" over the past couple of years.

Viacom teamed with TV18, the broadcasting subsidiary of Indian media entity Network18, a decade ago to form joint venture Viacom18, which has grown to operate 44 channels in six different languages.

But while 21st Century Fox regularly gets plaudits for its Star India unit, Viacom doesn't get “any value recognition” in its stock for its India business, CEO Bob Bakish said in late 2017.

“Viacom18 is an amazing story and probably an underappreciated one,” Viacom International Media Networks CEO David Lynn similarly told THR in December. "It's grown from $10 million in revenue to over $500 million in the last 10 years."

CFRA analyst Tuna Amobi says that Wall Street typically focuses on other Viacom businesses. "I don’t think Viacom’s India business has been front and center for investors," he says.

On Jan. 31, the company tried to change perceptions, unveiling a deal to sell a 1 percent stake in the India venture to TV18 for $20 million, leaving the latter with a 51 percent controlling stake, but valuing Viacom18 at $2 billion.

Two Wall Street observers say the deal could help Viacom show the Indian business’ value as it and CBS Corp., both controlled by the Redstone family, explore a possible recombination, as they announced just a day later on Feb. 1. After all, the two sides couldn’t agree on a valuation for Viacom in previous merger talks that ended in late 2016.

While cautioning that the restructured equity structure means that with its minority stake, “Viacom will not be able to consolidate this business any more,” industry analysts Media Partners Asia executive director and co-founder Vivek Couto says that, looking ahead, Viacom will have both “limited risk and potentially, limited opportunity since they are minority partners.”

He also adds that the 10-year licensing deal between Viacom and TV18 for the joint venture (which was announced along with the revised equity structure), “will maintain steady, controlled profits going forward for Viacom — it will remain a cash-generative business.”

Lynn predicts the deal will allow for “accelerated growth through closer integration and alignment with the Network18 group and its affiliates, including India’s fastest-growing mobile network, Jio.”

While Amobi was “a little surprised” that Viacom left control to its local partner, he emphasized that the move feels in line with management's focus. "The structure of the deal appears to still allow the company to participate in the long-term upside of that market, while handing off the day-to-day operating decisions to its joint venture partner — perhaps freeing up management’s time consistent with its strategic focus on the [six Viacom] flagship brands."

The long-term upside of the market is reflected in the fact that India accounted for 65 percent of pay TV revenues in the Asia Pacific region in 2017 “led by large local channel businesses owned and operated by 21st Century Fox, Sony and Viacom,” according to a recent MPA study.

Total pay TV revenues in the region grew four percent to reach $5 billion in 2017 while EBITDA grew nine percent to reach $1 billion. On the other hand, excluding India, pay TV revenues actually declined by one percent across the APAC region in 2017 according to MPA, inching down to $2.2 billion, while EBITDA contracted by 4 percent year-on-year to $560 million.

Taking a macro view, Couto opines that the Indian economy is “robust but there has been volatility over 2016-17, which affected the ad market though Viacom18 will still grow at a significant pace on the back of [Hindi general entertainment channel] Colors and regional TV assets.”