ViacomCBS Ad Revenue, Film Profit Drop, Streaming Services Have "Best Month" Amid Pandemic

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ViacomCBS CEO Bob Bakish

The stock jumps as financials beat estimates and the firm, led by CEO Bob Bakish, says its "proactive response to COVID-19 included actions to significantly increase financial flexibility and materially reduce costs."

ViacomCBS, in its second financial report since the recombination of Viacom and CBS Corp. in December and its first for a full quarter of the merged firm, on Thursday reported lower first-quarter earnings and revenue, including advertising revenue, as the novel coronavirus pandemic led to the cancellation of March Madness and the delay of a key film release.

The stock in pre-market trading jumped more than 16 percent as results exceeded Wall Street expectations and the company touted growth in streaming and an expanded carriage deal with YouTube TV.

The company said that advertising has been affected by the virus crisis, with the biggest hit expected in the current second quarter, while ratings and streaming momentum have been stronger. "With more consumers at home, ViacomCBS streaming platforms had their best month, with accelerated subscriber growth and consumption, reinforcing consumer demand for its content," it said. 

Domestic streaming and digital video revenue grew 51 percent to $471 million, while domestic streaming subscribers surpassed the 13.5 million mark. "CBS All Access and Showtime OTT delivered record subscribers, sign-ups and consumption, reflecting original programming, including Star Trek: Picard and Homeland," the firm said. Free streaming service Pluto TV’s domestic monthly active users grew to a record of 24 million-plus.

ViacomCBS also said its "proactive response to COVID-19 included actions to significantly increase financial flexibility and materially reduce costs." The firm didn't detail the cost savings.

"ViacomCBS delivered solid results in our first full quarter, including sequential improvement on key financial metrics, as well as clear operating momentum," said CEO Bob Bakish. "In the wake of the COVID-19 pandemic, we also took decisive action to fortify our balance sheet, protect our employees and help communities in need. And through new creative strategies and production models, we continue to deliver must-watch content that big audiences love."

He added: "Importantly, we are just beginning to tap into the potential of our combined assets, and our growing scale, audience reach and earnings power will become even more apparent as the market rebounds and we put the power of our portfolio behind our streaming strategy.”

On the earnings call, Bakish said the pandemic has shown potential for cost reductions beyond the $750 million in targeted merger synergies, with the firm looking for "continued cost and operating opportunities that will create both immediate and lasting benefits." Informed by "how we had to rethink our operations over the past six weeks," which "have proven we can do more with less and can operate without being physically co-located," he said ViacomCBS is "now exploring opportunities to further consolidate facilities, migrate more activities to lower-cost locations and increase sharing of capabilities."

Film unit adjusted operating income before depreciation and amortization (OIBDA) for the first quarter fell 29 percent from the year-ago period to $27 million "driven by the incurrence of marketing expenses for A Quiet Place Part II, which was postponed to later in the year due to COVID-19." Sonic the Hedgehog was Paramount's big release of the quarter, with its digital release moved up to March 31 amid the pandemic. 

Film revenue increased 11 percent due to growth in licensing and home entertainment, which more than offset a 3 percent decline in theatrical revenue due to difficult comparisons with the prior-year period, which had included carryover revenue from Bumblebee. Licensing revenue grew 18 percent, "fueled by original studio productions for third parties, as well as the licensing of The Lovebirds to Netflix."

The firm's cable networks unit, which houses the likes of MTV, Comedy Central, BET, Nickelodeon, Paramount Network and Showtime, posted a first-quarter affiliate revenue drop of 6 percent, slightly better than the 8 percent decline recorded in the fourth quarter of 2019. Advertising revenue was virtually unchanged "as strong growth in domestic streaming and digital video advertising, which includes Pluto TV, offset lower linear advertising." Cable networks unit adjusted OIBDA fell 11 percent to $794 million.

ViacomCBS' TV entertainment unit, which is made up of many former CBS operations, including the CBS broadcast network, posted a 30 percent drop in quarterly advertising revenue compared with the same period in 2019 as the pandemic led to the cancellation of March Madness and CBS had aired the Super Bowl last year. "Taken together, these two events had an unfavorable impact of 34 percentage points on advertising revenue compared to the prior year quarter," the firm said. Affiliate revenue rose 20 percent, though, thanks to "increased station affiliation fees and retransmission revenues, as well as strong subscription streaming revenue." Overall, adjusted OIBDA for the unit dropped 23 percent to $573 million as revenue fell 13 percent.

ViacomCBS' total first-quarter revenue fell 6 percent to $6.67 billion, while net earnings from continuing operations dropped 74 percent to $508 million, or 82 cents per share, and adjusted OIBDA came in 18 percent lower at $1.26 billion. The results mostly beat Wall Street estimates.

In late March, ViacomCBS raised $2.5 billion in debt to pay back existing debt after withdrawing its 2020 financial guidance due to the pandemic and said it could have a "material" financial impact on the firm despite increased viewership. "Due to the evolving and uncertain nature of this situation, we are not able to estimate the full extent of the negative impact on ViacomCBS’ operating results, cash flows and financial position — including advertising and filmed entertainment revenues — particularly over the near to medium term," the company said.

In its late February earnings report, ViacomCBS said it was planning a "House of Brands" streaming service that builds on CBS All Access and draws from both sides of the recombined company. The company back then also outlined three strategic priorities: "maximizing the power of content;" unlocking value from its biggest revenue lines, namely distribution, ad sales and content licensing; and accelerating momentum in streaming.

It also raised its planned cost-savings guidance from $500 million to $750 million over three years back then, but its first financials fell short of Wall Street estimates, and its stock fell.

Bakish on April 29 sent a note to employees with an update on the company's progress, writing: "I know that even before the coronavirus pandemic, we were already in a period of significant change to integrate our newly combined company." He added that the company plans to continue "to integrate and streamline our operations, manage our costs as diligently as we can, and follow through on our committed post-merger synergy targets."

Staffers at ViacomCBS' advertising sales division as well as MTV News and other units were cut that day as part of the ongoing restructuring, with executives at the Smithsonian Channel, Paramount Network, Comedy Central and Nickelodeon also impacted by the cost-saving measures.

ViacomCBS and telecom giant Verizon's FiOS in late April struck a new carriage agreement, the second major pact for the entertainment giant since the recombination of Viacom and CBS and the first one that covers the complete ViacomCBS portfolio.

ViacomCBS has amid the virus pandemic put on hold plans to sell Manhattan's CBS headquarters Black Rock and book unit Simon & Schuster for $2.0 billion-$2.5 billion on a combined basis.

But in early April it closed its acquisition of a 49 percent stake in Miramax, which has a library of 700-plus titles, including the likes of Pulp Fiction, Chicago and Good Will Hunting, from BeIN Media Group in a $375 million deal.

And on April 6, its ViacomCBS Networks International unit acquired full control of Ananey Communications Group, an Israeli pay TV channel provider and content producer.