Rumors are swirling that small media conglomerate Viacom, Inc. (NASDAQ:VIA) might become big media conglomerate Viacom, Inc. again, and it might be the thing that saves VIA stock.
A little history is necessary here for contextual purposes. Viacom was once a massive American media conglomerate that covered both the present-day Viacom (owner of multiple cable channels alongside the Paramount movie studio) and CBS Corporation (NYSE:CBS) (owner of a broadcast television business and several other digital properties).
The only way VIA stock (and to a lesser extent, CBS stock) stay afloat over the next several years is if the two companies re-combine.
Viacom Needs To Get Bigger
There’s no question about it. The entertainment industry is rapidly changing.
Netflix, Inc. (NASDAQ:NFLX) changed the whole game by introducing a new content distribution channel (over-the-top) which proved to be easier, more convenient, and cheaper for customers. Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc(NASDAQ:GOOG,NASDAQ:GOOGL), Roku Inc (NASDAQ:ROKU) and others hopped on the bandwagon.
The internet TV industry boomed.
Traditional media giants got hurt. Badly. Walt Disney Co (NYSE:DIS), Twenty-First Century Fox Inc (NASDAQ:FOX), CBS, and Viacom all struggled. Consumers stopped going to the movies. They stopped watching traditional television. Instead, they were turning on their smart TV, Roku, or laptop, and navigating to Netflix, Amazon Video, and YouTube.
Those struggling traditional media giants are finally starting to fight back. And one of the ways they are fighting back is by getting bigger.
Disney just acquired Twenty-Fist Century Fox’s film and TV studios. That combined media giant is prepping an internet TV streaming service that will launch in 2019 with a robust content portfolio that will rival Netflix’s large and growing content portfolio.
But where is Viacom in all this? How exactly do they survive?
They can’t. Unless they get bigger.
The future is internet TV. With cord cutting still happening en masse, to keep VIA stock growing, Viacom will be forced to package its content into an internet TV offering and deliver it over-the-top (like Netflix is doing and what Disney plans to do).
When that happens, Viacom will need to be much bigger than it currently is in order to compete. When it comes to internet TV, what matters is how much content you have on your platform, and how good that content is.
Viacom has good content. But not enough content. Between its networks and now relatively small movie studio, Viacom’s content portfolio pales in comparison to the content portfolios put forth by Netflix and the new Disney.
The only way VIA stock offers a comparable offering as the big players is to become a big player itself. Recombining with CBS does just that.
Bottom Line on VIA Stock
VIA stock is already popping on the CBS re-merger rumors. It is up near $40 versus its $34, 50-day moving average.
In order for Viacom stock to stay at these levels, the company needs to merge with CBS. Without that merger, Viacom stock will wipe out its recent gains. Worse yet, the stock will simply grind lower over the next several years as the company fails to compete with today’s media giants.
Bottom line: Viacom stock needs a merger with CBS in order to survive.
As of this writing, Luke Lango was long DIS and NFLX.