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[edit] Business Segments

Viacom operates through two separate business segments in the media industry. The first is their media networks segment which includes television networks as well as digital properties both domestic and international. The second business segment is known as Filmed entertainment and is responsible for the production, promotion and distribution and licensing of feature films.

[edit] Media Networks

Viacom's media networks segment controls over 150 television channels and more than 300 digital properties, which include online, broadband and mobile television services. The media networks segment generates revenue from three sources: The sale of advertising time on cable and digital networks, from fees that are payed to cable network television operators and satellite television operators and other distributors and finally ancillary revenue which includes the sale of consumer products including video games, as well as the licensing of its content to third parties. In 2007 the media networks segment was responsible for $8.10 billion in revenues earned.^[1]

[edit] Filmed Entertainment

The filmed entertainment segment is responsible for the production, financing and distribution of motion pictures. Viacom's filmed entertainment segment owns and operates Paramount Pictures, Paramount Vantage, Paramount Classics, DreamWorks Pictures, MTV Films and Nickelodeon movie brands. Films are generally released in theaters in the United States and abroad and then released to DVD and licensed to Video-On-Demand distributors and other third parties for further distribution. All revenues from these various forms of distribution are recorded under the filmed entertainment segment. In 2007 filmed entertainment earned %5.48 billion in revenue and increase of $1.2 billion, or 28%, from 2006. The process of creating, releasing and later licensing filmed entertainment is broken down into four segments that create different revenue streams. These segments are home entertainment, television licensing and ancillary revenues.

• Theatrical: Revenues from the theatrical release of Viacom's films are recorded in this segment. In 2007 theatrical revenues accounted for $1.47 billion of the company's total revenues, an increase of 69% from 2006. This increase was largely due to the successful release of the films Transformers and DreamWorks' Shrek the Third, which performed better than comparable films released in 2006. A complete list of Viacom's theatrical releases can be seen below.

• Home Entertainment: Revenues from the distribution of filmed entertainment to households through DVD sales are recorded under the home entertainment segment. Home entertainment earned $2.49 billion in 2007, an increase of 18% from 2006. The increased revenues were largely due to the success of many DVD releases during the year, again including Transformers and Shrek the Third.

• Television Licensing Fees: Once films are released in home entertainment formats (and thus out of theaters) Viacom sells the rights to distribute its content to various third parties. Television networks, video-on-demand services, pay and free cable services and in some cases airlines and hotels are all service providers that pay Viacom for the rights to air the company's films. Television licensing fees also increased in 2007, returning $1.29 billion, 15% higher than 2006.

• Ancillary Revenue: Revenues from studio revenues, consumer product licensing and the distribution of filmed entertainment through new online and mobile platforms are recorded as ancillary revenue in the filmed entertainment segment. In 2007 these revenues accounted for $221.8 million, an increase of 30% from 2006.

[edit] Trends and Forces

• Intellectual Property: Piracy in the entertainment industry is a serious concern for Viacom. The rise of the internet has made it increasingly easy for consumers to gain access to content without paying anything. As a result, companies like Viacom don't see any revenue for the media content that they produce. Increased piracy regulations in the U.S. and abroad (particularly in China, where such regulations are very lax) could be very helpful for Viacom. If piracy is not controlled or strongly regulated in the future Viacom could see serious losses from the intellectual property violations.

• Success of Content: The success of the programming that Viacom licenses - measured by box office returns, or television ratings - is what generates revenue, as this is what determines the amount Viacom can charge in affiliate fees. These fees are determined through negotiations with cable and satellite distributors and the more successful a program is, the larger the fee Viacom can charge for the licensing. As the entertainment industry is extremely fast paced, it is essential that the content Viacom produces keeps up with what is currently popular.

• Decline in Cinema Viewing: Most movies produced today are break-even projects for Viacom and its competitors. As the costs of producing major block buster movies continue to rise, the revenues from these movies must also increase in order for the projects to remain worthwhile. In recent years revenues from theater releases have fallen, causing high cost projects to become less attractive. This decline in cinema attendance is coupled with an increased demand in the DVD market. While Viacom is a major player in both areas, it does rely strongly on its theatrical release revenues.

[edit] Competition

Viacom competes directly with other major media conglomerates including Time Warner (TWX) and Walt Disney Company (DIS). The below table compares Viacom's revenues, market capitalization and operating margin with both Time Warner and Disney. While Viacom's revenues and market cap are significantly smaller than those of its competitors it does maintain an advantage in operating margin.

The below table shows the 2007 box office revenues for the major American film studios along with their market share. Viacom's Paramount is the industry leader bringing in $1.5 billion in revenue from the box office and controlling 15.5% of the market share.

[edit] Studio Market Share

The following chart shows 2007 domestic studio market share by gross revenue. Total gross revenue in that year was ~$9.7B for the industry as a whole^[3].

[edit] References

1. ↑ ^{1.0 1.1 1.2} Company 2007 Form 10-K, filed February 28, 2008.
2. ↑ www.thefreelibary.com
3. ↑ ^{3.0 3.1} Box Office Mojo: Studio Market Share. Retrieved on July 6, 2008.