Investment Managers:Jionghan DaiTyler HaidaJoseph KimLayla LiangMeiling Liu

Agenda

• Company Introduction• Stock Market Prospects• Macroeconomics• Industry Analysis• Competitor Analysis• Company Analysis• Valuation• Recommendation

VIACOM

Ownership of VIACOM

Sumner M. RedstoneExec Chairman and founder

of Viacom and CBSChairman of Board of NAI

NAI has Voting Rights for both

companies

Private Investment Arm

Sister Companies

NAI is 80% owned by Sumner Redstone, and 20% by his daughter. They both have control over CBS and Viacom through voting shares.

NAI is 80% owned by Sumner Redstone, and 20% by his daughter. They both have control over CBS and Viacom through voting shares.

Data Source: VIACOM 2011 10K, Forbes List of Wealthy People

Stock Market ProspectClass A & Class B

VIA VIA-BVoting Rights Yes NoShares Outstanding (in Millions) 51 500Share Price as of Nov 30 $53.35 $44.76

Data Source: Yahoo Finance

Stock Market ProspectBenchmarking against Peers

Data Source: Yahoo Finance

Macroeconomic Factors

• Age group (5-24)• Consumer Confidence Index• Leisure Time Availability• Disposable Income• Financial Crisis

Data Source: IBIS Industry Report

Supply Chain in the Entertainment & Media Industry

Data Source: Investopedia Show Biz Industry Analysis

Industry AnalysisGrowth Forecast

• Little growth in cinema attendance• Mixed growth in Home Media• Slow growth in broadcast TV ; Growth in satellite and cable

pay or subscription TV bringing in TV license fee• At most 2% growth in theater in the next 5 years, 0 growth in

TV production and about 1.5% growth in TV subscriptionData Source: IBIS World

Industry AnalysisMarket shares

Data Source: IBIS World

Global Movie ProductionViacom (Paramount): 3.5%

TV ProductionViacom: 23.3%

Cable NetworksViacom: 13.4%

• Rising production cost• Tech trend: HD Blu-ray as standard; Smart

phones, iPods and iPads; Movie download; Digital broadcasting

• Medium but growing concentration• Vertically integrated industry structure• “Low barrier of entry”• High risk in ROI (Piracy issues)• Potential Cannibalization of cinema by TV&

Digital Distribution

Industry Analysis Characteristics and trends

Data Source: IBIS Movie Production Industry Report

Key Competitors

• CBS Corporation (CBS)• Comcast Corporation (CMCS)• Walt Disney Co. (DIS)• News Corp. (NWSA)• Time Warner Cable Inc. (TWC)• Time Warner Inc. (TWX)

Competitors Key Statistics

Company Market Cap. (in millions)

Price Per Share

VIA-B 23,974.8 37.38

CBS 16,128.1 16.84

CMCS 59,147.0 20.04

DIS 61,081.4 36.51

NWSA 41,547.9 13.64

TWC 18,447.8 61.54

TWX 33,409.5 29.49

Data Source: Yahoo Finance

Relative Share Prices

Data Source: Capital IQ

Key StatisticsCompany Debt/

EquityP.E.G. Forward

P/EBeta P/BV P/Sales

VIA-B 83% .63 12.4 1.29 2.9 1.8

DIS 20% .84 14.2 1.4 1.7 1.7

CBS 61% .61 11.35 2.56 1.73 1.19

CMCS 65% 1.06 12.16 1.03 1.32 1.22

TWC 349% .84 14.0 .53 2.5 1.1

TWX 60% .86 13.2 1.23 1.1 1.3

NWSA 55% .81 10.34 N/A ? 1.58 1.26

Company Analysis Product Introduction

• Product Segments: – Media Networks (to advertisers, content

distributors, and retailers)– Film Entertainment (motion pictures and

television programs)

• Platforms: – Television, motion picture, Internet, and mobile

Data Source: Viacom 2011 10-K

Company AnalysisRevenue Breakdown

Segments Revenue ($ in Millions)

Data Source: VIA Results for the Quarter and Year Ended Sept 30, 2011

Breakdown of Topline Revenue

Revenue Breakdown within Segments

Breakdown of Operating Income

Film Entertainment has smaller gross profit margins and are more volatile than those of Media Networks

Data Source: VIA Revenue Breakdown from Bloomberg

Company AnalysisMedia Network Revenue Drivers

• Advertising– Strength of advertising markets and general economic

conditions– Success of programming, measured by viewership– Seasonal variations (highest Sept-Dec)

• Affiliate fees – Stable multi-year agreements with operators with set rate

increases– Program availability and variations

• Ancillary – Consumer spending and acceptance of products– Popularity of programming and volume of content available

Data Source: VIA Results for the Quarter and Year Ended Sept 30, 2011

Company Analysis Film Entertainment Revenue Drivers

• Theatrical – Audience response (determinant)– Seasonal variations (highest Sept-Dec around holidays and summer)

• Home Entertainment– Number, timing and mix of home entertainment releases – Consumer tastes and consumption habits– Prominence given by distributors and retailers– Overall economic conditions and trends in discretionary spending

• TV and Digital License Fees– Consumer spending and acceptance of products– Popularity of programming and volume of content available

• Ancillary– Acceptance of theatrical content

Data Source: VIA Results for the Quarter and Year Ended Sept 30, 2011

Business Strategy• Investment in programming– “Content is King!”

Sumner M. Redstone, Chairman/Founder of Viacom

• Grow film entertainment business– Strategically produce smaller slate of movies/year

(~20), allocating 3-4 titles to franchise/brand movies• Higher Margin Digital Distributors– Amazon, Hulu, Netflix

• Growing internationally• Expanding into newer platforms

Company Analysis2011 Highlights

Media Networks• Viewership ratings: How many

“eyeballs” network captured— The 2011 Video Music Awards

(VMAs) attracted the VMAs’ largest audience in MTV history

— MTV Network (Jersey Shore)— Comedy Central earned double-

digit ratings growth in September (The Roast of Charlie Sheen)

— BET Networks achieved another record-breaking year of ratings

— Centric (Second Year) double-digit viewer gains in the fourth quarter

Film Entertainment• Box office sales

– Paramount is 2nd to Disney’s Buena Vista with 18 films in the top 100 grossing films (from 1973-2011)

– Top 5 studio makers (from 2006-2011)

Key Metrics for this content-driven industry:

Company Analysis Cable Subscription 2011

Data Source: VIA Results for the Quarter and Year Ended Sept 30, 2011

Company Analysis – Box Office 2011

Data Source: VIA Results for the Quarter and Year Ended Sept 30, 2011

Company Analysis Current News

• Listing on Nasdaq from NYSE due to cost efficiencies• Change of fiscal year end to September 2011• 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 (As of Sept, 2011)

• Shift its staff from London to the Los Angeles unit• Development of its own animation unit

Total Asset of Viacom(2011)

Financial Risk• Interest Payable Debt Ratio is 32% (2012)• Adjusted Debt Ratio(by Taking Out Goodwill and Intangible) is

65%

• Seems Safe from Financial Risk

Unit: Mil. ($)Source: 10-K 2011

Capital Returns to Shareholders• Stock Repurchase Program

• 7.2 Billion Dollars more will be used to repurchase• Current Mar. Cap. for Class B Stock is 24.72 Bil.• Current Shareholders will benefit from it, but it also shows

that Viacom can’t find growth in its business

Capital Returns to Shareholders• Dividend

- Viacom started paying dividend from 2010. (Payout Ratio is 21% for 2011) - Along with Repurchase Plan, Current Shareholders will benefit from growth in

Dividend Per Share - But we think dividend policy is another evidence that shows VIACOM can’t find

growth in business

What about the business?• Good cash-cow, but suspicious about its future growth

• The recently started dividend policy and repurchase agreement is an evidence that VIACOM can’t find growth in its business

• Also, absence of voting right will make the stock treated as preferred-stock or bond asset

Valuation

VIA VIA-BVoting Rights Yes NoShares Outstanding (in Millions) 51 500Share Price as of Nov 30 $53.35 $44.76

DCF/Multiple Valuation?

VIAFull Voting Rights

One Portion of Dividends

Full Voting Rights

Total DividendsCommon Stocks

VIA-BNo Voting Rights

The other Portion of Dividends

Synthesized Common Stock?

Share Number of VIA1:10

Share Number of VIA-B

VIAFull Voting Rights

1/11 of Total DividendsVIA-B

No Voting Rights

1/11 of Total Dividends

VIA 10 VIA-B Common Stock

Synthesized Common Stock?

• If we can …– DCF– P/E = (PA + 10 PB)/(11 EPS), multiple valuation

• But …– The company is repurchasing Class B stock– Very low trading volume of Class A stock

What we do

• For class A, difficult to evaluate voting rights premium

• For class B, treat it as preferred stock or annuity– Use dividend discount method– See excel file

Recommendation

• Stock value: $38.33• Stock Price: $44.76• Put it on watch list