Philippe Dauman

This interview originally appeared in the MIPCOM 2013 issue of World Screen.

Sumner Redstone, Viacom’s executive chairman and founder, famously said, “Content is king.” Never has this phrase been more apropos than in today’s digital world, as the media conglomerate produces hours upon hours of programming it uses for its vast portfolio of networks or licenses to numerous linear and nonlinear outlets.

As Philippe Dauman, the president and CEO of Viacom, maintains, the more platforms in need of content the better; provided, of course, that remuneration is commensurate to the value of the programming. Viacom’s revenues in fiscal 2012 reached nearly $14 billion. After a period of decreased advertising revenues and a dip in ratings, particularly on Nickelodeon, ad revenues were up in Viacom’s recently reported third-quarter earnings, and Nick had found success with several new shows. Once again, it’s all about content.

Dauman sits at the helm of a mega-content-creating factory. Viacom Media Networks is the largest group of ad-supported channels in the U.S. It is home to countless brands, including Nick­elodeon, Nick Jr., MTV, VH1, Comedy Central, BET, CMT, Spike, TV Land, Tr3s and Logo, which serve distinct audience groups. Many of these brands connect particularly well with young viewers, with shows that engender enormous viewer loyalty, generate ongoing conversations and create communities online and in social media. Such success stories include The Daily Show with Jon Stewart, The Colbert Report, Teen Mom, and, most recently, Sam & Cat and The Haunted Hathaways.

Around the world, Viacom International Media Networks operates more than 200 channels, which are seen in some 700 million homes in about 170 countries. These channels are either wholly owned, joint ventures or licensed.

Viacom also owns Paramount Pictures Corporation, the legendary studio that today distributes films from a number of movie labels, including Paramount Pic­tures, Paramount Vantage, Para­mount Animation, MTV Films and Nickelodeon Movies. Upcoming titles include The Wolf of Wall Street and Transformers: Age of Extinction.

Dauman met with World Screen in his Manhattan offices and talked about Viacom’s performance, investors’ take on media companies, working with digital platforms, and the ongoing value of engaging content.

WS: Viacom reported very good fiscal third-quarter financial results, fueled in large part by Nickelodeon.
DAUMAN: Nickelodeon has shown six consecutive months of year-on-year ratings improvements and more to come! We have developed some great new shows, both live-action and animated, in addition to our existing powerhouse shows.

More generally, we have good ratings across the board on our networks from MTV and CMT to BET and Comedy Central, and particularly in those time periods that are meaningful to us from a revenue point of view. As a result our ad sales continue to show great momentum. Our affiliate revenues are looking strong. We did a very good deal with Amazon last quarter and we announced a big buy-back program. What motivated us to do the buy-back was a combination of the business improving, the U.S. economy beginning to improve, our confidence in our own business and the macro economy going forward. We felt it was time to go back to pre-recession levels of our leverage ratio. That gives us more room to continue to invest in our business and at the same time return more capital to our shareholders.

WS: A few years back analysts were pretty down on media companies, because of the uncertainty caused by technology constantly changing distribution platforms. Now media stocks are on the rise, what’s changed?
DAUMAN: Some people, particularly a lot of new players or short-term investors or hedge fund types, who really don’t have historical perspective, underestimate the importance of content. In addition, people are spending more time consuming content and there is more ability to access content in more places. We’ve always viewed technology as a long-term opportunity and it has been so over many decades. There has been technological change all along, now it’s of a different kind, a very exciting kind. Every time there is a new platform or way of delivering content to consumers, whether it’s a Netflix or an Amazon or others, they understand that they need to have access to great content. They come to Viacom and to the other companies. That creates opportunity and it’s not just in the U.S., it’s around the world. We’re in conversations with a lot the players, in some cases they are relatively small companies that are looking to expand into other countries and we’ll work with them. That gives us more rapid access to certain markets than we were able to get before.

Investors also saw that media companies did relatively well in a recessionary environment. Ad sales are obviously cyclical because they are affected by the general economy, but there are certain parts of our business that are less affected. As an industry, we’re not recession-proof, but we are recession-resistant: people still want to go to the movies; it’s good value. People still watch television. Our media networks get affiliate revenues, which are not very much impacted by a recession, except to the extent that people aren’t buying new homes and therefore there aren’t any new pay-TV subscriptions. But what is remarkable to me, now that we have come out of the recession here in the U.S., is that in the worst of the recession, while subscribers to pay television did not grow, they didn’t go down either. And every other sector of the economy went down.

WS: Were investors also spooked by what happened to the record industry and that caused them to be leery about the future of entertainment industry in general?
DAUMAN: Perhaps, I think what they underestimated was the ability of our industry to evolve and adapt. People love music, but it doesn’t have the richness of delivery that television has: we have sound, we have visuals, our content, in particular, connects well to social media.

We may have learned a little something from what happened to the music industry in some respects, and when appropriate, we’re cautious about what relationships we enter into as we get into new distribution platforms. We are very welcoming of new ways to reach consumers—it’s the lifeblood of our business—but we do it in a way that is consistent with our overall business objectives. We try to give consumers more, in different ways, but we do it in a way that also preserves the underlying economics of our companies, which, in turn, allows us to make better and better content. If you look at video content in general, the variety and quality keep going up. Yes, there is a lot of variety in music, but it’s always a three- or four- minute song, whereas because the budgets in television are so huge, there are cinematic quality television shows. And each of our networks spends more every year. We have increased our investment in programming every year over the last several years, including during the recession. We cut costs everywhere we could, but not on the content part. When you take the cumulative impact of all the companies investing in content, there is more and more choice, not just more types of shows, and the quality keeps going up.

WS: Would you tell us about the Amazon deal and how it evolved?
DAUMAN: We’re in discussions with everybody and Amazon has become very seriously engaged in the SVOD market, it drives their Amazon Prime product. They were aware that our Netflix deal was expiring, and were extremely interested in tapping our content. We already had a deal in place with Amazon but they wanted more of our content and they really wanted that strong brand association with us. And they wanted some elements of exclusivity relating to three of our brands: Nickelodeon, MTV and Comedy Central.

But also remember that Amazon sells consumer products. So for Nickelodeon content in particular, but not only, if you are watching our shows, Amazon will suggest to you that you might want to buy some of our consumer products. So if you are watching SpongeBob SquarePants on Amazon, you might be motivated to buy a DVD, or a T-shirt, which Amazon will market directly to you and ship to you. Amazon is uniquely able to do so. So they saw and we saw a great marriage for both of our benefits.

WS: So if you have merchandising it makes more sense to have a deal with Amazon than with Netflix?
DAUMAN: For the consumer products part, yes. We do business with Netflix, in fact, very recently we signed a renewal with Netflix for Latin America. And at the same time when we did the Amazon deal, we provided more content for them for LOVEFiLM, which they control in the U.K. and in Germany. We have a lot of content and a lot of brands. Different partners look for different things and we try to satisfy what they are looking for.

WS: Many of your brands cater to young viewers who can be elusive. How have some of your brands managed to attract young viewers but also maintained relationship with them?
DAUMAN: We have to do a lot of research to stay on top of what they are doing. We know that they are very social. We know they are heavy mobile users. They like to enjoy content on different platforms, so we try to appeal to all of those. We have been launching apps, we launched a very successful Nickelodeon app, which has more than three million downloads so far. We’ve found that kids are spending more time on the tablets than they were spending, on average, on nick.com. They like tablets more than computers; they are more engaged when they are using the tablet and through that engagement we can market our shows to them. If children enjoy watching Sam & Cat or Haunted Hathaways, Sanjay & Craig, or Teenage Mutant Ninja Turtles on their tablets, then when they are in front of the television, they will want to watch there as well. We recently launched an MTV app. Comedy Central has a Stand Up app and is launching a Comedy Central full app. All our brands are rolling them out. We see a lot of potential in mobile in general. We find more and more usage of the second screen while younger people are watching television. They can watch the show and live chat and that makes them more involved and makes them say, let’s do this together, or this is fun let me do it next episode.

This year we did our BET Awards Show very differently. We created something we called the BET Experience. The awards show was on Sunday, June 30th. Starting Friday, we took over the whole area in Los Angeles where we were doing the show. We had the launch of Beyoncé’s world tour. We had concerts all weekend long. We had comedy stand-up routines. We had marketing partners that could promote their different brands. The awards show itself had the highest ratings in BET’s history except for the awards show we had on the week that Michael Jackson died in 2009. That was rated higher than this one, but that was a very unusual circumstance. During this year’s show we had 10 million tweets. And that is the kind of passion that our brands drive. We recently announced a deal with Twitter and we will work together even more closely than we have on a lot of our events. A lot of Twitter’s traffic is driven by events of one kind or another, whether political or media events, and they’ve recognized the fact that we are the company that does the most events particularly for young people who are heavy users of their platform, and we recognize that Twitter is heavily used by our audiences, and it all works well together.

WS: Outside of the U.S., Europe is Viacom’s most important market. How do you see the economies in the region over the next three years?
DAUMAN: It’s been a tough environment in Europe over the last year. We’ve found that the U.K. has held up reasonably well. We’ve had problems for a while in Southern Europe, in Spain and Italy, and other parts of Continental Europe have had economic weakness. I think there will continue to be some weakness in the next year or two because Europe was behind the U.S., first in getting hit hard by the recession because of what happened to the financial industry, but also because they are behind in solving the issues.

Europe still hasn’t worked through some of the financial industry issues that the U.S. has resolved. Housing is coming back in the U.S. Most of the banks, certainly the major ones, are relatively healthy and have worked through their problem loans. Europe is still going through that process. There are also some more difficult social issues to contend with in certain countries. But we’re starting to see a bottoming out in some countries, like Spain. I’ve spent some time talking to my colleagues outside the company in Europe, and there is a feeling that there is still a little tough road to go through, but there are some signs of stabilization. I expect that in the next three years or less you’ll start seeing an upswing again.

We’ve been using this time to expand, launch new networks, continue to invest, and then when the European economy starts to pick up, I think we’ll start to see some signs of improvement next year, that will really give us a lift.

WS: You also have considerable business in Latin America.
DAUMAN: Latin America offers great opportunity so we are going to expand there. The way we operate around the world is we have some wholly owned networks, others that are joint ventures, and still others that are licensed. In totally unrelated developments, we have taken full control of MTV in three important markets: in Italy, where we were having some difficulty and the channel was about to close, but we’re about to take control of the brand; in Brazil, where we had a joint venture that we just couldn’t get out of until now; and in Russia. In all those three countries we are revitalizing or relaunching entirely the MTV brand and then launching additional brands. So we are using this time to build more and make our international business ever more important.

WS: Is the cable business still a good business to be in, even with all the on-demand viewing going on?
DAUMAN: It’s a wonderful business to be in, and a lot of the additional viewing on other devices will be done through the relationships we have with cable companies, because, remember, in order to view content on broadband, you need broadband. And a lot of the cable distributors and telephone distributors in the U.S. also provide broadband, so it’s a very good model. The cable-network business is also a very good model because it has multiple revenue streams—it’s not just a dual stream because with a channel like Nickelodeon you also have consumer products and other ancillary revenues, which allow us to invest in content, which in turn, allows consumers to have richer and richer content. Economics from the retail side drives the quality of what is produced and delivered.

We are also marching forward towards so-called TV Everywhere, so people will be able to enjoy content different ways. If you look at the evolution of viewing on the plain old television screen, the amount of time spent watching TV has been very stable. Sure there will be changes, but if viewing migrates to any kind of device and we can monetize it—if it gets measured properly so that we can sell advertising on it and it becomes another revenue stream—it’s a positive for us. Because if you can watch content on portable devices, that increases viewing; it’s incremental to viewing on the linear channels. And for us it’s an opportunity.

WS: Are big franchises still driving the movie business?
DAUMAN: Consumers ultimately dictate what gets produced. The movie business is becoming more and more global and the U.S. is becoming less and less significant as a percentage of the overall business. That’s because there is a pretty stable number of theatrical screens in the U.S., whereas the number of screens around the world is growing, particularly in the emerging markets. In places like China, Russia and Brazil, there are many more screens being built than in the U.S. So it is critical when you make a movie for it to appeal globally. It’s hard to have a movie that appeals globally if it’s not one of those so-called tent pole films that have universal appeal, or, that don’t have that much dialogue, they have to be very visual. That’s what’s driving the studios to do franchises. It’s less risky globally to make big tent poles than to make a smaller movie. At the same time, if you make too many of them and release them at the same time, it puts a lot of pressure on their revenue-generating capabilities. This summer, for example, you saw an avalanche of tent poles in the same year; this doesn’t usually happen. Paramount has a lot of franchises, like Transformers, which we are shooting now, and Mission Impossible. We had Star Trek Into Darkness and World War Z this summer. They worked well so we are happy. But that is what foreign audiences are looking for. China, which is becoming a very big market, allows 34 non-Chinese movies a year to be exhibited, and the ones they release are almost all Americans movies. They are looking for tent poles—and preferably 3D or IMAX format. When we delayed the release of GI Joe Retaliation and did re-did it in 3D, that got it into China and it did good business there because consumers wanted to see it in 3D. A year and a half ago, it was a big deal to cross a $100-million box office in China, but now it’s becoming more and more routine. There are a lot of $100-million+ tent poles in China. We will continue to make smaller films as well. But in terms of where’s the money? The money is in the tent poles.

WS: Tell us about Paramount Television Studio. That’s being revived?
DAUMAN: Yes, we are very excited about it; we’ve been working on it for a while. We recently announced new leadership in Amy Powell, a very talented executive. She’s been running our digital efforts for Paramount as well as a small label we have called Insurge. She has created low-cost content for digital platforms, which will serve us well in this new television effort. Since we are starting from scratch, we’re able to produce television for all new platforms. So we will produce for network television, pay television, our own networks and other people’s networks. You’ll also see some made-for-mobile and made-for-online content and Amy is the right person to lead that effort. We are very excited about it and it’s time for Paramount to be back in the television business. We will grow the television unit slowly, as opportunities come up, and it will balance the vagaries of the motion-picture business. Because we have years where we have a lot of tent poles and big hits and we do well, and then there are other years where we do less well. And television, in general, once you have built up that franchise, has more stability to it.