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What the Paramount Management Shakeup Means for Viacom

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Paramount gets a new CEO

Paramount Pictures, the movie studio unit of Viacom (VIAB), has a new CEO—Jim Gianopulos, who formerly headed 21st Century Fox’s (FOX) movie division. Gianopulos replaces Brad Grey and comes to the scene at what seems like the studio’s greatest hour of need.

Paramount dumped $450 million down the drain in 2016 after producing films that failed to live up to expectations. At its peak, Paramount has been able to produce annual profits of more than $300 million. That not only show the potential in the studio business but also how it is key to the turnaround of its parent company.

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Disappointing fiscal results

Viacom had a disastrous fiscal 2016, with its revenues falling to $12.5 billion from $13.3 billion. Its net income fell to $1.4 billion from nearly $2.0 billion in the previous year. The chart above illustrates the company’s annual revenue trend for the last five years.

Management upheaval

Viacom’s poor showing in fiscal 2016 came amid a management upheaval at the company. As a result, its CEO, Philippe Dauman, resigned following a disagreement with the company’s controlling shareholder. Viacom’s new CEO, Robert Bakish, came in late last year and has pledged to turn the media conglomerate around.

Bakish has his work cut out for him. He is not only expected to return the company to a growth trend, but he is also expected to strengthen the heavily leveraged balance sheet. The company exited the December 2016 quarter with $12.3 billion in debt compared with just $443 million in cash and equivalents.

While the heavy debt is intimidating, repairing the balance sheet may not be an insurmountable problem if Paramount gets back on its feet. The challenge is fending off competition from rivals such as Walt Disney (DIS), Comcast (CMCSA), and Time Warner (TWX).

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