Commenting on a fairly successful third quarter, Viacom (NYSE:VIA) chairman Sumner Redstone said that "Viacom will continue to expand on its creative heritage and move rapidly to the forefront of emerging digital markets, keeping us on the path to outstanding long-term financial performance and free cash flow generation."
Mark one more major content producer down for understanding the importance of a digital strategy in today's entertainment industries. Walt Disney (NYSE:DIS) clearly got it a while ago, and when News Corp. (NYSE:NWS) ponied up $650 million for online meeting place MySpace last fall, News subsidiary Fox suddenly looked more in tune with the times. Viacom's slow-growth twin CBS (NYSE:CBS) remains on the sidelines with a puzzled look on its face. It will come around too, but by then it might be too late. Take a look at CBS's and Viacom's financials in our Fool by Numbers here and here.
Viacom's financial strength today rests on its assortment of cable networks, including Nickelodeon, MTV, and Comedy Central. The occasional blockbuster from the entertainment division provides some extra juice, but really, it's all about South Park, Dora the Explorer, and Two-A-Days. This quarter, for example, the networks brought in $778 million of operating income, while Paramount et al lost $6.7 million on the same basis. Even with the runaway hit War of the Worlds contributing last year, filmed entertainment only brought in a relatively paltry $108 million operating income.
The trick going forward will be to monetize SpongeBob and Stephen Colbert through new channels, mostly online. For now, Viacom is relying mostly on a Google (NASDAQ:GOOG) Video distribution deal, although the company is allowing Comedy Central clips on YouTube again after public outcry over their removal. Today's consumer wants to control what to watch as well as when and where to watch it, and it's largely up to content producers to make their songs or videos available in a legal, revenue-producing way -- or the audience might turn elsewhere, leaving Viacom and Fox without proper compensation.
Again, it's great to see that Viacom's top leadership understands this new reality, and I'm ready to see the details of Redstone's digital plans. Ready when you are, Sumner.
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Fool contributor Anders Bylund is a Disney shareholder, but holds no other position in any of the companies discussed here. You can check out Anders' holdingsif you like, and Foolishdisclosureis fully digital already.
