Viacom (NASDAQ:VIA) (NASDAQ:VIAB) recently acquired AwesomenessTV, a Gen Z-focused digital media company that has 158 million subscribers. Gen Z is the generation following millennials, with the first Gen Z babies being born in the mid- to late 1990s. The company's previous projects include DreamworksTV; Seventeen magazine's YouTube channel; the Awesomeness Music record label; the AwesomenessINK publishing label; and the short-lived Richie Rich sitcom on Netflix.

AwesomenessTV owns a library of over 200 hours of long-form TV series and feature films, and has marketing relationships with youth-oriented brands like Abercrombie & Fitch's Hollister, PepsiCo's Gatorade, and Align Technology's Invisalign.

A group of apparently young people hold speech and thought bubbles in front of their faces.

Image source: Getty Images.

Viacom didn't disclose the terms of the deal, but Variety said one source claimed that the deal valued the AwesomenessTV at "well below $300 million." Hollywood Reporter said its sources said that the final price tag was around $25 million "plus some debt."

That low price would be stunning, since AwesomenessTV was previously valued at $650 million. Comcast's NBCUniversal owned 51% of the company (through Dreamworks Animation), while Hearst and Verizon both held 24.5% stakes through their Verizon Hearst Media Partners joint venture. Let's take a closer look at why Viacom is buying this digital media company.

Trying to recapture its youth

Viacom's MTV, VH1, Comedy Central, and Nickelodeon networks used to attract younger viewers and plenty of advertisers. Unfortunately, OTT (over-the-top) streaming platforms like YouTube and Netflix turned many younger customers into streaming-only viewers while the content on Viacom's "youth-oriented" networks grew stale. Here's how Viacom's Media Networks fared over the past four quarters.

Metric

YOY Change in Q3 2017

YOY Change in Q4 2017

YOY Change in Q1 2018

YOY Change in Q2 2018

Total revenue

2%

3%

(1%)

1%

Adjusted operating income

0%

(8%)

(7%)

(5%)

YOY = year-over-year. Source: Viacom quarterly reports.

Three big problems plague this business: Its advertising revenues are slipping due to weaker ratings on its networks; its domestic affiliate revenues are slipping as cord-cutters reduce its subscriber count; and the unit's operating expenses are rising as it scrambles to launch new programs and digital initiatives.

Viacom believes that new programs like Jersey Shore Family Vacation will turn MTV around, its new Clusterfest comedy festival will boost ratings at Comedy Central, and new digital initiatives for Nickelodeon (including an OTT service in Japan and pre-school programming on Amazon Prime Video) will strengthen its kids' brand.

A Generation Z paperweight placed on the year 2000.

Image source: Getty Images.

Viacom also launched Viacom Digital Studios (VDS) to expand its reach into streaming video and reduce its dependence on cable TV bundles. Viacom claimed that VDS had 850 million social followers across its portfolio last quarter, and that it reached 4.3 billion social video views.

Viacom plans to integrate AwesomenessTV directly into VDS, and the unit will be overseen by VDS chief Kelly Day, who was previously AwesomenessTV's chief business officer. AwesomenessTV CEO Jordan Levin will leave the company.

It's unclear if AwesomenessTV can help Viacom counter platforms like YouTube, but it could be a valuable promotional tool for its online content among "digitally native" Gen-Z viewers, who were born into a world of digital technology. Viacom could also integrate AwesomenessTV into its other newer ad products, which include its Velocity in-program ad placement platform, Echo social media campaign platform, and Vantage viewer data mining platform.

AwesomenessTV could also help Paramount

Viacom's Paramount Pictures has been a sore spot for the company over the past few years due to a lack of sustainable blockbuster franchises and questionable choices in new movies. However, new lower budget films like A Quiet Place -- which had a production budget of $17 million but grossed $332 million worldwide -- boosted Paramount Pictures' margins and brought it back to profitability last quarter.

The integration of AwesomenessTV into VDS could help Paramount promote more of its movies via streaming video and social media channels. That could help Paramount reach a broader audience, and possibly reduce its traditional marketing expenses.

The key takeaways

Viacom's purchase of AwesomenessTV makes sense, but we'll have to wait and see if it moves the needle for the media giant's digital efforts. For now, Viacom investors should focus on the gradual improvements at its media and film businesses, and the ongoing attempts to merge the company with CBS.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Align Technology, Amazon, and Netflix. The Motley Fool has a disclosure policy.