The credit ratings agency said that it views the media giant’s decision to accelerate a share repurchase scheme a direct result of slowing revenue growth and noted it “appears to be a one-time effort to smooth over the anemic growth by returning more capital to win the favor of shareholders”.
Viacom will come under pressure from shareholders and face further downgrades unless it focuses resources on its fundamental businesses, according to Moody’s, which noted sharp revenue declines and a limited capacity to cut costs further.
“In our view, the company the company’s recent underperformance has been driven by insufficient investments in programming and innovation,” Moody’s said. “By relying on the success of popular but old shows, its television ratings have suffered across its various networks, particularly at Nickelodeon, and led to a steep decline in advertising revenue which drives about 35% of its total revenue.”
The ratings agency added that Viacom’s keenness to cut digital output deals may be misplaced. It said: “We believe that Viacom has been more aggressive than its peers in signing digital output deals that do not necessarily protect the life-time value of its content, which we believe reflects a bias towards seeking short-term profits over long-term growth.”
However, the company has started to invest more in content in the past year and is capable of recovering lost ground, according to Moody’s. Viacom also has internationally recognised channel brands.
In downgrading the media firm, Moody’s analysts said Viacom will return to healthy growth over the next two years, but added a ratings upgrade is highly unlikely under the current management team.
However, Viacom CEO Philippe Dauman (pictured) last week claimed Nickelodeon was “clearly on the way back, with new live-action and animated hits that fueled robust ratings”.
Revenue at Viacom’s media networks unit grew 13% year-on-year in its fiscal third quarter results released on Friday and stood at US$2.6 billion.
Dauman added Nick had recorded “six straight months” of YOY ratings growth.