Viacom Film Unit Earnings Rise Amid Box Office Gains

Robert Bakish, President and CEO, Viacom Inc.- Milken Institute Global Conference-Getty-H 2019
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Theatrical releases in the latest quarter included 'What Men Want' and 'Wonder Park,' with spillover from the late 2018 release of 'Bumblebee.'

Viacom, the company behind Paramount Pictures and such cable networks as MTV, Nickelodeon, BET, Comedy Central and Paramount Network, on Friday reported better-than-expected fiscal second-quarter earnings as its film unit profit rose, marking the ninth straight quarter of improved year-over-year bottom-line results.

The company, led by CEO Bob Bakish, posted adjusted earnings of $383 million, or 95 cents per share, compared with $371 million, or 92 cents a share, in the year-ago period. Wall Street had on average expected Viacom to report adjusted earnings of 81 cents per share. 

Quarterly revenue of nearly $3.0 billion declined from $3.2 billion in the same quarter last year, coming in below analysts' expectations.

During a morning analyst call, Bakish focused on Pluto TV, the free streaming platform acquired three months ago for $340 million. "Our integration is moving swiftly and going exceptionally well and Pluto's growth is showing strong early momentum," he reported. 

Pluto TV currently has 16 million monthly active users, up 30 percent from the 12 million monthly active users it had when it was acquired at the beginning of the year. Viacom is looking to grow the free streaming platform internationally, while looking to sell more advertising inventory on Pluto TV.

Offerings are to expand in the U.K., Germany and Austria; a Latin American version of Pluto TV is set to launch this year; and additional territories will roll out in 2020. Bakish told analysts Pluto TV will be exploited as a distribution outlet for digital programming and as a marketing tool for its own portfolio of media brands.

"We see Pluto TV as an opportunity to create a platform for content owners to exhibit their IP on, to create a substantial advertising business, a platform from which to up-sell consumers with targeted SVOD and other products, and to work with distributors to create incremental value for broadband, mobile and video sub bases, both with advertising and up-selling video products," he explained. 

Bakish was also asked about any potential impact on Viacom and other Hollywood studios from ongoing trade talks between the U.S. and China, which have hit an impasse. "Clearly there's a lot of noise about China, creating some uncertainty.... I don't anticipate any long-term problem here, but we will have to see how the negotiations play out," he said.

Bakish also touted the rebounding fortunes for Paramount Pictures, while highlighting the box office performance of What Men Want and continued box office from the late 2018 release of Bumblebee. "We're feeling great about the studio and its trajectory," he said. 

For the film unit, whose releases in the latest quarter also included Wonder Park, Viacom posted adjusted operating income of $29 million, compared with a year-ago profit of $9 million. Analyst Nathanson had forecast a quarterly loss of $20 million amid a 3.5 percent revenue decline, "with some spillover from Bumblebee helping theatrical offset by home video revenue declines."

Film unit revenue declined 1 percent as "strong growth in theatrical and ancillary revenues was offset by lower licensing revenues," Viacom said. "Licensing revenue was primarily impacted by the timing of TV production availabilities and comparisons to last year’s direct-to-SVOD release of certain films." It added that the growth in ancillary revenue was "primarily driven by a new music rights licensing agreement."

U.S. cable networks affiliate fee and advertising revenue each fell 2 percent, slightly less than Wall Street analysts had expected. The ad decline comes after a 3 percent drop in the year-ago period. MoffettNathanson analyst Michael Nathanson had forecast a 3 percent ad drop for the latest period. 

Domestic affiliate revenue declined "due to SVOD library licensing, which was halted while finalizing Pluto TV’s content strategy," the company said. "Contractual rate increases were largely offset by subscriber declines."

Bakish during the analyst call said library licensing of content to rival SVOD platforms had resumed, while it is also monetized on the Pluto TV service.

Also during the latest quarter, Viacom's international networks business was hit by foreign exchange trends, "macroeconomic headwinds in the U.K. and the timing of SVOD," leaving revenue down 22 compared with the year-ago period.

"This quarter we executed strongly on our strategic priorities and made significant progress in advancing our evolution," said Bakish in a statement that accompanied the latest financial results. "We grew viewership share at our flagship networks, accelerated our Advanced Marketing Solutions and continued our momentum at Paramount Pictures."

He added: "As the media landscape continues to segment across price points, we’re confident in our strategy, strong results and the opportunities ahead as we continue to position Viacom for the future.”

May 10 6:30 a.m. Updated with comments by Viacom CEO Bob Bakish made during an analyst call.