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Why Viacom Investors Won’t Stop Holding Their Breath

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Narrow strategic focus

Viacom (VIAB) is in need of a turnaround, and it’s searching everywhere for it. Its management has not only expressed its commitment to a turnaround, but it has also drawn a plan to achieve it. The plan includes pursuing a narrow strategic focus that would see the company direct resources to a few flagship brands like Nickelodeon and Paramount Pictures.

As part of this turnaround, Viacom is patching up relationships with advertising and media distribution partners. The company recently succeeded in returning its networks to Altice’s Suddenlink, after carriage fees disagreements in 2014 led Suddenlink and other distributors to drop Viacom’s networks. The return to Suddenlink should boost Viacom’s top line.

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A confidence boost

The recent quarterly report also boosted investor confidence and helped CEO (chief executive officer) Bob Bakish turn around the company’s fortunes. Viacom stormed past expectations in its fiscal 2Q17 (March quarter), with Paramount providing strong support. Its total revenue of $3.3 billion was up from $3.0 billion one year ago, surpassing the consensus estimate of $3.0 billion.

Notably, the film entertainment business grew 37.0% to $895.0 million for the quarter. But it’s not yet time to celebrate.

Paramount is not yet out of woods

While it was encouraging to get confirmation that Chinese media companies Shanghai Film Group and Huahua Media are committed to financing 30.0% of Paramount’s $1.0 billion in China (MCHI), Paramount’s woes continue. But the business is central to Viacom’s turnaround efforts.

The studio recently hit a rough patch in the box office as its latest major release, Baywatch, generated only around half of the expected opening weekend gross of $40.0 million–$45.0 million, continuing a string of box office disappointments at Paramount. Rivals Disney (DIS) and Twenty-First Century Fox (FOXA) fared better in the opening weekends of their latest films.

Paramount has struggled in recent years amid tough competition from Disney, Time Warner (TWX), and Discovery (DISCA) in the film production business.

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