Post-Sumner, ViacomCBS Charts Path Led by Shari Redstone

Shari Redstone - H - 2020
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The recombined firm, which bought a stake in Miramax and aims to offload publisher Simon & Schuster and its New York HQ Black Rock building, is expected to keep pursuing its streaming growth plans.

What's the path forward for ViacomCBS after media mogul Sumner Redstone's death at 97? Most Wall Street observers expect no strategy changes given that the executive didn't have any involvement in major company decisions in recent years.  

But some suggest there will be less soap opera-type focus on the Redstone family than in the past, which has at times distracted from the focus on the business. "I tend to think the drama stage of the Redstone family’s involvement is largely, if not entirely, in the past," Barrington Research analyst Jim Goss tells The Hollywood Reporter.

In a note to investors, Goss noted that questions about Redstone's health had at times also been an overhang. "For many years his potential incapacitation had been viewed as a major concern to Viacom and CBS," he wrote.

ViacomCBS, which is controlled by the Redstone family-founded National Amusements, is expected to keep betting on the "content is king" mantra that Sumner Redstone made famous, but with a twist for the digital age.

Former analyst Hal Vogel, CEO of Vogel Capital Management, tells THR that Redstone's "key impact was on motivating and accelerating consolidation of cable networks," which ended up making Viacom one of the big players with such cable channels as MTV, Nickelodeon, BET and Comedy Central. "He was able to marshal the financial resources, in other words add debt, to continue buying networks. Cash flows and subscriber growth at the time were sufficient to support these purchases." 

But under CEO Bob Bakish and chair Shari Redstone, ViacomCBS has — since the recombination of CBS and Viacom that created it in December — has shifted its focus to seeking digital upside rather than breathing new life into its traditional networks business, which has been challenged by cord-cutting.

The foundation of that digital push is six-year-old CBS All Access, which launched years ahead of Disney+ or HBO Max but remained somewhat limited in its scope. All Access and sister service Showtime have a combined 16.2 million subscribers, significantly more than newly launched HBO Max (4.1 million subs) but far behind that of streaming leader Netflix (193 million) and nine-month old Disney+ (60.5 million). Now, Bakish is planning to supersize the digital business, pumping more content in All Access, which will get a rebrand in early 2021 to reflect its broad offering of programming, which will include an original SpongeBob SquarePants show and live European soccer matches.

Meanwhile, the company is also forging ahead with plans to offer free, ad-supported programming through Pluto TV, the business purchased for $340 million in 2019 that now has 26.5 million monthly active users.

So far, details are few and far between when it comes to the company's plans to broaden the scope of CBS All Access. In recent months, ViacomCBS has licensed content from across its portfolio to rivals, including NBCUniversal's upstart streamer, Peacock. While that deal wasn't exclusive — meaning films like The Godfather trilogy and TV series including Showtime's Ray Donovan are streaming on both CBS All Access and Peacock — it's a way for ViacomCBS to monetize its library while also bolstering All Access. That said, this week's decision to effectively drop two low-rated but critically acclaimed Comedy Central scripted series and sell them — and library content including Awkwafina's breakout show — to WarnerMedia's HBO Max served as a bit of a headscratcher given the mandate to expand CBS All Access with content from the company's cable portfolio.

"The focus now is on the blending of operations and creation/evolution of assets intended to extend the value of the various content creation sources that have always been the strength of Viacom and CBS," explains Goss.

LightShed Partners analyst Richard Greenfield in a Wednesday report, entitled "Content is king with Shari Redstone, the Queen of ViacomCBS," also discussed the continuing importance of the famous phrase for the company and broader sector. "The content versus distribution battle remains an industry focal point, only it is evolving," he argued. "The biggest change is how every content creator is realizing they need to build their own direct-to-consumer platform to reach consumers – in ViacomCBS’ case, the coming relaunch/expansion of CBS All-Access."

Brian Wieser, global president, business intelligence at advertising giant GroupM, says, "every investor will be focused on what the company is doing around streaming services, and whether the company is executing against that objective or not."   

Analysts initially were concerned that ViacomCBS was looking to play in both subscription via All Access and ad-supported streaming via Pluto TV, but several have recently come around on the strategy of placing bets across business models. Wieser said ViacomCBS executives are "spreading their bets out." But he also highlighted that the jury on this strategy is still out. "An important question is whether or not they are spreading those bets too wide and should narrow their approaches, or if they are better off trying to do a little of everything," he said.

Meanwhile, Goss in a Wednesday report, in which he maintained his "outperform" rating on ViacomCBS' stock, lauded the company for creating "value of (the) combination through more robust consumer offerings," including a "more robust streaming offering."

Morgan Stanley's Benjamin Swinburne in a recent report maintained his "equal-weight" rating on the stock. "Beyond the COVID rebound and synergy capture, the key to re-rating shares is confidence in long-term growth," he wrote. "Said differently, can the newly merged company grow streaming fast enough to offset linear declines?" He predicted direct-to-consumer revenue could expand to 7 percent of total company revenue in 2021.

The company has also unveiled plans for an international streaming service that will launch in 2021 and include Showtime and CBS All Access originals. “Streaming is clearly a global opportunity," said Bakish. "And for ViacomCBS, as part of that there's substantial international opportunity."

Analysts also wonder whether Shari Redstone and Bakish will look for more deals down the line. Asked in May about how ViacomCBS thinks about M&A, Redstone said, "our primary focus is on executing our strategy." And Bakish echoed: "We are fundamentally focused on executing the transformation." That said, he added that his team would look for opportunities to grow in key business segments like the firm's recent deal for a 49 percent stake in Miramax. The company is also seeking buyers for its Simon & Schuster book publisher, as well as hopes to find a buyer this year for its CBS’ New York headquarters, Black Rock.

Analysts and bankers have also predicted an acquisition of or merger with another sector player in the coming years if it turns out the company needs more scale. And some even see a potential sale of ViacomCBS, which Sumner Redstone was always opposed to, down the line if it makes financial and strategic sense, with the decision makers in charge now seen as more pragmatic.

CFRA Research analyst Tuna Amobi is one of those who can see Shari Redstone as a seller, telling THR: "Given the sharp decline in the shares since the merger – albeit partly attributable to the COVID-19 pandemic – investors might reasonably expect an overarching near- to medium-term focus on sustaining and maximizing shareholder value, which conceivably could be a prelude to a potential sale of the company in the years ahead."

What else happens to ViacomCBS? "I expect little or no change with Shari or ViacomCBS," Vogel says. "It will be steady as she goes with Bob Bakish etc. After all, this is not a surprise unexpected event." Echoes Amobi: "With the company currently focused on expanding its streaming offerings and pursuing some key integration milestones under Robert Bakish, Shari's handpicked CEO, while also navigating the unique challenges of the COVID-19 pandemic, I wouldn't expect any significant or dramatic changes in the near-term strategic objectives."

And Greenfield noted in his report: "ViacomCBS is firmly controlled by National Amusements, which in turn is controlled by the Summer Redstone (SMR) Trust. After years of corporate and legal battles that focused on control of the SMR Trust and the NAI board of directors, there is really no meaningful impact from Sumner Redstone’s passing."

The Trust has an 80 percent voting stake in National Amusements, with Shari Redstone continuing to control the other 20 percent directly. With the mogul's death, he and his ex-wife Phyllis are replaced in the Trust by Shari Redstone and her son Tyler Korff, the analyst noted.

But Wieser can imagine some changes over time. "Presumably there will be a wider range of possible actions that the company may be able to take now, as it was apparent that Shari Redstone was generally running the company in a manner that was consistent with what were likely to have been Sumner Redstone's preferences," he argues. "The interests of the trust might now diverge from those preferences or from Shari's."

Lesley Goldberg and Natalie Jarvey contributed reporting.