ViacomCBS Reports Q4 and Full Year 2019 Results; Provides Strategic Update

ViacomCBS Reports Q4 and Full Year 2019 Results; Provides Strategic Update

- Full Year Revenue Increased 2%, Driven by Growth in Advertising, Affiliate and Content Licensing; Operating Income, Net Earnings and Diluted EPS Impacted by Q4

- Transitional Q4 Included Merger-Related Expenses, As Well As Operating Items Expected to be Mitigated Through Benefits of the Combined Company

- Moving Quickly on Integration: Consolidated Teams in Place; Increasing Annualized Run-Rate Cost Synergy Target to $750M from $500M

- Go-Forward Strategy Will Unlock Incremental Value from Content, Revenue Lines and Streaming
-- Expanded Portfolio of Platforms Increases Content ROI, Monetization Opportunities
-- Domestic Streaming and Digital Video Business Already Generating Approximately $1.6B in Annual Revenue, with Significant Momentum Going Forward

NEW YORK--February 20, 2020--ViacomCBS Inc. (NASDAQ: VIAC; VIACA) today reported financial results for the quarter and full year ended December 31st, 2019.

Statement from Bob Bakish, President & CEO

“In less than three months since completing our merger, we have made significant progress integrating and transforming ViacomCBS. We see incredible opportunity to realize the full power of our position as one of the largest content producers and providers in the world. This is an exciting and valuable place to be at a time when demand for content has never been higher, and we will use our strength across genres, formats, demos and geographies to serve the largest addressable audience, on our own platforms and others.

ViacomCBS is one of the largest content producers and providers in the world.

In 2020, our priorities are maximizing the power of our content, unlocking more value from our biggest revenue lines and accelerating our momentum in streaming. With this as a backdrop, we’ve set clear targets for the year and are providing increased transparency around our business to demonstrate ViacomCBS’ ability to create shareholder value today, as we continue evolving and growing our business for tomorrow.”

Domestic streaming and digital video business already generating approximately $1.6B in annual revenue, with significant momentum going forward.

OVERVIEW OF Q4 & FULL YEAR REVENUE RESULTS

FULL YEAR

- Advertising revenue increased 2%, driven by 5% growth in domestic advertising sales, reflecting CBS’ broadcasts of Super Bowl LIII and the NCAA Division I Men’s Basketball Tournament’s national semifinals and championship games, as well as higher revenues from Advanced Marketing Solutions (“AMS”) which includes Pluto TV, partially offset by lower political ad spend.

- Affiliate revenue grew 3%, fueled by 20% growth in reverse compensation and retransmission, as well as strong subscription streaming revenue, which more than offset declines in pay TV subscribers.

- Content licensing revenue rose 5%, reflecting higher revenues from licensing library and original production to third parties.

- Domestic streaming and digital video business – which includes subscription revenue and digital video advertising – generated approximately $1.6B in revenue.

Q4

- Affiliate revenue increased 1%, as strong growth in reverse compensation, retransmission and subscription streaming revenue more than offset declines in the pay TV landscape.

- Domestic advertising revenue was affected by significant declines in political advertising compared with the prior-year quarter.

- Domestic Cable Networks’ advertising revenue grew 9%, benefiting from AMS.

- Content licensing revenue declined 11% due to the timing and mix of deliveries.

STRATEGIC UPDATE

ViacomCBS is one of the largest content producers and providers in the world.

The company has a powerful content engine – including global production capabilities, and a vast library of premium TV and film titles – that spans all genres, formats, demographics and geographies. And, ViacomCBS has the ability and flexibility to monetize this content in a variety of models – across both owned and third-party platforms – which the company believes is a distinct and important competitive advantage.

ViacomCBS will capitalize on these strengths to serve the largest addressable audience – and, in the process, expand the value of that content for more people, more partners and on more platforms.

1. Maximize the Power of Content

- Put the full power of the company behind its biggest priorities, while applying more rigor to managing content mix, investment and returns.
-- Focus on global, cross-company franchise management to get the most out of powerful IP.
-- Use ViacomCBS’ leadership positions off- and on-screen – and the company’s huge global footprint – to promote priorities.
-- Prioritize content investment in streaming and studio production – two growth areas – while also optimizing programming mix to improve content ROI.

2. Unlock Value from Biggest Revenue Lines

- Drive growth across distribution, ad sales, content licensing and third-party studio production, enabled by the strength of the unified company’s asset base and its position as one of the most important partners in the media ecosystem.
-- Distribution: Combine must-have content across broadcast and cable with proven partnership model to drive growth and share.
-- Advertising: Benefit from leadership positions in linear and digital, and apply advanced advertising capabilities across expanded audience reach.
-- Content Licensing: Package TV and film to create new content licensing opportunities and better meet client needs; use low-risk, profitable studio production business to grow content and IP library for the long-term in an economically efficient way.

3. Accelerate Momentum in Streaming

- Take a differentiated approach that builds on ViacomCBS’ unique foundation in streaming, plays to its strengths and fulfills unmet audience and partner needs.

- Complement the company’s leading free Pluto TV and premium pay Showtime OTT offerings by adding a broad pay offering, built on the foundation of CBS All Access.
-- Offerings in free, broad pay and premium pay provides opportunity to serve largest potential consumer market while providing benefits in subscriber acquisition, churn and lifetime value.
-- New broad pay “House of Brands” product will expand CBS All Access by adding the company’s scaled assets in film and TV, including world-renowned brands, and reaffirm and expand the value of entertainment, news and sports – through on-demand and live experiences – for audiences around the world.
-- Go-to-market strategy includes partnerships with both traditional and new distributors, domestically and internationally.

TV ENTERTAINMENT

FINANCIAL RESULTS

- Full year revenue increased 8%, with growth across each of the segment’s main revenue lines.

- Full year Adjusted OIBDA decreased 1%, as a result of increased content investment and higher costs associated with the growth and expansion of streaming services, partially offset by higher revenues.

- Fourth quarter revenue declined 1%, as higher affiliate revenue was more than offset by lower political advertising sales and content licensing, compared to the prior year quarter.

- Fourth quarter Adjusted OIBDA declined, reflecting lower political advertising, content licensing and higher expenses.

OPERATIONAL HIGHLIGHTS

Viewing Performance and Programming:

- CBS will conclude the broadcast season as America’s most-watched network for the 12th consecutive year, and season-to-date has the most top 30 regularly scheduled broadcast programs.

- CBS remained #1 in daytime and late night, and, among broadcast networks for viewers 2+, had 5 of the top 10 non-sports programs, and 5 of the top 6 freshman series.

- On CBS, the NFL finished the 2019-20 season as the most-watched season in three years.

Affiliate and Subscription Growth:

- In January, ViacomCBS announced a renewed carriage agreement with Comcast, including retransmission of 23 CBS-owned TV stations in 15 major markets across the US. As part of the agreement, CBS All Access will be available on Xfinity X1 and Flex platforms.

- In January, the premiere of Star Trek: Picard on CBS All Access broke internal records for total streams and subscriber signups.

Studio Production:

- CBS Television Studios continued to grow, with 79 shows ordered to or in production – a 23% increase from the previous year.

CABLE NETWORKS

FINANCIAL RESULTS

- Full year revenue declined 2%, as higher streaming and studio production revenue was more than offset by a decrease in linear subscribers and an approximate 200 bps unfavorable F/X impact.

- Full year Adjusted OIBDA decreased 19%, driven by lower revenues and increased costs, including higher investment in content and advertising and promotional expenses.

- Fourth quarter revenue declined 2% as linear subscriber declines more than offset growth from OTT services.

- Fourth quarter Adjusted OIBDA reflects increased investment in programming and OTT.

OPERATIONAL HIGHLIGHTS

Viewing Performance and Programming:

- Cable Networks’ total portfolio grew share for the full year, and owned more top 30 cable series in the quarter than any other cable family among key demos.
-- Showtime was the #1 premium network on Sunday nights in the quarter.
-- Comedy Central had its 11th straight quarter of YOY share growth – its best streak ever. In January, the launch of Awkwafina is Nora From Queens was the network’s best series premiere in 3 years.
-- Paramount Network marked its 5th consecutive quarter of YOY share growth and finished the year with its largest YOY share gain in 14 years.
-- Internationally, Telefe remained #1 in ratings, while Channel 5, Network 10, MTV and Paramount Network grew YOY share in the quarter.

Studio Production:

- Awesomeness’ production of To All the Boys: P.S. I Still Love You premiered on Netflix in February.

- New productions for Quibi include MTV’s Punk’d and Singled Out, Comedy Central’s Reno 911 and Awesomeness’ One Night Forever.

FILMED ENTERTAINMENT

FINANCIAL RESULTS

- Full year revenue grew 1%, principally driven by licensing, which was partially offset by lower theatrical revenues.

- Full year Adjusted OIBDA grew to $80M, principally driven by profits from licensing of films.

- Fourth quarter revenue was impacted by current year slate performance and the number and mix of film titles compared to the prior year.

- Fourth quarter Adjusted OIBDA was an outlier when compared to the prior 8 quarters of YOY Adjusted OIBDA improvement.

OPERATIONAL HIGHLIGHTS

Paramount Pictures:

- While the Q4 film slate performance was soft, highly anticipated releases in 2020’s expanded slate:
-- Currently in theatres, Sonic the Hedgehog has grossed over $116M in worldwide box office in its opening weekend, holding the record for the best debut of a film based on a video game.
-- The SpongeBob Movie: Sponge on the Run, A Quiet Place Part II, Top Gun: Maverick coming in Q2.

Paramount Television Studios:

- Paramount Television Studios also continued to expand, with 27 shows ordered to, in production or on air.

- New series premieres include:
- On USA Network: Briarpatch in February
- On BET: Season 2 of Boomerang on March 11th
- On Spectrum’s On Demand platform: Paradise Lost on April 13th
- On Apple TV+: Home Before Dark and Defending Jacob in April

Strategic Investment:

- In December, ViacomCBS announced an agreement with beIN Media Group to acquire a 49% stake in MIRAMAX.
-- As part of the deal, Paramount entered into an exclusive, long-term distribution agreement for MIRAMAX’s award-winning 700+ film library and a first-look agreement to develop, produce, finance and distribute new film and television projects based on its IP.

PUBLISHING

FINANCIAL RESULTS

- Full year revenue declined 1%, primarily reflecting lower print book sales, partially offset by 7% growth in digital.

- Full year Adjusted OIBDA decreased 7%, reflecting the decline in revenue and higher costs from the mix of titles.

OPERATIONAL HIGHLIGHTS

- Bestselling titles for the quarter included Stephen King’s The Institute, Alex DeMille’s The Deserter, and the relaunch of Joy of Cooking.

- For the year, bestselling titles included the “relaunch” as an author of Howard Stern with Howard Stern Comes Again, Stephen King’s The Institute and David McCullough’s The Pioneers.

- The Audio division also saw significant growth for the year from the world-class productions of titles, including The Mueller Report.


You can read ViacomCBS's Q4 and Full Year 2019 Results press release in full, including tables of Viacom's statements and balance sheets, here on ir.viacbs.com.

ABOUT VIACOMCBS

ViacomCBS (NASDAQ: VIAC; VIACA) is a leading global media and entertainment company that creates premium content and experiences for audiences worldwide. Driven by iconic consumer brands, its portfolio includes CBS, Showtime Networks, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, CBS All Access, Pluto TV and Simon & Schuster, among others. The company delivers the largest share of the U.S. television audience and boasts one of the industry’s most important and extensive libraries of TV and film titles. In addition to offering innovative streaming services and digital video products, ViacomCBS provides powerful capabilities in production, distribution and advertising solutions for partners on five continents.

For more information about ViacomCBS, please visit www.viacbs.com and follow @ViacomCBS on social platforms.

VIAC-IR

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This communication contains both historical and forward-looking statements. All statements that are not statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements reflect our current expectations concerning future results, objectives, plans and goals, and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause future results, performance or achievements to differ. These risks, uncertainties and other factors include, among others: technological developments, alternative content offerings and their effects in our markets and on consumer behavior; the impact on our advertising revenues of changes in consumers’ content viewership, deficiencies in audience measurement and advertising market conditions; the public acceptance of our brands, programming, films, published content and other entertainment content on the various platforms on which they are distributed; increased costs for programming, films and other rights; the loss of key talent; competition for content, audiences, advertising and distribution in consolidating industries; the potential for loss of carriage or other reduction in or the impact of negotiations for the distribution of our content; the risks and costs associated with the integration of the CBS Corporation and Viacom Inc. businesses and investments in new businesses, products, services and technologies; evolving cybersecurity and similar risks; the failure, destruction or breach of critical satellites or facilities; content theft; domestic and global political, economic and/or regulatory factors affecting our businesses generally; volatility in capital markets or a decrease in our debt ratings; strikes and other union activity; fluctuations in our results due to the timing, mix, number and availability of our films and other programming; losses due to asset impairment charges for goodwill, intangible assets, FCC licenses and programming; liabilities related to discontinued operations and former businesses; potential conflicts of interest arising from our ownership structure with a controlling stockholder; and other factors described in our news releases and filings with the Securities and Exchange Commission, including but not limited to our most recent Annual Report and reports on Form 10-Q and Form 8-K. The forward-looking statements included in this communication are made only as of the date of this communication, and we do not undertake any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.

From the ViacomCBS Newsroom:

OUR PATH FORWARD AS VIACOMCBS†

By Bob Bakish

"We have a plan to get there…now comes the fun part of executing it."
Less than three months ago, we merged to become ViacomCBS, one of the largest content producers and providers in the world. We’ve since made great progress to integrate and transform the business as we move quickly to unlock the full power of this company organizationally, operationally and financially.

Today, during our first-ever ViacomCBS earnings call, I outlined our strategy for delivering greater value in 2020, focusing on three priorities:

- Maximize the power of our content;
- Unlock more value from our biggest revenue lines; and
- Accelerate our momentum in streaming and digital video

First, we’re focused on increasing the value of our content, IP and franchises across our portfolio, and applying more rigor to managing our content mix, investment and returns.

With our portfolio combined, we now have a powerful promotional platform to showcase our biggest content priorities, from franchises to football. We’re also developing global, cross-company franchise opportunities. For example, on the heels of the launch of Star Trek: Picard on CBS All Access – which broke our records for total streams and subscriber sign-ups – we’re extending the Star Trek franchise across the house. Building on the success of Discovery and Picard, we have two additional series in production at CBS All Access and Nickelodeon, with two more series in development; a series of Picard novels rolling out at Simon & Schuster; and a highly anticipated new Star Trek feature film at Paramount.

When it comes to more effectively managing our content mix, investment and returns, we are prioritizing our spend in streaming and studio production – two key growth areas – while keeping our linear TV content spend levels consistent with last year. We’re also boosting cross-company use of our IP to improve ROI and attract new audiences in a cost-effective way.

This strategy is already in place at Showtime, which will air a special season of VH1’s RuPaul’s Drag Race All Stars on a first-window basis – a move we think will help drive Showtime subscriber growth and further strengthen the return on investment in this franchise. We see an even bigger opportunity to better monetize some of Showtime’s “plex” channels, which is why we’ll be rebranding and relaunching Showcase as SHO*BET. This channel will feature African American scripted series from Showtime and BET, as well as popular movies and specials, helping us benefit from the growing demand for premium African American content across platforms.

Maximizing the power of our content is strongly tied to our second 2020 priority: Unlocking more value from our biggest revenue lines.

In distribution, our leading broadcast and entertainment brands, and strength in live, local, news and sports, makes ViacomCBS a must-have. And by working with distribution partners to deepen our relationships through advanced advertising, broadband products and more, we can continue to serve the largest addressable market and grow share in the face of industry macro-trends. We’ve already seen the benefit of our combined portfolio in the recent renewal of our carriage agreement with Comcast, which brings CBS All Access to set-top boxes for the first time. And thanks to Paramount, we’re also critical to the film distribution ecosystem. Look no further than our most recent release, Sonic the Hedgehog, which delivered the biggest box office opening ever for a video game adaptation at more than $70 million domestically.

We’re also a must-buy for advertisers thanks to our leadership in U.S. reach across linear and digital, as well as our advanced ad capabilities, which were a key driver of our domestic cable networks’ ad growth in Q4 and full year 2019. This momentum positions us well for the next Upfront, especially as we apply Viacom’s advanced ad business across CBS’ massive audience reach, and as we continue to expand our premium digital video inventory, already amongst the largest in the industry.

We are an essential content licensing partner too. Along with an extensive library of IP to leverage, we now have a single content licensing sales force in place. This team will focus on extracting incremental benefit through the packaging of film and TV, tailoring offerings to better meet client needs while supporting our own platforms. Likewise, we will also continue to drive greater value from our third-party studio production, a quickly scaling and fundamentally profitable business that allows our key franchises to reach more consumers, and enables us to efficiently grow our content and IP library for the long-term.

Finally, our third 2020 priority is to accelerate our momentum in streaming. This starts with us building on our strong foundation in ad-supported streaming through Pluto TV – a leading free streaming TV service in the U.S. with over 22 million monthly active users – as well as in pay streaming, where our offerings account for more than 11 million domestic subscribers – up over 50% year-on-year. We’re also making strides to expand these services internationally. Pluto is available in the U.K., Germany, Austria and Switzerland, and launches in Latin America next month, while CBS All Access is available in Canada and Australia, as are our Paramount+ and Noggin products in numerous territories.

Beyond usage, our streaming foundation is also financial. In 2019, our domestic streaming and digital video business – which includes subscription revenue and digital video advertising – delivered approximately $1.6B billion in revenue, which we expect to grow between 35 to 40 percent this year.

Of course, the opportunity is much, much larger. Our go-forward streaming strategy is rooted in the belief that the streaming world will evolve similarly to linear, as defined by free, broad pay and premium pay segments. And, just like in linear, we’ll have robust offerings in each, allowing us to migrate consumers across price points through promotion and bundling, and increase subscriber acquisition, retention and lifetime value.

With Pluto TV as our free offering and Showtime OTT as our premium pay product, we will expand CBS All Access to serve the broad pay streaming segment. This differentiated service will reaffirm and grow the value of entertainment, news and sports content – through on demand and live experiences – for audiences worldwide. In effect, it will be a combined “House of Brands” product, with content added from Nickelodeon, Comedy Central, MTV, BET and Smithsonian, along with popular Paramount films. Importantly, we will make this offering compatible with the evolving distribution landscape to broaden our partnerships across the traditional and OTT spaces, including mobile.

As we look at our road ahead in 2020, I am confident in our ability to capitalize on our status as one of the biggest content providers in the world and become the most important partner in the media ecosystem. For the year, we expect to accelerate our revenue growth by mid-single-digits, reflecting strength across our business segments. We have a plan to get there…now comes the fun part of executing it.

†See ViacomCBS Q4 2019 earnings release for information regarding our use of non-GAAP financial measures and forward-looking statements.

###

Below are highlights from ViacomCBS Inc.'s Q4 2019 Results conference call, featuring the bits about Nickelodeon. For the full Earnings Call Transcript, visit Seeking Alpha:

[...]

Robert Bakish

Good morning, and thank you for joining us for the first Viacom's CBS earnings call. It has been less than three months since we completed our merger, and I'm pleased to say we are making significant progress integrating and transforming Viacom's CBS, as we move quickly to unlock the full power of this now unified company.

This includes organizationally, we have built a best-in-class management team and consolidated structure. Operationally, as we have started executing as a combined entity in a meaningful way, including through sales force consolidation, more streamlined groupings of networks, as well as the integration of digital assets and capabilities, and financially where cost synergies are already being realized, and our target is being increased from $500 million to $750 million in annualized run rate, cost savings.

Importantly, this progress is not reflected in Q4, which given the timing of our close is a transitional one and overwhelmingly reflects two separate companies executing on separate strategies.

Chris will cover our Q4 and full-year results in detail, but let me highlight a few things. First, there are as you would expect a significant set of merger related items that were a headwind for expenses and cash flow.

Second, at the operating level from a revenue perspective, certain lines reflect the impact of challenges that will be mitigated in the combined company affiliate is an example here, while others such as ad sales provide insights into the potential of the company to perform more strongly as we extend capabilities across the portfolio.

Lastly, our operating results reflect the impact of legacy content investment decisions at some business units. As I will explain in a few minutes, here we are evolving our strategy to significantly improve content ROI and free cash flow.

I would now like to discuss our strategic vision and priorities for Viacom's CBS, and what we are going to deliver in 2020. A year where we anticipate delivering revenue growth in the mid-single-digits, adjusted OIBDA of $5.8 billion to $6.1 billion and free cash flow, excluding integration costs to achieve of $1.8 billion to $2 billion for 2020 with an additional $500 million in free cash flow benefit in 2021.

Let's start at the top by top. ViacomCBS is one of the largest content producers and providers in the world and that is an incredibly exciting and valuable place to be, at a time when both consumer and commercial demand for premium content is only growing.

We have an unrivaled ability to create value through the media ecosystem, and to serve the largest addressable audience globally. We do this by operating our own platforms and by supplying others. Taken together, we believe ViacomCBS can be the most important content partner in the industry.

Why? Because first and foremost we have and make an incredible volume of content, through our globe spanning production capabilities, depth of IP ownership and talent relationships and underpinned by our library of more than 140,000 television episodes and 3,600 film titles, all continually refreshed and grown by over $13 billion annual cash content investment.

In fact, we make content across every genre and format, including news, sports and entertainment, both scripted and unscripted. And our television reach extends across 4.7 billion cumulative homes in over 180 countries.

And we don't just make content, we make hits, as evidenced by our number one positions across broadcast and cable viewing in all our key audience demographics. And our number two ranking in tubular social media video views in the media and entertainment category. Another clear indicator of the power and appeal of our IP.

We also have the ability and flexibility to monetize all this content in a variety of models, across both owned and third-party platforms, which we believe is distinct and important competitive advantage and by serving the largest addressable audience across every segment and platform, we are aggressively creating new opportunities to bring our brands in IP to more audiences, extend franchises, and grow revenue streams.

Now let's talk more specifically about our three priorities for 2020. First, maximize the power of our content; second, unlock more value from our biggest revenue lines; and third, accelerate our momentum in streaming.

First content. Our content strategy isn't about spending more. It is about better aligning the combined company spending with growth potential and maximizing the value of our content, IP and franchises across our now larger asset base. That means putting the full power of the company behind our biggest priorities. This includes the massive promotional platform that we can exploit for our own benefit.

Our leadership on and off linear TV, including the largest broadcast footprint in the world, and more than 1.5 billion social fans and followers provides an incredible opportunity to maximize the impact of our biggest priorities from franchises to football. A platform we look forward to deploying including in support of Super Bowl 55 Taking place next February.

But it is more than promotional impact. It also includes focusing on global cross company franchise management to get the most out of our powerful IP across our brands and platforms. Take Star Trek as an example, a globally enduring franchise that we will make even bigger.

On the heels of the card on CBS all access, which broke our record for total streams of subscriber signups, we are now taking the Star Trek franchise and extending it across the house. Building on Discovery and Picard, we now have two additional series in production at All Access and Nickelodeon, and two more series in development, plus a series of Picard Novels being rolled out Simon Schuster, and highly anticipated New Star Trek feature at Paramount.

Very importantly, we are also maximizing the power of our content by applying more rigor to managing our content mix, investments and returns. In fact, we see this as a significant opportunity to improve some of the cash softness you saw in Q4 and full-year 2019. In 2020, that means prioritizing content investment in streaming and studio production. Both of which are growth areas.

At the same time, our linear TV content spend levels will remain consistent with last year, and effectiveness will increase as we shift the mix within networks and increased cross company utilization to improve ROI. To demonstrate the strategy at work, I would like to focus on Showtime. A powerful important brand with culture defining hits, but a business that consumes significant working capital in 2019.

Make no mistake, high end scripted programming and hits like Billions, Shameless and Homeland will continue to be a key pillar of the brand. But by shifting some of the content mix, including through new users of ViacomCBS brands, we can attract subscribers in a more cost effective way.

Take the H1’s RuPaul Drag Race for example. With a large loyal following, we believe this franchise will be additive to Showtime subscriber dynamic, which is why we will air a special new season of RuPaul Drag Race All Stars on Showtime on a first window basis. We are also confident this move will further improve the already strong ROI of this franchise.

And we see an even bigger opportunity to grow Showtime subs by making better use of its plat channels, some of which are currently under utilized. To that end, we will be rebranding and re-launching showcase as SHO*BET this summer featuring African-American scripted series form Showtime and BET as well as popular movies and specials. We see this as a compelling value creation play that will allow us to benefit from the growing demand for premium African-American content across platforms.

This brings me to our second strategic priority for 2020, unlocking more value from our biggest revenue lines. With the expanded ViacomCBS asset base, we see a significant opportunity to drive growth of our own platforms benefiting affiliate and ad revenue. This larger asset base combined with the licensing pullback of some of our competitors also sets the stage for growth in our content licensing and studio production businesses.

Take distribution. ViacomCBS with leading broadcast and entertainment brands and strengthen live, local, news and sports is a must have for any distributor. And by working with partners to deepen and extend our relationships through advanced advertising, broadband products and more, we can continue to grow share. A strategy that will drive growth in the face of macro trends within the industry.

In fact, we have already seen the benefit of the combined portfolio with the recent renewal of our carriage agreement with Comcast, which by the way brings CBS All Access to set up boxes for the first time. And it is not just TV with a diverse and growing theatrical swing from paramount, we are critical to theaters and the broader film distribution ecosystem too.

Q4 may have been soft for Paramount, but it came after eight consecutive quarters of year-over-year improvement, and just look at the huge opening of our current film Sonic, which did approximately $70 million last week in U.S. and Canada alone and became the biggest opening ever for a video game adaptation.

And we couldn't be more excited for Q2's upcoming and highly anticipated titles including A Quiet Place Part 2, Top Gun: Maverick and the next SpongeBob movies Sponge On The Run. So Viacom's CBS is a must have partner so all types of distributors, no question.

We are also a must buy for advertisers. Our leadership in U.S. reached across linear and digital combined is clear. Our advanced advertising capabilities continue to scale. They are in high demand and were a key driver of our domestic cable networks ad growth in Q4 and 2019.

Among other things, this sets us up for a strong upfront. Especially as we apply Viacom’s advanced ad business plus CBS’s massive audience reach, and as we continue to expand our premium digital video inventory, which is already amongst the largest in the industry.

In content licensing tool ViacomCBS is a critical partner. I mentioned before the extensive library of IP we now have, an importantly with a single content licensing sales force now in place, we can extract incremental benefit through the packaging of film and television. Tailoring offerings to better meet client needs, helping take share, while simultaneously being able to support our owned and operated platforms in both linear and streaming.

In content licensing, we are also focused on continuing to unlock the value of our quickly scaling third-party studio production business, while there are some working capital headwinds in this business in 2020 this is a fundamentally profitable business that we expect to deliver $1.3 billion in revenue for the year with double-digit margins and virtually no risk.

It also allowed key franchises to reach more consumers and serve as a component of a multifaceted franchise development and growth strategy. And since most of this business is essentially a rental model versus a sale, it also enables us to grow our content in IP library for the long-term in an economically efficient way, which means we are also building asset value.

Put it all together and you'll begin to see you why will you believe why ViacomCBS can become the most important content partner in the media ecosystem.

Finally, our third strategic priority for 2020 is to accelerate our momentum in streaming. Let me explain how we are approaching the opportunities in the space. Very importantly, it starts with building on a unique and strong foundation we already have in streaming, in ad supported, we have the leading free streaming TV service in Pluto TV with over 22 million monthly active users in the U.S. up 75% year over year and we expect to exit 2020 with approximately 30 million MAUs domestically.

In Pay our subscription offerings account for more than 11 million domestic subscribers up 50% year-on-year and we expect this to grow to approximately 16 million subscribers as we exit 2020. The growth we have achieved so far is overwhelmingly in the U.S., but we are making early strides to expand internationally.

Pluto is already in the UK, Germany, Austria and Switzerland and it’s launching in Latin America next month. On the Pay side, All Access is available in Canada and Australia and our Paramount plus [indiscernible] products are also live in numerous territories.

But our streaming foundation is not just usage, it is also financial. In 2019, our domestic streaming and digital video business, which includes subscription revenue and digital video advertising had approximately $1.6 billion in revenue. We see this as a key metric for ViacomCBS and anticipated growing between 35% and 40% this year with relatively modest incremental operating expenses.

Of course, the opportunity is much, much larger and pursuing that opportunity ViacomCBS will take a differentiated approach that builds on our running start, plays to our strength and fulfills unmet audience and partner needs. Our going forward approach to streaming is rooted in the belief that the streaming world will evolve similarly to the linear world that means it will have three broad pay and premium pay segments and just like in a linear world, we will have streaming product for each.

By having robust offerings in each segment. We will also have the ability to migrate consumers across them through promotion and bundling, which creates advantages in subscriber acquisition retention and lifetime value. Our free new offering is Pluto TV and our premium pay offering is Showtime OTT.

To complete our portfolio, we will take CBS All Access and expand it to be a robust and compelling offering to serve the broad pay streaming segment. This offer will we affirm and expand the value of entertainment, news and sports content through on demand and live experiences for audiences around the world.

Built on the foundation of CBS All Access, including the technology, content and subscriber base, adding substantial content assets in film and television plus the power of world renowned brands to create in effect a combined house of brand product. More specifically, we will add significant content from Nickelodeon, Comedy Central, MTV, BET and Smithsonian in addition to popular films from the paramount library, and we will do this at scale to the tune of approximately 30,000 episodes of TV and up to 1000 movies.

It is differentiated offering will provide the powerful combination of live linear via over 200 local CBS stations, plus on demand content spanning news, sports, film, drama, reality, kids, and more with a global platform and infrastructure from which to market and scale it.

Importantly know that we have designed this offering to be compatible with the evolving distribution landscape. We see it as a value creating opportunity to further broaden our partnerships with traditional distributors, akin to our recent Comcast relationship expansion to CBS All Access. And we also see it as a robust offering for distributors in the broader OTT space including mobile.

Obviously we will be sharing much more information in the month ahead, but we are already hard at work across check, content, branding, marketing and more to bring this evolve product to life, and we will soften launch the product later this year.

As we execute on each of our priorities for 2020, maximizing the power of our content, unlocking new value from our biggest revenue lines and accelerating our momentum in steaming we are positioning ViacomCBS to deliver significant shareholder value. At the same time, we are making non-operating moves to unlock meaningful value.

These include the divestiture of non-core assets like the sale of Black Rock, which we are in the market with as we speak. In addition to other opportunities, we are currently evaluating. The proceeds of these transactions will be used to delever our balance sheet, buyback stock and further strength in the financial position of the Company.

With that, I'll turn it over to Chris to report on our fourth quarter and full-year results, and to provide detailed 2020 guidance.

[...]

Richard Greenfield

Hey guys. Thanks for taking the questions. I got a couple of questions and a couple of follow-ups. First your peers are have been doing some uneconomic deals. If you look at what ESPN just did with SEC and UFC. Wondering as you think about kind of the NFL negotiation that will play out this year, sort of are you prepared to do something that is "uneconomic"?

Two on Nickelodeon, I think your ratings were down somewhere around 20% last year and it looked like it got a lot worse in Q4 and into early 2020 since the launch of Disney Plus. Just wondering kind of what could you tell us about kind of your plans for the Nickelodeon network? And that sort of ties into the [Charlie Ervin] (Ph) question, which is, DISH was pretty clear yesterday and their call that if your ratings are down sharply, they are going to look for reductions in rate or they are going to simply drop programming, which they have been doing at an increasing rate. Just wondering kind of how you think about the negotiation with DISH, which I think is coming up pretty shortly?

And then Chris, I think on the question that somebody asked about cable affiliates being down 8%, you kind of talked about what was in the press release, but could you give some clarity of like what were subs down? What was the rate reset? Just adding some actual numbers to the decline would be helpful. I think that is what the follow-up was trying to ask.

Robert Bakish

Lot in there Rich, but alright, let's do this quick. So the NFL, the NFL and CBS are longstanding partners as a combined company by ViacomCBS is even better positioned to deliver value to that franchise. You know the NFL values are broadcast reach and high quality production and you know that the combined company adds young adult reach, both for linear and streaming as well as international capabilities, both of which are key to NFL development. And that is important to the league.

We are going to do some stuff around the NFL in the months ahead as we prep for Super Bowl 55 leveraging our platform. That is obviously a February 21 event. And to be clear, as a combined company, we absolutely have the financial resources to get a deal done and we do believe it is important to the company and I feel good about getting a deal done. When it gets done? I don't know. We will see. That is really more of the NFL call on timing.

With respect to Nickelodeon, if I look at our domestic cable portfolio. Overall, we actually have a pretty solid audience performance, 13 of our networks grew share in Q4 including Comedy, BET, Paramount Networks, Smithsonian. Actually we see sequential improvement Q1 to-date the whole portfolio is up about 4%.

Nickelodeon continues to be a work in progress, it is far in a way number one in the space, but that is also why - and we do feel good about the slate of shows coming, but we have pivoted to a multi-platform variance of Nickelodeon, as part of building that brand for the future.

That combines, what we are doing in the linear network, what we are doing in our call it over the top space, what we are doing with third-parties and then how we are monetizing that broader audience, including through things like consumer products and for that matter film.

So we are really attacking, the Nickelodeon opportunity in a multifaceted way. I feel good about the progress Brian Robbins and his team are making. I feel good about the partnership with Paramount with the next SpongeBob movie coming in Q2.

By the way we did a preview of that movie SpongeBob out of water last weekend and people are feeling very good about the film. Obviously the NIC network, and our consumer products team are totally behind it.

So Nick has a bright future and finally I would say back to the streaming discussion in our broader pay product, that is a house of brands Nickelodeon is going to feature prominently in that. That is going to be good for the streaming product and it is going to be good for the Nickelodeon brand.

Largely - I'm not going to comment on any particular renewal other than to say we have a track record of getting fields done. We have a stronger portfolio than ever, including leverage. We haven't pulled with some of our clients and therefore, I feel good about our position.

###

From the New York Post:

ViacomCBS shares drop 17% on 4Q loss despite streaming push

Wall Street isn’t buying ViacomCBS’s plans to compete with Netflix.

Shares of the newly merged owner of TV networks like CBS, Showtime, MTV and Nickelodeon tumbled 17 percent on Thursday on weaker-than-expected results and a mixed reception on Wall Street to its plans for launching a video-streaming service.

ViacomCBS Chief Executive Bob Bakish used the earnings report to outline the company’s turnaround plan, which includes launching a new streaming service to compete with Netflix, Disney and Amazon.

The CEO said the new service would expand on CBS All Access to include shows from Viacom networks, Nickelodeon, BET, MTV and Comedy Central. The company will also rebrand Showtime’s sister network, Showtime Showcase, as an African-American focused service called “SHO*BET.”

“They didn’t give a lot of detail,” Rich Greenfield, partner at research firm LightShed, said of the streaming strategy, noting it comes at a difficult time for ViacomCBS, which is weighed down by programming and merger costs.

“They need to renegotiate with the NFL and with DISH and they need to spend on marketing and promotions for a new streaming service,” Greenfield said. “No one is crushing it. The whole sector is in a lot of trouble. Consumers are moving away from linear television and most of ViacomCBS’ content is tied to linear TV.”

In its first earnings report since the merger closed in December, ViacomCBS posted a fourth-quarter net loss of $273 million or 44 cents a share, compared with a year-ago profit of $884 million, or $1.43 a share. Adjusted earnings totaled 97 cents a share.

Revenue slid 3 percent to $6.87 billion, weighed down by an 11 percent dip in content-licensing revenue. Results included a $589 million write-down for programming and a $468 million in restructuring charges. ViacomCBS missed Wall Street expectations of adjusted earnings per share of $1.44 on revenue of $7.36 billion.

Bakish upped his target for post-merger cost savings to $750 million from $500 million, as ViacomCBS plows forward with new rounds of layoffs.

###

From Deadline:

ViacomCBS’ Inauspicious Q4 Debut: Wall Street Grills CEO On New Streaming Product, Financial Forecasts, Content Costs, Affiliate Fees, Ad Revenue & Nickelodeon Ratings

Newly merged ViacomCBS is having a really bad day. The stock tanked, and is still down more than 17%, after disappointing quarterly earnings and a barrage of questions from Wall Street entertainment analysts – answers to which they clearly did not find reassuring.

The inquiries themselves were unusually anxious: “Looking at your guidance for 2020, I’m curious about how much conviction you have in these numbers,” was the first.

“Absolute conviction,” CEO Bob Bakish said.

“Are you confident you can accelerate advertising growth over time?” was the second. Wall Streeters also asked why cable affiliate fees were down 8% and why content costs were up steeply. One wondered if a beta test of the new streaming product temporarily dubbed House of Brands set for later this year is fast enough given the rapid surge of competition. Another asked if ViacomCBS really could afford to ink an expensive new deal with the NFL.

ViacomCBS Set To Expand CBS All Access With “House of Brands” Service As It Looks To “Accelerate Momentum In Streaming”

They weren’t sure why the company licensed crown-jewel properties like SpongeBob SquarePants and South Park to third parties even as rivals including Disney+, Peacock and HBO Max are clawing back some of their best programming for their own streaming services.

“They still think they are big enough to have a streaming business and be a supplier of content,” noted one analyst who was on the call.

“I just couldn’t get my hands around it. The numbers don’t make sense,” he said.

ViacomCBS swung to a loss last quarter due in part to a $468 million fee for “restructuring and other corporate matters” including severance costs. Bakish noted a consolidation of the sales force of the two companies but otherwise didn’t discuss the extent of layoffs, which are common in mergers.

ViacomCBS Expects Streaming Services Including CBS All Access & Showtime To Hit 16M Subs By End Of 2020

CFO Christina Spade said a chunk of $750 million in anticipated cost savings from the deal will occur “from incremental opportunities across areas where Viacom and CBS have the most overlap – namely duplicative organization areas, vendor sourcing and, to a lesser extent, real estate consolidation.”

Black Rock, the modernist skyscraper designed by Eero Saarinen that has been CBS headquarters for more than half a century, is on the selling block.

Spade said the merged company will see about $250 million of the savings this year, $350 million in 2021 and the remaining $150 million in 2022.

This “cross-synergy” target is higher than the $500 million ViacomCBS originally projected. But that didn’t appease investors.

Wall Street particularly was concerned about free cash flow, a key metric of a company’s financial flexibility, which swung to a negative $561 million for the quarter from a positive $371 million the year before. For full-year 2019, it was $877 million, down from $3.1 billion. Viacom forecast a free cash flow range of $1.8 billion-$2 billion this year, below analysts’ estimates of about $2.2 billion, one said.

Bakish said fourth-quarter numbers still reflected two separate companies executing on separate strategies with all the costs and none of the benefits of the merger. He cited “legacy content investment decisions” at some business units and said spending on content will ramp down across the board.

Showtime was a particular focus. “Over the years, the premium cable outlet has made strong progress elevating its brand, deepening its programming lineup, expanding its reach through OTT. That said, it was a working-capital headwind for the company in 2019 and the time is right to … evolve the programming mix,” Bakish said – hence the concurrent announcement of RuPaul’s Drag Race All Stars airing a special edition on the premium cable network.

‘RuPaul’s Drag Race All Stars’ Sashays Into Showtime With Special Edition

“To be clear, Showtime will continue to be a home for scripted shows … and the investments we made in 2019 will clearly pay dividends in 2020. [But Showtime has] traction in other formats … and we see an opportunity to lean more in this direction,” he said.

A programming council led by Showtime CEO David Nevins is exploring what content goes where across the breadth of the merged company.

Bakish said ViacomCBS will not be licensing as much content to third parties in the U.S. as it has in the past but will look at every decision “as one window in time.”

For instance, said the decision for Nickelodeon to make a SpongeBob SquarePants spinoff for Netflix as part of a multi-year production deal benefits the franchise. A giant platform like Netflix drives awareness and creates new fans for the content, and for the upcoming SpongeBob film.

Bob Bakish Says CBS Will Spend Less On Pilots In 2020

“I’d rather he sold (MTV’s) Teen Mom and kept SpongeBob,” said one analyst. “SpongeBob is the biggest character within Nickelodeon, and South Park is one of the biggest show from the legacy Viacom network.” HBO Max inked a deal last fall for exclusive streaming rights to the iconic Comedy Central series.

Bakish said the new streaming service will have three components – free, premium pay and a middle tier he called “broad pay,” which the company is still working on. He noted the service will be launching from “a position of strength,” given the $1.6 billion in domestic revenue reported in 2019 – up 60% – the 22 million monthly average users and 11 million-plus domestic pay subscribers. “That’s a foundation, so we are taking that and building on it. It’s not new,” he said.

ViacomCBS’ merger and reorganization creates challenges and opportunities. Viacom is one of the leading content creators globally, noted Barrington Research analyst James Goss. Wall Street may come around, the stock may bounce back. Just not today.

###

More Nick: Nickelodeon Upfront 2020 Roundup!

Source: Business Wire; Additional source: Steegle.

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