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Ad Deal with Snapchat Is a Lone Bright Spot at an Ailing Viacom

February 9, 2016, 7:04 PM UTC
Photograph by Andrew Harrer — Bloomberg/Getty Images

Viacom may have settled (for now at least) questions over who is running the show, with CEO Philippe Dauman taking on the added role of chairman. But that hasn’t changed the stock market’s pessimistic view of the company’s performance and future prospects.

Viacom’s shares (VIAB) fell by more than 20% on Tuesday after weak earnings results. On a conference call with analysts, Dauman took the opportunity to rail against his detractors.

There is one potential bright spot amid the earnings gloom for the entertainment giant, however: Viacom has extended its advertising deal with Snapchat, the new-media superstar with the massive millennial user base. The two said Tuesday that they had signed a multi-year deal in which Viacom would be the exclusive third-party seller of Snapchat ads.

Under the arrangement, Viacom’s “Velocity” unit will sell ads for Snapchat, including for its popular Live Stories section, which has become a key source of news for many users by aggregating articles based on geographical location. Viacom will also sell ads internationally for the company, not just in the U.S.

As part of the Viacom deal, Snapchat is adding some new channels to its Discover section, where media companies offer up their stories and videos. Comedy Central is getting a new international version along with Viacom-owned Paramount Pictures. MTV will be getting its own Discover channel as well. Other Discover partners include Vice and CNN.

How Snapchat could steal Facebook’s ad revenue

According to the Wall Street Journal, the Snapchat deal came together after Viacom’s CEO met with Snapchat CEO and co-founder Evan Spiegel in Los Angeles. Dauman eventually became so involved with the arrangement that he weighed in on what color the Comedy Central icon should be on the Snapchat Discover page (it’s green).

The deal is a classic marriage of convenience for both parties: Snapchat, which has been growing quickly but doesn’t have a huge amount of revenue, gets access to a media conglomerate with an ad platform that can reach into areas Snapchat never could. Viacom, meanwhile, gets to ride on Snapchat’s coat-tails somewhat and possibly boost the profile of some of its media properties with the app’s millennial user base.

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The rest of Viacom certainly isn’t setting the house on fire when it comes to growth. The teen and millennial markets that the company has targeted in the past through assets like Comedy Central, Nickelodeon, and MTV are going elsewhere, including to platforms such as Snapchat and Instagram. As a result, Viacom’s ad business has been declining.

In a note to its clients on Tuesday, investment research firm Moffett Nathanson said: “For the last two years, Viacom has been the classic value trap— a stock with seemingly attractive valuation with arguably conservative earnings assumptions. However, fast forward to today and it’s clear that the stock was cheap for a reason. We have clearly put too much trust in the old playbook — the same has changed.”

The financial aspects of Viacom’s business have also been taking a back seat—at least publicity-wise—to ongoing speculation about the fate of controlling shareholder Sumner Redstone, who is 92 years old and in poor health, according to some reports. Redstone has been at the center of an ongoing battle between Dauman and a former Redstone girlfriend, who has accused the CEO of improperly taking control over the billionaire’s health care.

In addition to that, the future of Viacom contains another important question mark, which is how control of the company will be handled after Redstone’s death. His $42-billion stake in Viacom and CBS is supposed to pass to a trust directed by a board that includes Dauman and Redstone’s daughter Shari. But Shari Redstone made it clear during the recent appointment of Dauman as chairman that she didn’t support the CEO getting this additional role.

This tension is certain to crop up again at some point, and until it is resolved it’s unlikely that shareholders are going to feel comfortable about Viacom’s prospects, despite the occasional blast of good news such as the Snapchat ad deal.