The media business is nothing if not fast-changing, but its evolution is not always what executives predict it will be.
In 2006, Sumner Redstone was the chairman of National Amusements, Inc. (NAI), the controlling shareholder of Viacom, which included the CBS Corporation. Redstone wanted to split the two companies, believing that the youth-targeting Viacom cable networks had greater potential for growth if they were separated from “old media” broadcast network CBS.
Who would have imagined that CBS would become the number one broadcast network and deliver higher profits than the Viacom portfolio of channels? And who would have thought Viacom would see diminishing ratings and ad revenues due to competition from the internet and social media?
For the past few years, Shari Redstone, who succeeded her father as head of NAI, had been championing the reuniting of Viacom and CBS. She encountered strong opposition from the CBS board, led by Chairman Leslie Moonves, until Moonves was forced to leave following allegations of sexual assault.
In August, the merger was finally announced, and the deal is expected to close by the end of the year. ViacomCBS will include Paramount Pictures; the cable networks MTV, Nickelodeon, Comedy Central and BET; CBS; the premium cable network Showtime; the publisher Simon & Schuster; the ad-supported streaming platform Pluto TV; and the subscription-based platforms CBS All Access and Showtime Anytime, among other assets.
ViacomCBS will also have a library of 140,000 TV episodes and 3,600 film titles, with production facilities on five continents and some 750 series ordered or in production. Its channels reach more than 4.3 billion cumulative subscribers in 180 countries.
Robert Bakish, the president and CEO of Viacom, will hold the same title at ViacomCBS. He joined Viacom in 1997 and was later appointed president and CEO of Viacom International Media Networks. He expanded the portfolio of businesses outside the U.S. with Colors in India, Channel 5 in the U.K. and Telefe in Argentina. He became interim CEO in 2016 and president and CEO in 2017. He oversaw the turnaround of Paramount and the strategy of content production by various Viacom channels and studios.
With combined revenues of more than $28 billion, ViacomCBS will still be “small” compared to competing media conglomerates, The Walt Disney Company—with its acquisition of 21st Century Fox assets—and AT&T’s WarnerMedia. But Bakish is confident that ViacomCBS’s ability to own and distribute content across the entire media ecosystem—spanning in-house and third-party platforms, linear and streaming, free TV and pay—ensures the company’s well-being no matter what changes the future might hold.
WS: What are the advantages of the merged company and how is it positioned to compete in today’s media landscape?
BAKISH: It’s early days, but I’m tremendously excited about ViacomCBS. If you look at the combined assets of the company, we create content and have a library that is among the largest in the world. It spans every relevant demographic genre and is truly global. More of the global programming comes from Viacom, but there are some interesting international assets in the CBS portfolio as well. So, from a content perspective, we are in a very material position. If you look at consumer demand for content and the increasing ways of accessing it, being a global leader in content production and ownership is a tremendously valuable place to be. Uniting these companies materially improves our hand versus either of the companies independently.
We also produce value for distribution and advertising partners, including here in the U.S., through the content we own and produce, and through the platforms we operate. We have the number one broadcast network, CBS; the number one pay-TV family, Viacom Media Networks; and a leading premium network, Showtime. From an asset-family perspective, we have the largest audience share in the U.S., so that makes us extremely important to distributors and advertisers alike. In the distribution space, we have about 22 percent of the prime-time audience. [We have] about 11 percent of the affiliate fees, so that’s a compelling place to create more value. In the ad space, we have 22 percent of the prime-time audience across all key genres; news, sports, entertainment, kids, African American [with BET], etc. We’re in the number one position in every major demo in the U.S.: 2-plus, 18-to-49, 25-to-54, 18-to-34, male, African American, Hispanic. If you look at the combined portfolio, beyond linear television—like Viacom’s leadership in the Advanced Marketing Solutions space, including through our Pluto TV asset—we are a principal partner for any marketer in the U.S. Whether it’s our content ownership, our ability to provide incremental value to advertising and distribution partners or our consumer products, we’re very well positioned.
WS: The combined company also has streaming services.
BAKISH: In the direct-to-consumer space, putting the companies together unites two growth strategies that were powerful in their own right and become even more powerful together. At Viacom, we have been focused principally, although not exclusively, on the free [advertiser-supported] space where we operate the largest free-TV streaming service in the U.S., Pluto TV. It went from 12 million active monthly viewers, which it had when we announced the acquisition, to 18 million by July; that’s a 50-percent increase in roughly six months. That’s the only metric we disclose, but the consumption metric is also growing very quickly. And Pluto TV is not only about usage; it’s also about ad monetization, where we see consistent growth. It was an integral and highly valuable part of the upfront we just finished.
Viacom has put in place a fast-growth free strategy, which we said will be a $1 billion advertising business in the next couple of years.
At the same time, CBS has put in place a powerful growth strategy from a subscription or SVOD perspective. Today, Showtime and CBS All Access have 8 million subscribers. They’ve been on a sound growth track, and their guidance is for 25 million subscribers in the not-too-distant future. Those two strategies are working, and when you bring them together, you have a direct-to-consumer ecosystem that crosses free and pay and allows for the reinforcement and acceleration of both.
On the free side, with Pluto TV, we have a huge library to work with. Historically, the only additional CBS asset on CBS All Access was [the 24-hour news channel] CBSN, but they obviously have more product than that. And we can use Pluto TV as a funnel for traffic. We can upsell them subscriptions to various products, whether it’s CBS or Showtime or Noggin, which is a Viacom product. And if people choose to take a pause in their subscription—which is very common in the SVOD space—instead of having them churn out, we can retain value by keeping them in the free space with Pluto TV and upsell to them again later.
For those three reasons—content, partnerships and emerging platforms—the combination of Viacom and CBS is tremendously valuable.
WS: So much attention is being given to streaming services. Maybe I’m old-fashioned, but I don’t believe the days of linear channels are over. How have your teams been keeping the linear brands relevant?
BAKISH: First of all, let me say I wholeheartedly agree with you that linear television remains a vital part of the consumer experience and a vital part of [Viacom’s marketing] solutions. I believe linear TV will be around for a long time to come in various forms: broadcast, basic pay, premium pay, etc. Viacom plays principally in the basic pay-TV arena in the U.S. and around the world. We do have broadcast assets like Channel 5 in the U.K., but I’m pleased with all the work we have done with our brands. MTV held its VMAs, the Video Music Awards, in August, and the show was a tremendous success. The ratings in the 18-plus demographic were flat year to year. We had some growth among older individuals. We saw high single-digit growth in share. In nonlinear consumption around the VMAs, there were close to 300 million social media streams, which was up about 85 percent. A really interesting fact is that if you look at iTunes’ top five tracks around the day of the show, they were five tracks from the VMAs. That says to me that the world is paying attention to MTV. It was also extremely successful to us from a business perspective. I’m very pleased with where MTV is; it’s a powerhouse in unscripted reality programming.
Among our other brands, Comedy Central continues to do quite well. In our fiscal third quarter, which ended on June 30, it closed its ninth straight quarter of share growth. Paramount Network’s Yellowstone with Kevin Costner was cable’s most-watched series for the summer. It helped drive Paramount to its third straight quarter of share growth. We’ve been doing a lot of work on Nickelodeon since we changed management. One of their new shows, Ryan’s Mystery Playdate, is the number one preschool show on television. They’ve got a great pipeline of new content coming over the next few months. I’m not happy with where Nick is yet, but I’m very happy with how it’s tracking and what’s to come.
Outside the U.S., our biggest services, Channel 5 in the U.K. and Telefe in Argentina, are both doing very well from an audience perspective. They have some macroeconomic challenges in those two countries, but the consumer clearly continues to connect with that linear programming. Telefe has been the number one network in Argentina for 19 straight months, which is awesome. And Channel 5 has had its fourth straight quarter of growth in audience share.
So linear TV is alive and well at our company and continues to have runway ahead of it. And in terms of its value to advertisers, all you need to do is look at the recent upfront to see how valuable advertisers find that product.
WS: Internationally, in what geographic regions are you seeing the most potential for growth?
BAKISH: When we look at our international portfolio, we have an objective of growing not just in a few places, but everywhere. In the third fiscal quarter, on a constant currency basis, our international networks group delivered 9-percent growth in advertising revenue. That was enabled by growth in the U.K., Argentina and, in aggregate, everywhere else. These markets outside the U.S. continue to have current growth and future growth. So it’s not a story of one market or another; internationally, there is broad opportunity. That is driven partly by lower multichannel penetration in some places and partly by middle-class expansion. We are also participating in increasing access to content. We pushed [for content on] mobile outside the U.S. I remember going to Mobile World Congress in Barcelona some six years ago, which was definitely early. But because we thought about [mobile] early, it’s an area where we continue to make a lot of progress. We just announced more mobile deals in international in the last quarter. International remains a very significant growth opportunity and, again, back to your first question, one of the appeals of the Viacom/CBS transaction is that we can take advantage of Viacom’s operating position outside the U.S. and add in CBS’s content ownership. CBS is mainly a sales force outside the U.S., not an operator, and we think uniting the two is another platform for significant value creation.
WS: MTV, Nick and other Viacom brands are producing for third parties. Why has this been an important initiative?
BAKISH: It goes back to the uniting of two things. First, our assets are well-suited to producing hits. They have a track record of doing that across demographics, genres and types of programming. Add to that the fact that there is significant demand for content from companies that either can’t produce by themselves or don’t have sufficient capacity to produce everything they need. Some of those companies are feeding segments of the landscape that we don’t currently reach directly. Therefore, supplying them with original programming and reaching consumers in that way is appealing from a consumer perspective and, of course, from a financial perspective.
We think this is a compelling opportunity for the company. We first saw it when we started Paramount Television at the studio and saw ownership of IP and creating stories as a way to very quickly build a sizable business. We have now broadened that approach by leveraging our domestic brands and our international assets, including Viacom International Studios, which we built out of Telefe. When we bought Telefe, it only produced for itself. Now it’s producing close to 1,000 hours of Latin content for the world. That studio opportunity is something we believed in and we rapidly moved to serve, and we see it being a $1 billion business as we exit 2020.
We announced that Viacom International Studios is producing another series for Amazon, Ex on the Beach Brazil: Celebs in Latin America. That’s an unscripted format we have. And there’s much more in the pipeline. More importantly, our company is not just filling demand; it’s producing hits. For example, take Paramount shows like Tom Clancy’s Jack Ryan; we’re about to deliver the second season to Amazon. They’ve already commissioned the third season. It’s uncommon that they will order season three before they get season two, but they did because they loved the product.
Another studio we have is Awesomeness, which we acquired. That is a rapidly growing studio serving, broadly speaking, a young female demo. We bought that right before [the studio’s] To All the Boys I’ve Loved Before was released, which turned out to be a tremendous hit for Netflix, and they’ve ordered a sequel to it. Awesomeness also produced Light as a Feather for Hulu, which is a big hit for them. They recently delivered the series Trinkets for Netflix.
We’re seeing tremendous traction with the studio initiative and remain very excited about it.
WS: What was the strategy behind the turnaround at Paramount?
BAKISH: Paramount is once again occupying its role as an iconic studio in Hollywood. It had some tough times for sure, but fundamentally, I knew it could be a valuable asset on a standalone basis for Viacom and integrated into other things that Viacom was doing. We brought in new leadership and embarked on a strategy. Jim Gianopulos and the team have delivered ten straight quarters of operating income improvement. They are getting respect for the films they are creating. Rocketman, for example, was a film people were concerned about but that the team, led by Brian Oliver and David Reid, believed in, and it turned out to be a great film. Dora and the Lost City of Gold is doing fine. It’s another way of building IP and a franchise, and with consumer products, it’s going to be nicely profitable.
But Paramount’s upcoming slate is going to be amazing! It kicks off with the Will Smith film Gemini Man [this October]. Then it goes to Terminator: Dark Fate. I’ve seen parts of it. It’s super cool; people are going to love it! Right now, we have 16 films for fiscal ’20, and the film people are most excited about is Top Gun: Maverick, which will be released in the summer of 2020. I’m thrilled with where Paramount is and where it’s going.
WS: The big media conglomerates are putting so much effort and so many resources into streaming services. How do you see that playing out in the next two to three years?
BAKISH: It’s a topic of a lot of discussion and one that is influencing decisions people are making. Our view is that the consumer landscape is segmenting. I started talking about that at the end of 2016, when the majority of the U.S. was still subscribing to big MVPD bundles of television.
Now a segment of consumers are buying smaller bundles, some of which look like the bigger bundles, just delivered over the top—although that product is getting more expensive. Some of that on the lower end is a subset, excluding broadcast and sports. I saw the guys from Philo at the VMAs, and that business is still small but growing nicely and is bigger than what people expect. There is growth there.
Then you have the SVOD space with Netflix and others playing there. Then you have free, which is the entry point of the funnel.
That’s what the landscape is going to look like, and people are going to move across it. I don’t know what the penetration of any of those segments is, but they are all going to exist. Our strategy is to play across them. We want to keep a strong bundle of linear networks and ensure it has the appropriate on-demand product to go with it, so that people who operate those kinds of businesses have a compelling consumer proposition. At the same time, at the other end of the spectrum, we believe in the free space. Today, we have the number one U.S. free streaming television product, Pluto TV, and we’re focused on making that the biggest free product in the world. We will be rolling it out globally, starting with all of Latin America in early 2020. It’s already in the U.K., Germany, Austria and Switzerland, in addition to the U.S. and the U.S. Hispanic market.
On the pay side of streaming, we want to be present in three ways. First, by continuing to license bundles of product to the MVPDs, including the MVPDs distributed on mobile networks. We were a launch partner for AT&T WatchTV, and in our AT&T deal, we recently added more product. We are the cornerstone announcement for T-Mobile’s product, which will be coming later in the year. Second, we’re supplying the SVOD players with original productions—that’s our studio model. And third, with the combined Viacom and CBS, we’ll have a portfolio of SVOD products ourselves. So we’re playing across the spectrum because that’s the way that consumers are going to operate.
And the benefit of partnerships is very real. If you look at Pluto TV, you could say it’s a B-to-C product, and you’d be right—it is. But if you look at our distribution model, we have used that as a way to expand our relationship with several MVPDs so we can work with them in the broadband-only space, which we haven’t traditionally done. That’s almost a B-to-B-to-C opportunity using Pluto TV. Mobile carriers are another version of that. So as people talk about B-to-C and going it alone, I still fundamentally believe in the power of partnership. And that will continue to serve us well as we move forward.
WS: In today’s landscape, do you foresee ViacomCBS needing to become even bigger?
BAKISH: We just did our transformative transaction—the deal to merge with CBS. We think there is extraordinary value to create there. That is what we’re focused on at the moment. Of course, we’ll continue to look at opportunities like anybody would, but we don’t see any asset that we must buy.