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Viacom to Foray into Free Streaming with Pluto TV Buyout

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Viacom (VIAB - Free Report) recently reached an agreement to buy Pluto TV, a free ad-supported streaming service in the United States, in an all-cash deal worth $340 million.

Pluto TV, launched in 2013 has more than 100 channels that showcase content across categories like movies, sports, comedy, gaming, lifestyle and TV shows, among others. Additionally, Pluto TV’s partnerships with more than 130 media houses, film and TV studios and digital content providers help put forth a variety of content.

Pluto TV currently has more than 12 million monthly active users. Moreover, the service can be accessed over a variety of platforms including Roku, Chromecast, Amazon (AMZN - Free Report) Fire TV, Samsung TV and Apple TV to name a few. Further, the service will soon be available on more devices owing to new distribution deals.

Notably, the deal is expected to be closed by the first quarter of 2019 and Pluto TV will operate as an independent subsidiary of Viacom.

Viacom Inc. Revenue (TTM)

Viacom Inc. Revenue (TTM) | Viacom Inc. Quote

Acquisition to Aid User and Ad Growth

Viacom’s acquisition of Pluto TV is the perfect opportunity for the company to attract new users leveraging its reach in more than 180 countries. Although the company does not intend to pull content from its pay-TV offerings, Viacom Digital Studios’ content will be made available on the free service. Digital Studios, launched in April 2018, will provide original and on-demand content from “BET, Comedy Central, MTV and Nickelodeon.”

Additionally, Viacom is likely to create a separate “Spanish language offering” for Pluto TV users in the near term, given Viacom International Studios’ (VIS) strong library from both the U.S. and Latin American markets.

Moreover, Viacom looks to use Pluto TV to attract and retain users for its existing subscription-based services including Noggin and Comedy Central Now. Further, the company is looking to use the free ad-supported service to attract advertisers and provide target-based ads thereby expanding its advertising revenues.

Competition Woes Remain

Netflix (NFLX - Free Report) , which has a loyal subscriber base and strong content portfolio, is currently the dominant player in the market. Notably, about 71% of the users wish to continue with Netflix subscription even after the recent price hike.

The fast-growing streaming market, which is expected to reach $124.57 billion by 2025 per Grand View Research, is attracting companies looking to provide both paid and free services. Companies like Disney, Apple and AT & T will launch a paid service in 2019, whereas Sinclair Broadcast (SBGI - Free Report) , Amazon and Comcast launched/in the process of launching a free streaming service.

We expect competition in the streaming market to intensify. This may not bode well for Viacom, which currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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