Viacom Inc. (VIAB) has accelerated the distribution of Epix, its next-generation multiplatform premium entertainment channel. Epix is a three-way venture among Paramount Pictures of Viacom, Metro-Goldwyn-Mayer Studios Inc., and Lions Gate Entertainment Corp. (LGF). Launched in Oct 30, 2009, Epix offers video-on-demand and online service with access to more than 15,000 motion pictures. The venture controls all rights to EPIX’s programming and Viacom provides operational support Incorporatedluding marketing and affiliate services through its MTV Networks division.

As of now, Epix is distributed by Verizon Communications Inc. (VZ) through its high-speed fiber-based FiOS network only. This means Epix is currently reachable to a maximum of 2.7 million subscribers. Industry sources indicated that Cox Communications Inc, the third largest cable MSO in the U.S. , is all set to enter into an agreement with Viacom for Epix. Cox is likely to start airing Epix from early 2010. Cox currently serves 6.2 million customers.

Industry sources also indicated that Viacom is also inching towards closing a deal with satellite TV provider Dish Network Corp. (DISH) regarding the distribution of Epix. Dish Network currently has more than 14 million subscribers. The company continues to position itself as a low price leader in the U.S. pay-TV industry by subsidizing the cost of equipment and installation to increase subscriber base.

Despite facing a challenging economic environment, Viacom has been able to increase its consolidated operating income by 14% year-over-year in the third quarter of 2009. Effective cost cutting measures together with solid performance by motion picture were the primary reasons for this strong performance. Filmed Entertainment segment generated $69 million of operating profit in the reported quarter while incurring operating loss in the prior-year quarter. Viacom benefits from a well-balanced asset mix with entertainment content at its core. We maintain Outperform recommendation for Viacom.

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