Viacom Blazes the Trail to Profit in Digital Television

by Anthony John Agnello | August 8, 2011 12:39 pm

Viacom digital televisionTelevision is a strange business in the middle of 2011. Cable providers like Comcast (NASDAQ:CMCSA[1]) and Time Warner (NYSE:TWX[2]) performed well in the second quarter, but those companies and the networks that provide their countless hours of televised content are living in a persistent agitated state. The way people watch television is changing, and digital platforms like streaming video service Netflix (NASDAQ:NFLX[3]) already have altered the status quo. Questions plague the TV business: Where is our audience? How do we make any money when there’s no single dominant digital platform with the ubiquity that cable has enjoyed these past 30 years?

There are no clear answers, but some content makers finally are figuring out how to navigate the digital seas toward a profit. Viacom (NYSE:VIA[4]) is leading the pack. The company reported in its second-quarter earnings Friday that digital affiliate revenues — money from partners that air the company’s shows online — grew by 20% during the last quarter alone.

The media empire has taken its family of television brands — including Nickelodeon, MTV, Comedy Central and others — to nearly every digital platform available, a strategy that has made it unique compared to network competitors like Disney‘s (NYSE:DIS[5]) ABC and Comcast’s NBC Universal, who have been reserved in their digital partnerships.

Viacom’s programming is available on Netflix and Hulu’s streaming services, but the company also is selling digital licensing rights to traditional partners like cable and satellite providers. Time Warner, for example, recently released an iPad app for its subscribers that landed the company in hot water as it didn’t secure licensing rights with all of the channels it offered on the service. Viacom’s openness to dealing with all of these partners is, according to CEO Philippe Dauman, going to help affiliate fees grow in the “high single digits or low double digits” each quarter for the foreseeable future.

There certainly are an increasing number of outlets for Viacom to license to. More competitors are entering the streaming video market every day. There are hints that Apple (NASDAQ:AAPL[6]) is gearing up to release a Netflix competitor[7]; Amazon (NASDAQ:AMZN[8]) likely will push its Amazon Prime streaming video subscription service as a key feature of its Kindle tablet[9]; and even though Google‘s (NASDAQ:GOOG[10]) Google TV was a failure[11] in its first incarnation, all signs point to it bringing new Google TV products to market in the next year.

That’s just three new prospective digital licensers from which Viacom can pull fees. Where DVD sales was the growth market of television content makers 10 years ago, now there are digital licensing fees. Viacom is forming the model that other television businesses need to follow to maximize profits in the digital age. Making content exclusive to just a few platforms, expecting consumers to seek out what they want, isn’t the answer. The key is making your wares available to the audience wherever it looks.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[12] and become a fan of InvestorPlace on Facebook[13].

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