Viacom Just Made A $340M Bet On The Future Of Streaming TV

It's no mystery that cord-cutters continue to slice into the profits of the world's leading entertainment conglomerates. Take Viacom (NASDAQ:VIA)(NASDAQ:VIAB), for example, shares of which have plunged nearly 60% over the past five years, due to both steep box-office competition and consumers ditching their high-priced cable packages in favor of cheaper streaming alternatives.

On Tuesday, however, Viacom took an enormous step in the right direction by agreeing to acquire free streaming television leader Pluto TV for $340 million. Founded in 2013 and launched less than five years ago, Pluto TV streams over 100 channels and thousands of hours of on-demand content to more than 12 million monthly active users. The ad-supported product can already be found on most internet-connected streaming devices from Roku to Apple TV, Amazon's Fire TV, Chromecast, Android TV, Sony Playstation, and smart TVs from Samsung and Vizio. And according to Viacom, Pluto TV has new distribution deals in place that will bring it to "tens of millions of additional devices in the coming months."

A win-win for Viacom and Pluto TV

Pluto TV co-founder and CEO Tom Ryan noted that since its launch "and particularly over the past year, Pluto TV has enjoyed explosive growth and become the category leader in free streaming television."

But the only Viacom property currently streaming on Pluto TV is AwesomenessTV. So Pluto TV will obviously benefit from Viacom's global presence, marketing prowess, and portfolio of well-known brands such as MTV, Nickelodeon, Noggin, Comedy Central, BET, and Paramount.

Meanwhile, by bringing Pluto TV under its wing, Viacom will not only advance its strategic, next-generation distribution initiatives, but also enjoy a significant source of incremental advertising impressions and revenue by leveraging its enviable content library. Keeping in mind current pay-TV packages are still a lucrative source filling its coffers, Viacom also says it intends to use Pluto TV as a customer acquisition and retention tool for distribution partners -- particularly as it relates to those with broadband-only and mobile subscribers.

Looking ahead

"Today marks an important step in Viacom's evolution, as we work to move both our company and the industry forward," added Viacom CEO Bob Bakish. "[...] As the video market place continues to segment, we see an opportunity to support the ecosystem in creating products at a broad range of price points, including free."

Of course, Pluto TV will certainly serve that end, given its leadership in the free ad-supported TV space. But I wouldn't be the least bit surprised if, much in the same way that other streaming services enable customers to take an a la carte approach to adding premium channels or services for a small monthly fee, Viacom eventually capitalized on Pluto TV by adding similar upsell options.

As it stands, shareholders should note the acquisition still needs to pass regulatory muster. But assuming all goes as planned, the purchase should close in the first quarter of 2019, at which point Pluto TV will operate as an independent subsidiary of Viacom. When that happens, I suspect Viacom's new streaming platform will quickly become a force to be reckoned with in our fast-changing media landscape.

This article originally appeared in the Motley Fool.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.