Why ViacomCBS Might Still Be Too Small

CBS and Viacom’s long-awaited merger into ViacomCBS will create more opportunities for streaming and let it compete better in a post-cable world — but it’s still too small, some analysts say. The new company will boast a combined $28 billion in annual revenue. That sounds like a lot, but compare that to Disney, which earned $59.4 billion last year — and that’s before Disney fully integrates 20th Century Fox. Disney’s business is more diversified — including some of the world’s most popular theme parks — and its shares trade at a much higher multiple, but the comparison demonstrates where ViacomCBS stands among its peers. However, according to CFRA research analyst Tuna Amobi, as a combined company ViacomCBS is “better positioned to be an active player in future industry consolidation in the face of significantly larger competitors.” And to compete, the newly minted company is likely to go on a buying spree, according to media analyst Rich Greenfield. “This is step one of many steps. They’re going to buy a lot more than just this. They’re still too small. Relative to Disney or Comcast it still looks like a pimple,” Greenfield said. “I’d try to buy as much content as I possibly could. Viacom’s best hope for long term success is being an arms dealer. Having more arms to deal with would make them stronger.” Ross Gerber, CEO of media investment firm Gerber Kawasaki, said the merger wouldn’t solve all the two companies’ problems “in the world of dead cable,” but could position the company well in the streaming arena. Viacom, he argues, could package its networks, including MTV and Comedy Central, with CBS All Access to create a more robust streaming service. “The best thing Viacom can do is find a way to terminate all the cable deals it has and put all of that stuff on the CBS app,” Gerber said. But even with the added value, combined IP, and other benefits of the merger, the general thought from analysts is that ViacomCBS isn’t quite in a position to directly compete with the mega conglomerates. Regardless, Needham analyst Laura Martin told TheWrap, the deal is a step in the right direction. “I love this deal,” Needham said. “Value matters in my world and this company is much more valuable to shareholders.” The merger might not propel ViacomCBS to Disney’s level (there probably isn’t a merger that would do so), but it makes the company a destination for streaming, according to Eric Schiffer, CEO of private equity firm The Patriarch Organization.  “This deal will keep Netflix up at night,” he said. And, Schiffer adds, the era of media consolidation likely isn’t over and ViacomCBS could only just be getting started — particularly as Lionsgate and Sony are still out there and both have recently been the subject of acquisition rumors. “This allows them to add jewels on top of jewels,” Schiffer said. “It’s a clear execution of their strategy going forward. Sony, Lionsgate, Discovery; there are all targets they are licking their lips at.”