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Getting CBS Corp. and Viacom to agree on a merger long seemed an impossible mission. But now that the deal is done, the Mission: Impossible franchise itself, along with film and TV juggernaut Star Trek and Transformers, as well as the next big content hits, are expected to take center stage as the merged company maps out a path for its top content franchises.
Hollywood conglomerates have increasingly focused on reliable content franchises that attract big audiences whether in film or TV series form, or consumer products. And the CBS and Viacom statement unveiling the deal on Tuesday led off by saying the merger “creates a leading global, multiplatform, premium content company, positioned to be one of the most important content producers and providers in the world.”
The firms highlighted the combined content company’s “iconic library of 140,000-plus premium TV episodes and 3,600-plus film titles,” or “one of the largest libraries of iconic intellectual property, spanning every key genre and addressing consumers of all ages and demographics,” along with the Paramount Pictures film studio and “production capabilities across five continents, including more than 750 series ordered to or in production.”
The companies also emphasized that the newly named ViacomCBS will be “among the biggest content spenders in the industry, with more than $13 billion spent in the last 12 months.” Of course, the companies also gave a shout-out to key franchises, saying that the mega-deal “reunites fan-favorite franchises, such as Star Trek and Mission: Impossible.”
CBS Corp. acting CEO Joe Ianniello, who will serve as chairman and CEO of CBS after the deal closes, in an internal memo also drove home the point that the companies see content as a key focus. “There is a race to create more of the best content. We are already leaders in this regard, and today’s news will accelerate our global ambitions,” he wrote in a staff memo.
Viacom CEO Bob Bakish, who will be president and CEO of the combined ViacomCBS, similarly said in unveiling the deal: “We unite our complementary assets and capabilities and become one of only a few companies with the breadth and depth of content and reach to shape the future of our industry.” On a call with Wall Street analysts he later spoke of
“true content scale.”
And Shari Redstone, the vice chair of both firms who will be chair of the merged entity, cited her father Sumner, saying: “We unite our complementary assets and capabilities and become one of only a few companies with the breadth and depth of content and reach to shape the future of our industry.”
Wall Street analysts have in recent days also put a spotlight on the content strength of the merged firm. “The combined company would be light on sports and news relative to its larger competitors, but easily the leader in entertainment viewing,” Credit Suisse analyst Douglas Mitchelson wrote in a recent report.
He used 2019 content budget estimates to compared the merged company with its peers, concluding: “Most notable operationally: CBS/Viacom would be spending $15 billion on content in 2019, matching NBCUniversal and just behind WarnerMedia,” but well behind Walt Disney’s $27.8 billion.
Echoed Guggenheim Securities analyst Michael Morris: “The combined programming budget and breadth of content offering are significant strengths of a combined company.”
S&P Global analyst Naveen Sarma recently similarly highlighted that “the combined company would own one of the best-rated U.S. television networks (no. 1 for total audiences, no. 2 for the key demographic adults 18-49), would have a broad collection of domestic cable networks, and would have a premium cable network in Showtime.”
Importantly, Sarma said each company would offset weaknesses at the other. “Viacom lacks a must-have network, and CBS would resolve that,” the analyst wrote. “CBS would also expand Viacom’s subscription-based video-on-demand SVOD strategy.” Also, the Paramount studio “could benefit from an influx of CBS’ intellectual property,” such as Star Trek.
How would a merger with Viacom change Sarma’s assessment of CBS’ business? Paramount’s film library could strengthen the CBS All Access streaming service, Sarma said. And “Viacom’s significant free cash flow could provide more financial flexibility for CBS to both pay for the next NFL contract and increase programming investments. The current NFL contract costs CBS roughly $1 billion annually on average, and is likely to get more expensive after it expires in 2023.”
Combining the brands and programming assets of both firms also has other operating benefits, according to MoffettNathanson analyst Michael Nathanson. “Viacom would be able to use the CBS network’s stick to better protect Viacom’s networks from draconian price cuts and re-tiering” in carriage agreements with pay TV giants, he said in a report. “The combination would generate massive cost cuts which CBS could artfully deploy into more original content spend and higher NFL rights fees.”
Mitchelson listed the top five most-viewed shows of 2018 for the combined CBS-Viacom. Behind the NFL and SpongeBob, he highlighted The Price Is Right, CBS This Morning and the Nickelodeon hit Paw Patrol. “Viacom’s SpongeBob almost catches the NFL on CBS as the top show, while the top 50 contributors … have a surprising number, in our view, of non-primetime and syndicated shows,” he said. “The NFL would drop from 10 percent of CBS’ viewing to 4 percent of the combined company.”
The companies themselves on Tuesday also highlighted that their combined U.S. portfolio of broadcast, premium and cable networks “will have the highest share of viewing on television among key audiences, including kids, African-Americans and Hispanic viewers.”
Beyond that, digital is also a key opportunity, according to analysts. CBS has long focused on streaming services, such as CBS All Access. And Viacom acquired Pluto TV to push into the advertising-financed streaming space. But could the merged firm launch a broad combined streaming service similar to those planned by other Hollywood giants?
“The TV and film libraries of the two companies are well known and impressive, but it is unknown the length of time that they have been licensed to third parties around the world, and whether, in aggregate, there is enough content to successfully fuel a streaming service that could compete with Netflix and Disney+/Hulu for consumer attention and wallet,” Mitchelson said. “We suspect that the monetization of the combined company’s content is below what they could achieve for even a low-price OTT service, but obviously the transition to such a service could prove costly in the short-to-medium term.”
Patrice Cucinello, director at Fitch Ratings, said there is still a chance for CBS-Viacom to benefit from the growth of streaming video services. “Both CBS and Viacom have become providers of content to streaming players,” the analyst said. “The new [company] could continue to provide content to third parties, benefiting from the potential scarcity effect as larger media companies pull their content off third-party platforms.”
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