Viacom's digital licensing fees still growing
Although small, the income will be a key component in the media company's future earnings.
The growth in video streaming has prompted media companies to license their content to distributors such as Netflix (NFLX), Amazon (AMZN) and Hulu. This has helped them better monetize their existing content, thereby improving their margins.
Digital licensing fees, though relatively small compared with other revenue streams, will be a key ingredient in Viacom's growth. To facilitate this growth, Techcrunch reported, the company has been signing various deals, with the latest one between Nickelodeon and Hulu Plus.
While Viacom's total revenue from media networks grew by 14% between 2007 and 2011, the affiliate fee component increased by 56% during the same period. Advertising revenue hasn't been able to keep up with the growth in affiliate fee due to the economic turmoil of 2008-2009, as well as due to the fact that affiliate fee is aided by the growth in digital licensing revenue. As a result, the revenue contribution of affiliate fee to Viacom's media networks has increased from 29% in 2007 to close to 44% in 2012.
According to paidcontent.org, Viacom's total digital revenue stood at around $1 billion in 2011, double of what it was in 2007. However, this figure includes revenue from all its digital properties and not just streaming licenses.
Affiliate fee is exceedingly important for Viacom, and digital licensing is a vital part of it. How Viacom performs in the future will largely depend upon how it balances its content between pay-TV and streaming platforms so as to ensure that one doesn't cannibalize the other.
Our price estimate for Viacom stands at $67, implying a premium of about 20% to the market price.
Copyright © 2014 Microsoft. All rights reserved.
These hot movers could rise by double digits in coming months.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.