Fool on the Street: Viacom Plants the Flag

Few cable networks have a signature spot as iconic as MTV's animated clip of the Apollo 11 astronauts planting the flag on the moon, with a rock guitar riff rolling in the background. That's been part of Viacom's (NYSE: VIA  ) MTV since the beginning, yet it's not an image above criticism by the cable giant's new CEO.

"We've planted the flag," CEO Philippe Dauman told those in attendance on Thursday during the Credit Suisse Media & Telecom Week conference. "I don't think, in planting the flag, we necessarily looked on how we can maximize our growth opportunities."

Dauman was speaking about the company's overseas strategy -- where he sees margin expansion in the range of 10 to 15 percentage points over the next few years -- but it was interesting all the same for him to bring up an image of the company's past in taking his own company to task. Simply landing on the moon isn't enough for Dauman. Apparently, he wants to colonize.

Sowing the seeds of Viacom
Dauman replaced Tom Freston as CEO three months ago. The message was clear at the time. Viacom had failed to become the faster-growing twin after its split with CBS (NYSE: CBS  ) , and Sumner Redstone wasn't happy. Viacom came up short in the battle with News Corp. (NYSE: NWS  ) to purchase MySpace, and rival and Motley Fool Stock Advisor pick Disney (NYSE: DIS  ) has continued to grow its global grip on the family market despite Viacom's Nickelodeon.

Dauman realizes that some -- though not all -- of the knocks on the company are fair. He also will defend his company's existing product when he has to. In tackling a question about the company's digital strategy, Dauman points out how the Viacom sites combined to attract 38 million unique visitors in October. He also points to a target of $500 million in digital revenue for 2007.

Viacom is growing its cable empire, too. The launch of Logo earlier this year joins the Viacom family of networks, which includes Comedy Central, BET, VH-1, CMT, TV Land, and Spike. Those are just some of the properties above and beyond its bread-and-butter Nickelodeon and MTV lines.

Last month, MTV rolled out MTV Tres. The new bilingual channel aims to win over the bicultural Latino community. No, MTV isn't dead. In many ways, it has just begun to fight.

Still wanting his MTV
Even though MTV is often mocked for its lack of music videos, its slate of shows is apparently still resonating with relevant audiences. Dauman notes that MTV is having its second-highest ratings year in history. If one were to combine MTV with MTV2, this year would actually be the highest reach in Viacom history for the MTV franchise.

The new programming slate features "some exciting shows" like Dance Life with Jennifer Lopez, the Island Fever teen serial, and some Mafia-themed comedy through Adventures in Hollyhood.

Nickelodeon isn't resting on its laurels, either. The kid-friendly network is rolling out five new animated shows next year. Is the next SpongeBob or Jimmy Neutron in that batch? I guess our kids will find out before we do.

Dauman hopes that a few hits on the Nick front will also translate well overseas. Viacom's rivals are deriving 50% of the consumer products revenue internationally. Viacom was at just 8% two years ago, and it's up to 20% today. Dauman hopes to get it back up to the 50% industry average in a few years.

Spoils to the victor
Viacom's new CEO has some pretty deep incentives to grow his company.

"I came in with a compensation package that is dramatically different in structure from the compensation packages of any of my predecessors," he notes. "Mine is very heavily oriented toward building long-term equity value. Less cash, more equity."

In other words, if Dauman cashes in, it will be because Viacom shareholders have also done so.

It's the right approach as Viacom puts the pieces together. The company is starting to unlock its synergy; it's turned to its Paramount movie studio to brand kid films and older teen flicks under the Nickelodeon and MTV brands, respectively, for a few years now. It will now give its BET brand the same celluloid treatment. These network-branded films have usually been lower-budget productions that the company can market through the branded networks. However, it hasn't forgotten about gunning for blockbusters, either, especially with the acquisition of DreamWorks.

The DreamWorks slate is rich in potential, including Eddie Murphy's Norbit and the eagerly anticipated Transformers movie, directed by Michael Bay and executive-produced by Steven Spielberg, come July. And, yes, Star Trek fans can set their phasers to "thrilled." Dauman expects a new film in that long-standing franchise to hit the big screen in either 2008 or 2009.

So maybe Dauman is taking the cue from Captain Kirk. Planting the flag on the moon? That's nothing. He and his equity-laden compensation package want to take Viacom where no Viacom has gone before.

Let's hope that shareholders enjoy the ride.

Disney is an active recommendation in theStock Advisornewsletter service. You're welcome to read up on why with a free 30-day pass to access all of the newsletter's content services, including a lively subscriber-only discussion board.

Longtime Fool contributor Rick Munarriz knows most of the Nickelodeon shows by heart, though it's not always by choice. He owns shares in Disney. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.


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