Viacom (VIAB) spent more than $12 billion to repurchase stock over the last four years in an effort that has retired tens of millions of shares. At the end of the third quarter, the company was on pace to repurchase $3.57 billion worth of stock in fiscal 2014, and had $7.15 billion remaining under its repurchase authorization. Given the stock's recent price decline, investors may expect Viacom to continue its aggressive repurchases.

Although the repurchases will boost earnings per share, stock buybacks are not always the best use of cash. In fact, Viacom may be opening itself up to a major risk by using its cash to repurchase so many shares.

Here's the plan
Viacom's $7.15 billion remaining repurchase authorization gives the company a green light to repurchase 24% of shares outstanding based on its current $29 billion market capitalization. Having repurchased over $5 billion worth of shares over the last four quarters already, this represents a significant number of shares.

Viacom CEO Philippe Dauman recently told investors that company executives "remain steadfast in our commitment to returning substantial capital to our shareholders." He predicted that the company would return nearly $4 billion to shareholders in fiscal 2014, including $3.4 billion in share buybacks.

Viacom generated $3.1 billion in cash from operations in 2013, which already includes the cash invested in new programming. The company usually spends about $150 million in additional capital expenditures, leaving roughly $2.95 billion in free cash flow.. Spending over $3 billion in share repurchases each year -- in addition to paying a dividend -- is unsustainable unless cash flow increases or investments in new content decrease.  

New programming
Viacom's television networks and film studios require significant annual investments to develop new content. In fiscal 2013, the company spent $3 billion developing television content. Content investments are critical to Viacom's ongoing success; if it stops investing in new content, ratings and profits will fall.

For example, Viacom recently launched Blaze and the Monster Machines, an animated preschool series on Nickelodeon. Blaze is one of nine new shows that Viacom is launching between September 2014 and March 2015. Without these new shows, Viacom would lose market share.

In addition to new content, the company is investing in new distribution channels. For instance, Viacom is launching the Paramount Channel in new international markets so that it can maximize revenue from its film library. This is part of a larger effort to expand its international business and capture untapped revenue sources.

The risk of aggressive buybacks
Clearly, Viacom needs to keep spending money to develop new content, otherwise its programming will become stale and viewers will watch other networks. However, the company's buyback plan risks dipping into funds that the company needs for content development.

It is unlikely that Viacom will grow its way into a situation where it can maintain share repurchases and dividends at the current rate. Free cash flow totaled $2.5 billion in 2011 and $2.3 billion in 2011 and 2012. The $2.9 billion in free cash flow in 2013 was a company record, but free cash flow returned to 2012 levels over the last four quarters. Although Viacom's cash flow can sometimes be volatile, it is has yet to reach a point where it can support $4 billion in share repurchases and dividends each year -- Dauman's stated goal for 2014. As a result, either share repurchases will be curtailed in the coming quarters or content investments will suffer. 

If Viacom decides to scale back content investments, it could mean that management is mortgaging the future to make earnings per share look better today. In all likelihood, management will remain committed to developing new content and reduce future share repurchases. However, investors who plan on owning Viacom for the long haul should keep an eye on content spending to ensure that management doesn't pull a fast one on shareholders.