Viacom Int'l Media Networks CEO on Working More Closely With the U.S., Growth Drivers
Dave Lynn touts "nascent" mobile opportunities, says VIMN has become a key contributor and laboratory for Viacom and discusses buying Britain's Channel 5 and Telefe in Argentina and possible future deals.
Viacom early this year promoted David Lynn to the role of president and CEO of Viacom International Media Networks.
Based in London, but also regularly working out of New York, the former president of VIMN’s operations in the U.K., Northern and Eastern Europe now has management oversight of all of Viacom's media networks and related businesses outside the U.S., reporting to Viacom CEO Bob Bakish.
Viacom branded networks reach more than 4.1 billion cumulative subscribers in over 180 countries and territories via more than 290 locally programmed and operated channels in more than 40 languages.
For the latest fiscal year, ended in September, VIMN's revenue increased 12 percent to $2.13 billion, or about 16 percent of the company's total revenue of $13.26 billion, as advertising rose 14 percent and affiliate revenue climbed 6 percent.
After nearly a year in his post, Lynn talked to THR about how VIMN has become a laboratory of sorts for experiments with new business models at Viacom, how his team has increased original content spending, the outlook for bringing more international shows to the U.S. and how business is doing in such key markets as the U.K., India and Argentina, but also Russia and China.
You are nearly a year into your tenure as head of the international networks business, a role you took over from Bob Bakish who is now Viacom's CEO. How is business doing and what’s been your focus?
I can't believe it's coming up to a year already. It's been an incredible year. VIMN is becoming an increasingly important part of Viacom from a [revenue] and operating income perspective. It's increasingly meaningful, and we have got strong growth. This year [the fiscal year ended in September], we grew revenues by 12 percent and operating income by 12 percent as well.
That's driven by two things. First of all, we got growth in the core business, and at the same time, we are accelerating the transformation of the business model. On the core business side, we still have growth, albeit it's slowing growth across international. Pay TV penetration is 50 percent, so we still see good growth opportunity there, and we are really well positioned for it, and the results really demonstrate that and our competitive advantage. From a reach perspective, we have the largest worldwide TV footprint — we have 300 channels, 4.3 billion cumulative households. I believe we got an unrivaled portfolio of brands, and all the brands are performing really strongly. For the first time last year we had growth across all our key brands.
What's been driving that?
We have got the strong U.S. pipeline, but now increasingly as well we have a strong international pipeline, be it English-language, even Hindi and now also Spanish-language. So we are significant producers of content now as well. The other thing we have on the core [business] side is deep partnerships with advertisers and affiliates. As well as growing the core, we are obviously focused on transforming the business, particularly on the OTT side.
Is international a test market for Viacom, or an experimental lab if you will?
As well as us being a more meaningful contributor to Viacom financially, we are also increasingly important in terms of trialing new business models and new products across international. Innovation has been one of the key points this year that I have really been pushing.
OTT is already a meaningful growth driver for us. We have had over 20 percent growth per annum over the last three years, and this year we anticipate OTT revenues will be around 15 percent of our total distribution revenues. So it's already meaningful.
But in terms of innovation this year, there have been some great new firsts. We had our first deals for PlayPlex [the company's suite of mobile TV apps] with mobile operators in Indonesia and Singapore. We did our first Paramount+ deal in the Nordics where we have combined all our VIMN content under the Paramount umbrella and we put in Paramount first-run movies.
We launched OTT channels in Japan. We launched MTV Mix with Hulu, but excitingly also announced we're bringing Nick Japan back to the Japanese market in a deal with NTT Docomo's dTV-Channel. That's the first time Nick is back in Japan [after the linear network closed down in 2009], and it's driven by an OTT opportunity. We also have the VOOT service in India, which launched in 2016 and already has 25 million monthly average users, the third-biggest video platform in India.
All of these ideas we have the ability to pilot in a market and see what works and then scale rapidly across international and even globally now. So from an innovation perspective, we are really driving the business forward. And in terms of diversifying revenues, real-world revenues is an increasingly important opportunity for us. Consumer products is long established, but has grown tremendously over the past year on the back of Paw Patrol. But we're doing more in the recreation space. We have done theme parks in China, we have done a Nick hotel in the Dominican Republic. And we are doing more on the events side. Around 900,000 people attended our international events last year.
Is it true that MTV in Japan now has more users on mobile than on traditional pay TV? And what does that tell us about mobile?
Japan is a great success. We launched MTV Hits on the Abema [internet TV] service, which is an advertising VOD (AVOD) service, and the consumption on that is higher than the consumption we are seeing on the traditional MTV service. But we are actually seeing record ratings on our traditional MTV service at the same time, so it has actually lifted both — it increased our reach and lifted the performance of our existing service.
That speaks to the opportunity. Pay TV penetration is less than 50 percent across international, and we think that mobile OTT is going to drive the next wave of growth. We are having numerous conversations with mobile operators around the world and have 75 OTT deals around the world. The mobile opportunity in particular is nascent and one that I'm excited about over the next year.
In the U.S., direct-to-consumer has been such a focus as of late. What have you seen in terms of interest in direct-to-consumer services abroad?
The point for international is that lower pay TV penetration. And if you take markets like Japan where pay TV penetration is less than 30 percent, there is a huge amount of upside through OTT and mobile. Indonesia is another example. Pay TV penetration there is only 11 percent. So in some territories you have got the opportunity for mobile or OTT to leapfrog pay TV.
That said we are still working with our multichannel video programming distributor (MVPD) partners to help drive their business as well. It's been a big part of our strategy to deepen that partnership over the last few years to give them more rights so they can compete in the OTT world and through products like Play Plex. We see it as very much a growth opportunity on the core business side and in OTT.
What's interesting on the direct-to-consumer side is working in partnership with mobile operators, working with people who have that established subscriber base and relationship.
You mentioned Paramount+, which got quite some attention when you unveiled it. Is that one of those ideas you expect to take to more markets?
It's certainly my ambition to roll out more Paramount+. It's a great product, it's great to have all the content under the Paramount umbrella brand, and it just shows how we increasingly operate on a much more joined-up basis across all of Viacom. That has been a great partnership between us and Paramount Pictures.
How is the BET app doing in international markets. How appealing is that brand outside the U.S.?
BET generally in international has been growing. We recently announced our first BET channel in Asia in Korea. So it does show that there is a fan base across the globe, and we have been growing the BET subscribers over the last few years on traditional TV. And we thought that there is an opportunity through an OTT direct-to-consumer app to reach those fans no matter where they are. So we launched it and are happy with the results so far. It is reaching those communities and fans across the world that want to tap into BET content. By doing that, you can then demonstrate that there is demand in markets, and it may lead to traditional BET channel deals in those markets.
What’s the growth outlook for Viacom International Media Networks?
We still see growth on the traditional core business and we are seeing rapid growth on the OTT side. I'm very confident about our growth prospects for the business. We have strong momentum.
You have an increased focus on creating international content versus "just" distributing existing shows. Will that mean that more international shows and formats will end up coming to Viacom's U.S. networks?
From a content perspective, we are increasingly an important contributor and an investor and producer in content for Viacom overall. We spend over $1 billion on content and marketing across VIMN, so we are a meaningful player.
Our strategy combines our global pipeline and an international and local pipeline to make our content as strong across every platform and screen as possible and increasingly to give that deeper engagement at the local level. Viacom invests $4 billion a year in the global pipeline, and that's the backbone of our schedules.
The fact that the U.S. is now focused on the flagship six is fantastic, because they are the six brands we are also growing out internationally. So having more of the investment focused on those six brands is very important from an international perspective. All the hits from the U.S., Floribama, Paw Patrol, South Park or Lip Sync Battle, are incredibly strong drivers for us internationally.
But we have also been focusing on growing our own international content business. On the reality side, we have been developing our own formats. Ex on the Beach and Just Tattoo of Us are good examples there. On the Nick side from a live-action perspective, we have been making English- and local-language versions: De Ludwigs from Holland became Hunter Street. Yo Soy Franky from Latin America became I Am Frankie. That demonstrates how we are approaching this much more globally.
That's something I have been pushing in my first year as CEO — to operate much more globally. On the Nickelodeon side, we have a long, great established partnership with Nickelodeon in the U.S. Last year, we had seven shows in various stages of development with Nick U.S. that will go out across the network globally. But increasingly we are doing more with the other U.S. brands. MTV is a great example. Teen Mom U.K. actually played out on the U.S. channel and did super well, and the U.S. is also looking at taking some of the international formats, such as Ex on the Beach and Just Tattoo of Us.
Out of the over $1 billion that you mentioned VIMN spends on content and marketing, how much is it spending on original content nowadays?
It is a significant portion. It's a significant investment and contributor, and there is much more opportunity to partner with the U.S. on that area more.
At Channel 5, we now use 65 percent to 70 percent of our content budget, excluding marketing, on original content.
You have been shooting various regional versions of the same VIMN show in some cases and doing more co-productions between different parts of your global operation...
We have been investing in what I call smart, efficient production methods. We had a show, Ridiculousness, which we produced out of our hub in Madrid last year. We did eight versions of Ridiculousness in parallel for eight different regions, which was fantastic and performed really well across those regions.
We are also doing co-productions between the different regions. For example, Super Shore is a co-production between the Latin American and Southern Europe team. It's rated really well between the two. We have got co-productions between our cornerstone and pay networks, for example Caniggia Libre between Telefe in Argentina and MTV.
Viacom acquired Argentine network Telefe a little more than a year ago. How has that been going and how key is Telefe as a production hub for VIMN?
I am very pleased that the integration has gone very well and the business has performed very strongly. It is one of our cornerstones, like Channel 5 in the U.K. The aim here is to give us more scale from a revenue perspective, both ad sales and affiliate fees, and from a content perspective.
On the revenue side, what we are seeing in Argentina and beyond in Latin America is we're getting advertisers who were on free TV who are now advertising on pay. And the much stronger content offering is strengthening our affiliate relationships. And we got a lot of content sharing between the businesses as well. I mentioned Caniggia Libre. We also have got MTV News on Telefe, Nick Jr. is on Telefe, you have got some Comedy Central stand-up there. And Kally's MashUp is shared between Telefe and Nickelodeon Latin America.
One of the exciting opportunities of Telefe is it's a significant producer of content. They make 3,000 hours a year. We see big opportunity to exploit that content across Americas, even into Europe, the Spanish-speaking U.S. and even English-speaking U.S. At the moment, we got two shows on both Mexican and Spanish-speaking U.S. TV at the same time. We got some formats of Telefe shows that are now being made in Europe. And in the last year, we had two shows going into development for the English-speaking U.S. market as well. One is Nazi Hunters, the other is the format for Love After Love that NBC picked up. That is a really exciting and significant opportunity.
Your other cornerstone markets are the U.K. with Channel 5 and India where you have the Viacom18 joint venture. How have those done since you acquired Channel 5 and set up the Indian joint venture, respectively?
We got scale across international, but with the cornerstones, we also increasingly also have scale in individual markets. The aim is to get scale in either fast-growing or high-value markets.
The U.K. was the first major acquisition that we did in that space, which was three years ago That has been an outright success. Channel 5 is going incredibly strongly. We have made the business sustainably profitable. We changed the advertising sales [setup] via a deal with Sky. At the same time, we totally transformed it from a content and brand perspective. Only seven shows from 2013 are still on the network at this stage. It was 50-50 acquisitions-commissions when we took over. It's now 65 to 70 percent commissions at this stage.
We have had double-digit increases in share under our ownership. And with content sharing and cross-promotion, we have also had record-breaking ratings for VIMN U.K., including the pay channels. So Channel 5 has been a great success.
And then, of course, Viacom18 is an amazing story and probably an underappreciated one. It's grown from $10 million in revenue to over $500 million in the last 10 years. It's growing 15 percent. We just recently had our 10th anniversary of the deal. The great thing about India is it's a scale market, it's a top 10 ad market, but it's also fast-growing. It's a great market to have such a strong position in. Colors is our flagship network there, but we have 36 channels in the market and reach over 500 million households. There are many different languages, including mass market Hindi and English. We have free and pay TV channels and we have regional channels as well. Overall, Colors is a top-three entertainment service in India.
It's again a huge producer of content with 12,000 hours of origination per year. On the digital side it has Voot with 25 million average monthly users and still growing rapidly. Our joint venture partner Reliance established a mobile phone network about 15 months ago, and it has been one of the main drivers behind the fact that India has moved from being 150th in the world rankings for mobile data to No. 1 in one year. A lot of what's driving that is video. Voot is well positioned and riding that wave of that growth.
Any new ways for the three cornerstones, Telefe in Argentina, Channel 5 in the U.K. and Viacom18 in India, to work together?
There is an opportunity to create and share content between them. They are obviously very different markets. But we have now established a group to explore what projects we could do together: are there opportunities to co-produces scripted content, is there factual content we could share. And we got the Paramount Channel, our general entertainment network that is now also launching in the U.S., that could be a path to co-produce content.
Do you have any interest in more international acquisitions?
My primary focus at the moment is driving the success of the acquisitions that we have done, but, of course, we will always keep an eye out for anything that's happening externally.
We have talked a lot about India, but let's look at another Asian market. How is your China business going?
We are seeing good growth in China over the last few years, particularly on the OTT side, such players as iQiyi that we have been syndicating our content to. We have also been looking at the on-the-ground opportunity through our traditional consumer products IP, for example Paw Patrol is growing fast in the Chinese market, and the recreation space. We also recently did our first co-production with iQiyi, an animated show called Deer Run. That will be the first show we're producing for iQiyi in China. So, we are excited about the opportunities in China, and it's a market that has grown well for us in the last few years.
What about Russia?
Over the last five years, Russia has been a great market for us. We have launched six of our main brands in Russia, Spike being the most recent one in the last year. We have a local partnership there that is working very effectively. We just announced that we are bringing back advertising on Nickelodeon and Paramount Comedy in Russia. So there is still opportunity in the Russian market. The market isn't growing as fast as it was, and the regulatory environment has become more challenging, but there still is opportunity.
Any markets we haven't talked about that are important and a focus for you?
One market that we haven't talked about that I think is exciting as well is Africa. We have a very strong position in Africa, and our business has been growing well. That's a really interesting market with the development of mobile. We are well positioned to tap into OTT and mobile growth opportunities there.
How much do you travel? You split your time between London and New York and various other places you visit, so you must end up with quite some air mileage.
In year one, it was very important to me to get out and see all the different markets. I think I traveled over 35 weeks this years. But there is just no replacement for meeting staff and partners, seeing things on the ground, including content. So it was absolutely key. I am based here in London, but our international management team is mainly in New York, although a few heads are here as well, so it's important I spend time there with that team and also others. As I said one of my big strategic aims this year has been to build a much deeper partnership with the U.S. business. The travel side just goes with the territory. I do a lot of cycling just to keep me fit. If you keep fit and manage yourself when you travel, you can do it, but it's been a lot of time on the road this year.