Philippe Dauman

This interview originally appeared in the MIPTV 2011 issue of World Screen.

 

One on One with Viacom’s Philippe Dauman

 

Perhaps no other major media company has as strong a connection with children, tweens, teens and young adults as Viacom does. Say “SpongeBob,” “Carly,” “Victoria,” “Snooki” or “Jon” and they will immediately trigger recognition among fans of SpongeBob SquarePants, iCarly, Victorious, Jersey Shore and The Daily Show with Jon Stewart. These are just a few of Viacom’s most popular shows.

 

Viacom has built its businesses on a stable of brands created by its three multiplatform divisions: MTV Networks, BET Networks and Paramount Pictures. MTV Networks includes MTV, VH1, Nickelodeon, Nick at Nite, Comedy Central, CMT, Spike TV, TV Land, Logo and approximately 160 networks around the world, as well as digital assets such as Neopets, Atom and Quizilla. BET Networks houses BET, Centric, BET.com, BET Mobile, BET Event Productions and BET International. Paramount Pictures Corporation offers audiences a huge library of top films through brands like Paramount Pictures, Paramount Vantage, MTV Films, Nickelodeon Movies and Paramount Home Entertainment. Paramount has refocused its strategy by releasing fewer feature films each year. While concentrating on franchises, including Star Trek and Transformers, the studio has also released the Academy Award–winning The Fighter as well as Ethan and Joel Coen’s remake of True Grit.

 

As Philippe Dauman, who has been the president and CEO of Viacom since 2006, explains, the fuel that drives the success of all brands is original programming. And creating fresh content and reinforcing its many brands has been Viacom’s main focus.

 

As a result, MTV had three of the top five original cable series in the U.S. last quarter and Nickelodeon continues to be the number one destination for kids. BET broke new records with the debut of The Game, the number one ad-supported sitcom telecast in cable-TV history, which was followed by the premiere of its newest scripted series, Let’s Stay Together, ranked among the top five ad-supported sitcom premieres in cable-TV history. In addition, Comedy Central, Nick at Nite and TV Land are all broadening their reach with new original shows.

 

Dauman has overseen a new emphasis on research because even though Viacom has a strong foothold within young demographics, these consumers can be fickle. As early adopters of new technologies, they are the first to grab the latest smart phone, portable device or PC to fulfill their entertainment needs. Viacom’s programmers have to be sure they are carefully following and understanding the viewing patterns of young consumers. To that end, Viacom does extensive research to know its audience, and the resulting data is used to guide the development of programming.

 

Viacom’s total revenues amounted to $13.36 billion for the 12-month period ending September 30, 2010. As the company’s shows have been rating well, this has been consistently attracting advertisers, through the recent recession and especially now. In the first quarter of fiscal year 2011, advertising revenues were up 10 percent in the U.S. and 7 percent worldwide. While total revenues fell 5 percent in the first quarter, Dauman told shareholders this was due mainly to sluggish DVD sales. But he and Viacom’s management are always looking for new ways to monetize the company’s content, making deals with Netflix and other platforms. As Dauman told World Screen in this exclusive interview in his Manhattan office, Viacom is always focused on what’s next.

WS: Many media companies have seen their stock prices increase lately. Have they just been riding the wave of the improved econ­omy, or are analysts, who have been a little leery about the uncertainties of where technology was taking media, starting to view media companies differently?

DAUMAN: Clearly, the recession impacted a lot of companies and [it] hurt certain kinds of media companies more than others. If you were primarily in the broadcast business, your ad sales went down more than cable network companies because the national advertising market held up better than the local advertising market. If you’re a magazine company, you really got hurt. If you’re a newspaper company, you really got hurt, too. So, it depends what sector of media you were in.

 

Viacom is in a great sector of media, namely cable networks, which is the largest piece of our company. In our particular case, our stock price has performed particularly well for several reasons. One, we are totally focused on content, and people realize how important content is. We’re also very focused on our brands, and people realize how important brands are. Second, our ratings at our major networks have been growing substantially and, accordingly, so have our ad sales. Third, our affiliate revenues increased at a double-digit rate consistently through the recession, and continue to rise today. Even during the recession, we were able to secure significant increases in our affiliate agreements because of the value of our brands and of our content.

 

We’ve put a lot of focus on operating efficiencies throughout our company. In fact, we were probably the first of the media companies to take some belt-tightening measures ahead of the recession because we saw it coming.

 

On the studio side, we’ve changed the Paramount strategy in the last few years. We’ve reduced the number of pictures we were putting out to approximately 15 films a year. And we’re focusing on our franchises and our branded films. Our franchises include Transformers, Star Trek, Mission: Impossible and many others. We’re blessed with a lot of franchises, and we’re creating new ones, such as Paranormal Activity. We’ve already released Paranormal Activity one and two, and we have a third one planned. That’s a great new franchise, and, because it didn’t cost a lot to make, it’s very profitable. We’ve also moved into the animated business with Rango, which is a Nickelodeon film featuring the voice of Johnny Depp as Rango.

 

We combine that new film strategy with a real focus on controlling overhead and finding more efficient ways to conduct our business. The results of Paramount have been improving, both creatively and operationally.

 

As a result of all of these actions, we’ve been able to generate solid growth in our operating income, our earnings per share and our cash flow. Last year, we initiated a dividend for the first time and we resumed our buyback program on October 1, which our shareholders perceive to be very investor friendly. We’re turning a lot of capital back to our shareholders.

 

So it’s a combination of all those things: investing in our content through good times and bad times—that was one category where we increased spending even during the recession—getting results; avoiding a lot of crazy acquisitions; and returning money to shareholders. These are the things that have driven a very significant improvement in our stock price.

 

As I said, it all starts with being clear about what our company’s mission is: to produce great content, to create great brands, to nurture them and then monetize them in every way possible. Operate the company with greater efficiency. Expand globally, which is an important part of our future, and take advantage of new technologies to expand the audiences’ experiences with our content and our brands. 

 

People are starting to see what the value-creation opportunities are at Viacom and, to varying degrees, at other media companies that are in the most promising sectors of media.

 

WS:Cable has been somewhat safeguarded by its dual-revenue stream, hasn’t it?

DAUMAN:Dual or more. Think about Nickelodeon. Nickelodeon has a significant consumer-products-licensing revenue stream, which we intend to grow dramatically over time as we secure more franchises. We did a deal with an Italian company called Rainbow, which has the Winx Club franchise—a very popular franchise in Europe—and we’re going to be introducing that property in the U.S., Latin America and other parts of the world. We took a 30-percent interest in Rainbow because we think it has a lot of potential to grow and we wanted to share in that growth with the creator of the company. That’s a great new opportunity for us.

 

It’s nice to have those multiple revenue streams, and they can be replicated if you have the right brands and new forms of distribution. For example, we just did a deal with Hulu. One of the appeals of that deal was that it creates dual-­revenue streams online where we now receive a combination of advertising revenue and subscription fees. It works well in the cable world, and there’s no reason why models that work well in one form of distribution can’t work well in another.

 

WS:In today’s fragmented market, what do advertisers look for in Viacom’s portfolio?

DAUMAN: They look for several things. One, they look for the passion that our viewers have for our brands and our shows. If you are a toy company, you must advertise on Nickelodeon. If you want to reach kids and their parents—there’s a lot of co-viewing on Nickelodeon—it’s a must buy. If you are opening a movie this weekend, you have to advertise across a broad swath of our networks because we reach and connect with young demos. In fact, we have over 20 percent of all viewing on basic advertiser-supported cable in the U.S. If you take the 12- to 34-year-olds segment, we have about 30 percent of all viewing. So, if you are trying to reach 12- to 34-year-olds, then you want to advertise on our networks. We also garner a large proportion of the under-12-year-olds audience.

 

We have a lot of opportunity with advertisers who have not historically advertised on our networks. For example, we underperform traditionally in the automotive category. That’s an area where we can grow and we are growing, particularly now that the U.S. auto companies have been revamped. The auto companies today are putting out models that are more geared toward young people than the models they were putting out before, so they need to reach this audience.

 

So, that’s the appeal of our networks, and the same is true internationally. For a global marketer, we can offer compelling opportunities across many of our networks around the world.

 

WS: Where are the opportunities in the international market?

DAUMAN: The international opportunities for us are great. We recently reorganized our international-media networks group, so that Bob Bakish, who was running MTV Networks International, is now running a group called Viacom International Media Networks, which reports directly to me. We have a very strong and growing presence, and some of our brands are pretty ubiquitous around the globe. MTV, certainly; Nickelodeon, not yet, but it’s in more than 50 countries and we have plans to expand. Comedy [Central] is rolling out into new territories, as is BET. We also have the general-entertainment network Colors, which started in India and now is rolling out in other parts of the world. There’s opportunity for the Paramount brand as a cable channel. We might take Spike TV, which is primarily a U.S. brand right now, into other countries. There’s no question that international is a big opportunity for us.

 

Along with the opportunities, there are challenges in the international marketplace. Some countries don’t allow you in. But technology offers a great opportunity for us because it allows us to bypass some of the regulatory restrictions that may exist for foreign-owned media companies.

 

For our film studio, the international marketplace is becoming increasingly important. The U.S. market is finite—the theaters are pretty well built out—whereas movie theaters are being built at a much greater rate outside of the U.S., and that creates more opportunity for theatrical releases. This is why our focus on franchises that resonate with global audiences is an important part of Paramount’s strategy. There are more and more films released today that derive significantly more box-office [revenues] overseas than they do in the U.S.

 

WS:What is Viacom’s relationship with Netflix?

DAUMAN:We have multiple relationships with Netflix. We did a deal between Netflix and our joint venture EPIX, which was for film content. In that case, we created a new window within the pay window, making movies available 90 days after the pay window opens. That deal was really an inflection point in monetizing content online because it was the first time that an online-only company was paying anywhere near that amount of money for content.

 

We do have some content from our television cable networks on Netflix. Up to this point, it’s been the library content—at least 18 months old—but that’s worth a lot to them because there’s usage of those shows. We try to find as many ways as we can to make use of all this great content we own.

 

WS: How can Facebook and Twitter be harnessed to help channels and even individual shows perform better?

DAUMAN: We have huge fan followings for our networks and our shows both on Facebook and on Twitter. We have had tremendous success integrating Twitter feeds into some of our major live events, such as the MTV Video Music Awards, which drives viewers to the show on television as well as to our website. And both of these platforms are great tools when it comes to marketing movies. For example, it was our use of Twitter to market Paranormal Activity that really got people’s attention. When we did those midnight showings of the first Paranormal Activity, we placed computer terminals at the theaters, so people could tweet about it as they came out of the theater. At 2 a.m. there’s relatively less Twitter traffic, so Paranormal Activity quickly rose to the very top of the trending topics, which drew a lot of attention.

 

It’s a very symbiotic relationship between our content and brands and social networks, because the passion that their users have for our shows drives traffic to them. So, it works for both parties, which is usually the best kind of relationship.

 

WS:What is Paramount’s reputation among the creative community? Is it a director’s studio? How does it balance original films against franchises?

DAUMAN:Paramount under Brad Grey’s leadership has established itself as a great studio for talent. They are very focused on the pictures they make and they’re at the top of the pack in terms of marketing movies. Brad and his team have great relationships with the leading director talent of the day, and it’s a mix of people like J.J. Abrams, Martin Scorsese, Michael Bay and Ethan and Joel Coen. We also have a lot of newcomer talent and we have relationships with acting talent.

 

A studio today needs to have the right blend of films. Our strategy is anchored in franchises with great casting, great special effects, great stories.

 

We can have the franchises and then we can do something like True Grit with the Coen brothers. It’s now at $160 million in the domestic box office and counting, which is certainly way beyond our expectations.

 

Having the business strategy of releasing fewer movies allows for greater creative success and greater marketing success. It’s hard for any studio to really be successful at putting out 30 or 35 movies a year. You just don’t have the capacity to give each picture the attention it deserves in the development and production phases, as well as on the marketing side. Paramount has found the right mix.

 

WS:Facebook has some $2 billion in revenues and is being valued at more than Time Warner or Viacom. Do you get the feeling that this is AOL all over again? Is this another Internet bubble?

DAUMAN:Well, even in the last Internet bubble, there were certain companies that survived and continue to be successful today. So a few companies will endure and many others will not. I’m not in the business of predicting how individual companies will do, and we haven’t positioned Viacom to be dependent on any one company or form of distribution to survive. What we strongly believe is that if we do what we do well—which is to produce great content that’s difficult for others to replicate and to create enduring brands that people will follow—we will do business on the right terms with all comers.

 

A lot of technology companies at first thought that they could build a model that doesn’t rely on professional content. Then they realized, “We can’t just put dreck up there; we need the good stuff.” That’s why you’re seeing real money being paid by online players. The same was true when other generations of technology came along, such as satellite companies or telcos. Some of these companies that have very high valuations today will have disappeared five years from now. Others will become really strong, stable companies that will be a part of what we do every day.

 

Technology is a tough business. In many ways, it can be tougher than what we do. Don’t get me wrong, it’s tough to come up with hit shows and hit movies. It’s very hard to quickly replicate a creative enterprise. It’s hard for us who are in the business to turn around a broadcast or a cable network overnight. It takes a lot of lead time. In technology, some new device or platform can suddenly appear and have a transformative impact over­night. Valuations rise quickly, and it’s great for those who are able to cash out. But it also means that you’re always vulnerable. You can be a $50-billion-dollar market-cap technology company and then somebody else comes up with a slightly better way of doing it, or a new algorithm, and a few years from now, you’re gone.

 

The good news is that Viacom will be able to ride through whatever waves there are because of the tremendous consumer demand for our content.

 

WS:Because content is king?

DAUMAN: Or queen.