A Big Upside of ViacomCBS Merger May Be Its Global Growth

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The companies tout more than 4.3 billion TV subscribers worldwide; major holdings in the U.K., Australia, Argentina and India; and content production in 45 languages across five continents.

Viacom and CBS Corp. — which, after a long mating dance, on Tuesday unveiled an agreement to recombine — have in the past often had very different international strategies, but they have started converging, with management touting the growth potential of the merged company's international business.

The companies in their deal announcement highlighted "global leadership positions" as one key rationale for the combination. And Viacom CEO Bob Bakish said in a staff memo: "We’ll be able to build on our leadership positions in the U.S., U.K., Australia, Argentina and India for continued global expansion." 

The companies put the spotlight on the fact that the merged firm will have more than 4.3 billion total cumulative TV subscribers worldwide and create content in 45 languages with global production capabilities across five continents.

Analysts on Wednesday also highlighted the potential for the new company abroad. Guggenheim Securities analyst Michael Morris titled his report, "Back to the Future: CBS, Viacom Recombine Forces to Pursue Global Growth." MoffettNathanson's Michael Nathanson wrote: "Viacom’s greater international focus could help deploy CBS assets to build out both linear networks and digital platforms."

Similarly, Jessica Reif Ehrlich of Bank of America Merrill Lynch highlighted the merged company’s "improved international monetization potential, i.e. leveraging Viacom’s international cable network infrastructure to drive greater CBS/Showtime potential." And ad giant GroupM's global president, business intelligence Brian Wieser wrote: "International scale is another area relevant to marketers," even though he expects benefits to be "modest initially."

Viacom and Bakish, the former boss of the company's Viacom International Media Networks unit, which is now overseen by David Lynn, have long touted the company's global reach, including TV channels in more than 180 countries, that the company says allows it to "connect with more than 4 billion fans." That includes beachheads in Britain, where Viacom a few years ago acquired broadcast network Channel 5; Argentina, where the firm bought Telefe, which has become a key Spanish-language production hub; and India, where Viacom owns a 49 percent stake in a joint venture.

CBS Corp. has only over the past couple of years talked more about its international growth opportunities beyond licensing its content abroad, such as Australia's Network Ten, which it acquired in late 2017, and the rollout of its streaming services abroad.

"We are expanding in the international marketplace, where we see our biggest opportunity over time, particularly in direct to consumer," CBS acting CEO Joe Ianniello said on the company's recent earnings conference call in touting the new focus area. "With nearly 7.5 billion people living outside the United States, the international marketplace presents a huge opportunity for further long-term growth." 

On Tuesday, in an internal memo about the mega-deal, Ianniello again highlighted the worldwide opportunity, writing: "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."

Wall Street analysts have also noted this increase in similar strategies and shared growth opportunities. "Over the past 14 years and through massive changes in industry structure, these two companies have pursued separate paths and strategies," Nathanson wrote in a recent report. "With new management teams now in place, the companies are operating with similar goals in mind." 

One of them is international upside, he highlighted. "With broadcast assets in the U.K., Argentina and Australia and plans to launch new subscription VOD/advertising VOD services abroad, the new company will have a meaningful opportunity to grow their international footprint," Nathanson said.

Fitch analyst Patrice Cucinello noted that CBS currently expects its aggregate direct-to-consumer subscribers will reach 25 million by year-end 2022, up from previous guidance of 16 million. "Notably, these estimates do not include any potential subscriber growth from the launch of CBS All Access in international markets," such as Canada and Australia where it is already available, the analyst pointed out. Management has also said it plans rollouts of the service in Latin America and parts of Europe. Many see Viacom's Pluto TV, the ad-supported streaming service that it is looking to make more prominent in international markets, as being complementary. 

Observers expect Viacom, and the widely traveled Bakish and his team, to take the lead in terms of global initiatives for the merged company. “Viacom has global assets, while CBS has limited operating assets outside the U.S.," wrote S&P Global analyst Naveen Sarma in a recent report. "Viacom, on the other hand, has a strong portfolio of intellectual property, TV studios and TV networks in Europe, Asia and Latin America, among other places. Besides reducing CBS' dependence on the secularly challenged U.S. TV market, Viacom's international expertise could help accelerate Showtime's overseas expansion and give CBS an alternate international distribution strategy for its television content."