Barron\'s - 16.09.2019

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September 16, 2019 BARRON’S 19


CBSIS EASILY BIGGER THANVIACOM, BOTH IN STOCK


marketvalueandrecentprofits.Sowiththecompa-


nies set to recombine after nearly 14 years apart,


howdidViacom’schiefofthreeyears,BobBakish,


get the nod from the Redstone family, which con-


trols both companies, to run the whole show?


One reason is that Bakish has made fast im-


provements to challenged assets. Last quarter,


Viacom(ticker:VIA)loggeditsfirstgrowthinU.S.


advertising revenue in five years. Its film studio,


Paramount, which was losing hundreds of millions


ofdollarswhenBakishtookover,isexpectedtoturn


a profit this fiscal year.


AnotheristhatBakishhasfoundsomeanswers


to television’s existential challenge: how to follow


viewers, wherever they choose to watch. Viacom’s


two-year-oldclusterofbusinessescalledAdvanced


MarketingSolutions,orAMS,canrunTV-likeads


againstcontentthatmightotherwiseescapethem—


includingonset-topboxesandsocialmedia,andat


Netflix(NFLX)alternativesthatdon’tchargesub-


scriptionfees.OneofthelargestisViacom’sPluto


TV, which had 18 million viewers as of the end of


July, and probably has added millions since then.


AMS revenue, including Pluto TV, jumped 84%


during the fiscal third quarter through June. It’s


expected to approach 20% of all U.S. advertising


revenue for the year.


Barron’srecently visited Bakish at Viacom’s


TimesSquareheadquartersinNewYork.Hiscom-


ments have been edited for space and clarity.


On achieving healthy sales growth during late-


spring up-fronts, where ad buyers lock in


commercial space:


Bakish:Weknewgoinginthatinventorywouldbe


tightandpricingwouldbestrong.Whatadvertisers


wantedwashigh-qualityreach,particularlyamong


youngviewers.Wedeliveredapackageoflinearad-


vertising on traditional networks, plus Pluto, and


video ads in content distributed more broadly


throughouttheinternet.That’smorereachthanyou


can get on traditional TV.


We got substantial increases on linear TV.


Every major ad holding company signed on. And


by selling more nonlinear inventory, we preserved


more linear for the scatter market [where adver-


tisers buy commercial space closer to air time].


That’s important, because scatter inventory is


trading at a much larger premium than usual to


up-front inventory.


On combining CBS and Viacom:


Theassetsarehighlycomplementary.Viacomhasa


youngeraudience,andCBS(CBS)hasanolderau-


dience.CBSisU.S.-centric,andViacomismorein-


ternational.Combined,thecompaniesareNo.1in


everyU.S.audiencedemographic.That’satremen-


douslystrongpositiontodistributorsandtoadver-


tisers. Combine that with Viacom’s widely under-


stoodleadershipinAdvancedMarketingSolutions.


Andwecanacceleratedirect-to-consumerproducts.


We’vepubliclystatedthatthere’sa$500million


synergynumber.Tobeclear,that’scostsavingsthat


we have a clear line of sight on. It’s reasonable to


assumethere’sadditionalpotentialoncosts.Reve-


nuesynergiesaccountforzeroofthat$500million,


yet there are substantial opportunities. In fact,


that’s the reason you really do the deal.


On streaming:


WehaveastrategythatallowsViacomtoparticipate


inallsegments.Weprovidelinearprogrammingplus


on-demandforbigbundles.Inskinnybundles,we’re


verywellrepresented,andwillbeevenbetterrepre-


sented with CBS. In the subscription video-on-


demandsegment,wemakeoriginalhitsforNetflix,


Amazon, Hulu, and international services. We own


andoperatenicheproductslikeNogginandBET+.


And,ofcourse,there’sPluto.Overtime,withacom-


binedViacom-CBS,we’llworkonwhatourover-the-


topstreamingproductis,andyou’llseethatevolve.


On Pluto:


The beauty of Pluto is it’s premium content, over-


whelminglywatchedonsmartTVs,withlong-form


ads,andadvertisersdon’thavetoworryaboutques-


tionableadjacencies[oradsrunningwithinappropri-


atecontent].Inadditiontobeingdirect-to-consumer,


PlutoiscarriedbyComcastandCox.Wehaveavery


significant mobile deal we’re about to announce.


WecanupsellpeoplefromPlutotooneofourpay


services. A very common behavior in streaming is,


you burn through whatever you’re watching. In a


normalworld,you’dchurnout.Here,wecanretain


youinsideofPlutoandmonetizeyouonafreebasis


[with advertising].


On future mergers and acquisitions:


Of course, we’ll look at things. But we just did our


transformationaldeal.There’snootherdealwehave


to do. To the extent that we do a deal, we’ll make


sureit’slinkedclearlytoourstrategyandisvalueac-


cretive for our shareholders. One of the misunder-


standingsinthemarketplaceisthatwe’regoingtogo


onadilutiveM&Aspree.We’renotgoingtodothat.


On content spending:


Our $13 billion in combined content spending has


grownmodestlyovertimeandwillcontinuetogrow


modestly. But what people should focus on is the


content asset associated with that spending. Our


focus will be on improving the utilization of that


asset. We see a significant opportunity to improve


returns on investment.


On stock buybacks:


The combined company produces very substantial


cashflow.Thefirstandbestuseistoinvestinour


business,includingcontent.We’llcontinuetopaya


modestdividend.We’renotgoingtoradicallyramp


itup—we’renottryingtorunautility.Thethirduse


of cash, potentially, is M&A. We’ll look. Fourth,


delevering. But both companies are investment


grade today, and rating agencies like us better to-


getherthanapart.Thatleavesexcesscashflow.It


allows us to be opportunistic in the market should


we want to buy back stock.


On the stock:


Ithinkpeopledon’ttrulyappreciatetheformidable


combinationofassetsthatthisdealcreates.Ithink


they underestimate our ability to execute. But the


thingthey’rereallymissingishowthisdealcreates


acompanyfortodayandtomorrow.Forsavvyinves-


tors, this is an opportunity to buy an extremely


high-qualityassetatanextremelylowmultiple.


“There’sno


otherdealwe


havetodo....


Oneofthemis-


understandings


inthemarket-


placeisthat


we’regoingto


goonadilutive


M&Aspree.


We’renotgoing


todothat.”


BobBakish


AnInterviewWithBobBakish,CEO,Viacom


MeettheNewKingofTelevision


Kyle Grillot/Bloomberg (Source)

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