Why Netflix Inc. (NFLX) or Apple Inc. (AAPL) Should Buy Viacom Inc. (VIAB)

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Content-hungry tech firms such as Netflix, Inc. (NASDAQ:NFLX) and Apple Inc. (NASDAQ:AAPL) don’t have to starve. Not with Viacom, Inc. (NASDAQ:VIAB) still ripe for the picking.

Why Netflix Inc. (NFLX) or Apple Inc. (AAPL) Should Buy Viacom Inc. (VIAB)

Sure, the parent company of Paramount Pictures and MTV is a hot mess that has been mismanaged for years, but CEO Robert Bakish appears to have a solid turnaround plan in the works.

On the face, VIAB stock also is attractively valued. It trades at a multiple of 12.6 — a discount to peers such as Time Warner Inc (NYSE:TWX, 19.9), Walt Disney Co (NYSE:DIS, 20) and Twenty-First Century Fox Inc (NASDAQ:FOXA, 18.7).

Although Viacom shares have already surged more than 20% on anticipation of Bakish leading a turnaround, I believe VIAB has more room to run, especially if these acquisition scenarios come to fruition.

The road ahead for Bakish, however, isn’t going to be easy — there’s a lot to clean up.

The Viacom Salvage Story

Not only are Viacom’s cable networks such as MTV, Comedy Central, and Spike struggling to attract audiences, but its Paramount Studios division is bombing more than I did with the ladies when I was single.

Most millennials probably don’t have any idea what the “M” in “MTV” stands for, and The Daily Show just isn’t the same without its star Jon Stewart … though his successor Trevor Noah certainly had his moments during the presidential campaign.

None of Paramount’s 2017 releases — xXx: The Return of Xander Cage, Monster Trucks and Rings — resonated with audiences. Monster Trucks was so horrible, in fact, that the New York-based company took the highly unusual step of announcing a $115 million write-down related to the picture (about an alien from outer space living in a car who befriends a teenage boy) before it was even released.

No wonder Paramount lost $445 million last year and recently ousted its CEO, Brad Grey.

Bakish was the third CEO in as many months when VIAB named him to the position in 2016. He won kudos from Wall Street analysts for his plans to focus Viacom’s cable business on core channels such as MTV, Comedy Central and Nickelodeon. Spike will be rebranded as “Paramount” to broaden its audience reach. He wants to overhaul Paramount Studios to more closely orient the storied home of Titanic, Star Trek and Mission: Impossible to its cable channels.

The best-laid plans of any Hollywood executive are dependent on the fickle tastes of the public, which are impossible to plot in a spreadsheet. Sometimes, like in the case of Monster Trucks, the stench of box office failure is easy to spot. Other times, it’s not.

For Bakish’s strategy to work, he needs hits — badly. While upcoming releases such as the latest in the Transformers saga appear to be promising, Viacom’s road back to cultural relevance will be long and hard and may take years.

VIAB stock holders probably are not going to wait that long.

Why Netflix or Apple Should Gobble Up VIAB

Viacom would make an ideal acquisition for Netflix. For one, the much larger Netflix ($62 billion versus $17.5 billion) while not cash-rich, isn’t afraid of debt and could finance such a deal knowing that it would pay back in spades.

Plus, the Los Gatos, California-based company is already expected to spend $6 billion on original content this year anyway. This would merely be a different way to spend that money on content.

Though, a VIAB acquisition would make much more sense for Apple, which is sitting on more than $200 billion in cash and acquisitions. It’s also interested in developing original movies and television shows, though it lacks infrastructure to do so.

According to the Wall Street Journal, AAPL executives have said to “people in Hollywood they hope to start offering original scripted content by the end of 2017.”

Buying Viacom would be a much speedier way to reach that goal.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/why-netflix-inc-nflx-or-apple-inc-aapl-should-buy-viacom-inc-viab/.

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