Viacom's Downgrade Amid Mounting Top-Line Pressures

Things haven’t been going too well for traditional media companies. Very recently, Walt Disney Co DIS has been getting hammered by its media segment, undergoing significant layoffs in its flagship ESPN channel.

Re-Tiering Pressures

Deutsche Bank has lowered its rating on another media giant, Viacom, Inc. VIAB, to Sell Wednesday following a re-tiering of its most popular networks. The firm also lowered its price target on the company to $32 from $35.

“The re-tiering was limited to legacy TWC and BHN markets, and we believe to some legacy CHTR markets in areas where there was overlap with larger TWC/BHN markets. The re-tiered networks include the six flagship networks – Comedy Central, MTV, Spike, Nickelodeon, Nick Junior, and BET,” said Deutsche Bank analyst Bryan Kraft.

All in all, the re-tiering "added an incremental -260 bps to the end state Media Networks domestic revenue impact, all of which falls to the bottom line and pressures margin." The total impact of the Charter Communications, Inc. CHTR re-tiering is around -7.6 percent of both domestic advertising and affiliate revenue, according to Deutsche Bank.

Viacom is expected to see increased revenue pressure due to a larger re-tiered footprint. Deutsche Bank sees more downside risk now that the re-tiering is larger than initially expected and likely implies a greater financial impact to the company.

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