November 14, 2019 / 9:55 PM / 7 months ago

Breakingviews - If only Viacom-CBS were fixable like Sonic’s teeth

The Sonic the Hedgehog balloon floats down Central Park West during the 87th Macy's Thanksgiving Day Parade in New York November 28, 2013. REUTERS/Gary Hershorn

NEW YORK (Reuters Breakingviews) - Sonic the Hedgehog got a dental makeover this week – Paramount Pictures redesigned its upcoming movie after fans freaked out about the spiny blue hero’s teeth. The merger between studio owner Viacom and its sister company CBS will be harder to fix.

The U.S. media firms, both controlled by the Redstone family, are now worth about a quarter less than when they agreed to their $28 billion union in August. Competition by much bigger rivals has intensified, and knitting together two businesses that were once joined together, after a dozen years of developing different cultures and strategies, brings much uncertainty.

The shares are now moving in lock step, but that may be better for CBS than for Viacom. CBS didn’t help its case by forecasting three years of free cash flow well below analysts’ projections. For instance, MoffettNathanson revised its estimates down a whopping 39% in 2021. 

Viacom, meanwhile, tended to outperform analysts’ earnings and revenue estimates more so than CBS did during the past four quarters, according to data compiled by Refinitiv. It might be possible to recoup the value lost so far. The combined companies expect to save some $500 million on costs per year, but Viacom, whose boss Bob Bakish will run the merged company, reckoned that was the baseline.

Bakish can also avoid wading into streaming wars he would probably lose. He has a multi-year deal with Netflix to produce animated TV shows based on Nickelodeon characters. Viacom’s streaming, ad-supported service Pluto TV has 20 million monthly active users; CBS’s direct video service has more than 8 million subscribers. But Walt Disney said on Wednesday it had snagged more than 10 million customers for the new Disney+ service on its first day alone. Making decent content, not fighting for subscribers, is the smartest way to show off the company’s chops.


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