ViacomCBS Rollercoaster Highlights Challenges Facing Smaller Streamers

The gut-wrenching plummet in share prices last week for ViacomCBS and, to a lesser extent, Discovery should have set off at least moderate alarm bells among other Hollywood media companies of modest size and public ownership.

Simply put, any boost those service get transitioning to streaming won't by itself keep them competitive against some of the world's biggest companies, which also have streaming services among their other holdings. And worse for the little guys, after this past week's rollercoaster, they may find extracting cheap money under auspicious market conditions a lot more complicated.

Though the situation that hit ViacomCBS and Discovery was unusual, it nonetheless may undercut the streaming narrative many media companies have been counting on, and may hasten the further consolidation some expect to hit Hollywood in coming months.

The proximate cause of the ViacomCBS/Discovery Rollercoaster of Doom wasn't unearthed until days after $VIAC shares dropped from a high-flying $102 apiece to about $48 in just a week's time, a 53-percent plunge that continued in more moderate fashion this week.

Discovery share prices dropped 59 percent, to $31.90 at market close Friday, though its prices have since tracked back some.

A complex set of factors combined for the collapse: ViacomCBS shares had quickly overheated after the March 4 relaunch/rebranding of its main subscription streaming service, Paramount+. With shares at an all-time high, it seemed an opportune moment to issue $3 billion in convertible debt and equity to finance its multi-billion-dollar plans for more streaming-first content.

The market didn't agree, sending shares quickly downward. In turn, that forced an over-leveraged hedge fund, Archegos Capital Management, to precipitously sell off $30 billion worth of stock, dazzling the ViacomcCBS deal, depressing tech shares as a whole, and even whacking Archegos bankers Credit Suisse and Nomura.

Of course, as the Wall Street Journal noted, even after losing half its market capitalization in one week, ViacomCBS remains nearly four times as valuable as it was a year ago. Disney could make a theme-park ride out of it, except that the IP was created by a competitor, and you know Hollywood companies never like to copy each other about...everything.

And ViacomCBS is still better off than it was a year ago, when parent company National Amusements had to restructure credit facilities, because ViacomCBS shares it had pledged weren't valuable enough. The company sold off a batch of non-core assets, like publisher Simon & Schuster and CNET, and kept pitching its streaming transformation until the Street bought in.

ViacomcCBS is still tweaking operations overseas, unsurprising given that CEO Bob Bakish made his reputation transforming Viacom's European operations, and since has used those markets as a test bed for his strategies.

The latest change: cable channel BET in the UK is going streaming-only on ViacomCBS' AVOD service Pluto as well as Channel5's free streaming service, My5. The service is also launching three original online series.

That's the sort of online-only shift one might expect to see soon in lots of places beyond Great Britain, as the economics of traditional pay-TV bundles continue to erode, and the economics of streaming beckon, especially for niche networks. ViacomCBS executives still trumpet BET as a standalone service in the United States, separate from Paramount+.

Other companies have reason for concern too.

Lionsgate-owned Starz cancelled one of its biggest programming bets in years, the fantasy drama American Gods, based on the Neil Gaiman novel, after three seasons of increasingly modest ratings.

Starz is perhaps best known for another fantasy drama, Outlander, which has captured a sturdy base of devoted bodice-ripper fans. But does that a standalone subscription service make, especially compared to all the broad-shouldered competition?

Days before the American Gods cancellation, Lionsgate also issued debt, $1 billion to retire higher-interest near-term obligations. That's a smart move to clean up the books.

But the bigger question for ViacomCBS, Discovery, Lionsgate and other smaller streamers is how they'll continue to grow and thrive against huge competitors if they can't count on help from an overheated market, or investors who aren't looking closely enough at metrics that matter.

Hang on. It's going to be a bumpy ride.