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In early December 2019, the long-discussed mega-recombination of Viacom and CBS Corp. closed, with CEO Bob Bakish promising to create “significant long-term value.”
Much initial focus was on his team reaping benefits from cost-cutting and using the recombined company’s increased scale, and the appeal of CBS, to boost the fortunes of the Viacom cable networks, which had been struggling in carriage deals with pay TV giants.
More than a year later, with early success on those fronts, some on Wall Street are also starting to give Bakish and his team credit for how a string of smaller deals in addition to the big Viacom-CBS merger have helped sharpen the company’s focus on core content and, newer streaming businesses.
“Regarding the asset [deals] and strategic shifts at ViacomCBS, we feel the progress has been very good, and likely better than we initially expected,” Barrington Research analyst Jim Goss tells The Hollywood Reporter.
Bakish signaled during a recent virtual UBS investor conference that the company will soon show it deserves such credit for its transformation via a string of deals that have offloaded businesses that are a better fit for others and brought ViacomCBS new assets and tools that it needed to compete successfully in the digital age.
“We’re going to hold an investor event in early ’21 to discuss our streaming strategy and aspirations in much more detail,” he said during the conference.”You’ll really see how our brands and franchises, combined with our traditional reach and relationships, will provide real advantage for us in this space. We’ll also give you an update on our entire streaming ecosystem … and we’ll share with you how we’re using the assets of this great company to pursue a global streaming strategy.”
Management has already gotten thumbs-ups for delivering on the Viacom-CBS merger’s promise of carriage and cost-cutting benefits. More than a year after the close of the combination, the company has sealed several new carriage pacts with such firms as Verizon, Dish, and even YouTube. And Bakish recently said it is “unlocking more value in distribution by expanding our footprint through cross-company renewals and new deals.” As a result, carriage concerns have mostly disappeared from investor discussions as of late.
Management has also delivered on cost-cutting promises, this summer raising its 2020 merger synergy target from $250 million to $300 million and its three-year cost savings target from $750 million to $800 million.
In the new year, observers expect management to concentrate, among other things, on making the case that its business, reshaped via several deals, will do better, and, some say, better than expected, especially in streaming. After all, “streaming is a big opportunity,” Bakish said recently, touting the firm’s “several years of experience and increasing momentum” here. And Shari Redstone, chair of ViacomCBS and president of National Amusements, through which her family controls the company, in May said management was “transforming our business” for the future and highlighted “significant growth opportunities we are moving quickly to capture.”
Even before the Viacom-CBS merger, Viacom in early 2019 acquired Pluto TV in the first takeover of an advertising-supported streamer by a big entertainment company. The announcement of the $340 million Pluto deal – on which then-Viacom CEO Bakish worked with deal guru Alex Berkett, a former banker who has continued to focus on the reshaping of the firm as executive vp of corporate development and strategy at ViacomCBS, and others – raised some eyebrows because advertising VOD wasn’t widely seen as a major opportunity yet. But that changed quickly, with Comcast buying Xumo, and Fox acquiring Tubi.
During a Goldman Sachs investor conference in September, Bakish said: “When I talked about Pluto in January of 2019, most people I talked to wondered what it was. Now fast forward to today. AVOD (“advertising VOD”), or FAST (“free ad-supported streaming television”) as it’s increasingly called, has been accepted as a legitimate and an important part of the streaming eco-system. But better yet, no other U.S. FAST asset can touch what we have in Pluto.”
Pluto now serves as an ad-supported free streaming platform in addition to two subscription streamers that CBS brought to the merger table: CBS All Access, which is being revamped as a “super service,” and Showtime OTT. And Pluto CEO Tom Ryan was in October promoted to the role of president and CEO of the newly created ViacomCBS Streaming.
Getting Pluto at an affordable price tag and boosting its content and marketing muscle also seems to be paying off financially. MoffettNathanson analyst Michael Nathanson in a late November report estimated Pluto’s third-quarter U.S. advertising revenue at $125 million. If that was unchanged across the year, that would mean annual domestic revenue of $500 million.
And Bakish recently signaled how key a part of the company’s streaming focus Pluto, which management has said will end 2020 with a higher-than-originally-targeted 30 million-plus monthly active users in the U.S., has become when he touted the “compelling” financial trends at the service on the third-quarter earnings conference call. “After logging its first $1 million ad sales day in 2019, it took Pluto 10 months to log its first $2 million ad sales day,” he said. “But it just took one month after that for Pluto TV to achieve its first $3 million day. While this shouldn’t be interpreted as a daily run rate, we are seeing revenue inflection at Pluto TV in a most positive way. The trajectory is extremely exciting.”
A more traditional entertainment industry acquisition is also starting to contribute to ViacomCBS’ streaming and growth plans. In late December 2019, just two weeks after the close of the Viacom-CBS marriage, the firm unveiled a deal to buy a 49 percent stake in studio Miramax for $375 million, including a cash payment at closing of approximately $150 million along with a commitment to invest $45 million annually over the next five years in new film and television productions and working capital. The company saw the acquisition, which closed in April, as a chance to expand its library of intellectual property by more than 700 titles, with more than 150 of them available on CBS All Access already. And the price tag for the stake was below the one rumored to have been put on the studio by BeIN Media Group in 2016, which was reported at up to $1 billion.
While ViacomCBS bought a minority economic stake, it has emerged more recently that it effectively controls the Miramax business and consolidates its financial results. “The investment is accounted for as a consolidated variable interest entity (VIE),” the company said in its 10-Q filing with the Securities and Exchange Commission for the second quarter. “We are the primary beneficiary of the VIE due to our power to direct the distribution of Miramax’s films and television series, which is considered the most significant activity of the VIE.”
It also highlighted that “we have exclusive, long-term distribution rights to Miramax’s catalog” and “certain rights to co-produce, co-finance and/or distribute new film and television projects.”
Even after the Miramax agreement, ViacomCBS has remained a busy dealmaker, becoming one of the most active M&A players in the entertainment sector this year. It sold CNET for $500 million in October and in late November agreed to sell Simon & Schuster in 2021 for $2.175 billion, unloading two assets outside of the content and streaming focus of Bakish’s team.
Taken together, that’s nearly $2.7 billion from divested assets, which in 2019 contributed only an estimated 3 percent of the company’s total revenue, before the coronavirus pandemic allows the company to re-start shopping the New York CBS headquarters BlackRock again, which analysts estimate could raise another $1 billion-plus. Barclays analyst Kannan Venkateshwar has projected it “could be worth $700 million to $1.2 billion.”
Bakish during an appearance at the virtual UBS conference in early December noted that the divestitures followed “a strategic review of ViacomCBS assets that we undertook in early 2020, one where we identified non-core assets based on the lack of a fit with our studios, networks and streaming focus.” And he touted the “extraordinary value” fetched by Simon & Schuster, highlighting that the company would use the proceeds from its asset sales “to invest in our strategic growth priorities,” led by streaming, funding its dividend, and paying down debt.
There have also been other deal successes, namely early investments in technology companies that have grown in value. In early 2020, ViacomCBS sold a stake in Roku, the maker of streaming devices and smart TVs, for about $146 million, well ahead of the $10 million Viacom had originally paid for it in 2015. And it continues to own a stake of undisclosed size in streamer FuboTV, acquired by Viacom in 2019, whose value has multiplied, according to sources.
“A highlight of the asset sales in terms of pricing was Simon & Schuster. This was a non-strategic asset for ViacomCBS and not accorded significant value in the ViacomCBS valuation,” Goss tells THR. “However, it was clearly regarded as a prime property in its industry subsector and created a bidding war at a high multiple.”
He also notes the value the Pluto deal has created. “Management has taken advantage of its significant trove of top content and is utilizing a variety of distribution vehicles, including its AVOD platform Pluto TV, a purchase that we felt was significant from the beginning,” he explains.
Gabelli analyst John Tinker also lauded the Simon & Schuster deal, in late November increasing his ViacomCBS private market value by $4 per share to $54 as a result of the sale, which he said came in “significantly higher than the speculated amount and our estimated valuation of $1.05 billion.” And he noted possible stock upside, explaining that “any success in growing the over-the-top-business could add another … approximately $8.50 per share.”
Wolfe Research’s John Janedis in late November suggested more positive deals-related news could come in 2021. “Looking ahead to next year, we continue to expect a sale of the Black Rock building and potentially a portion of the Viacom18 assets in India,” in which it owns a minority stake, he wrote in a report.
In the new year, many expect Bakish and his team to also focus on the next steps and growth opportunities for the reshaped ViacomCBS. Wall Street experts are particularly looking for insight during the investor event about the company’s streaming strategy early in the year, for which a date has yet to be announced, ahead of the revamp of its CBS All Access streaming service under the moniker Paramount+.
Macquarie analyst Tim Nollen on Dec. 16 called the rebrand “the next catalyst for ViacomCBS’ streaming services,” noting: “Another 10,000 hours of new and library content will be coming to the service at the relaunch, potentially setting the stage for a large amount of sign-ups.” Given the rebrand and expected marketing push, he raised his expectations for the firm’s streaming subscriber growth and his stock price target from $28 to $37, arguing: “We believe the trend and sentiment is positive, and valuation is still undemanding.”
Citing the company’s increased streaming focus as a possible driver of financial upside, Venkateshwar in mid-October upgraded his stock rating on ViacomCBS to “overweight,” arguing that “the company could benefit from multiple catalysts in the coming months.” He explained: “While the digital opportunity and execution at ViacomCBS is not comparable to that of peers like Disney, this revenue source is nevertheless starting to become more real and is helping offset some of the legacy pressure. This variable could become more prominent next year.”
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