ViacomCBS Plans "House of Brands" Streaming Service, Boosts Cost Savings Target

Trevor Noah, CEO of Viacom Robert M. Bakish and Sherri Redstone attend as  ViacomCBS Inc. - Getty -H 2020
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In its first earnings report since the merger, the company swung to a loss, took $589 million in programming charges and outlined three strategic priorities.

ViacomCBS said Thursday it is planning a "House of Brands" streaming service that builds on CBS All Access and draws from both sides of the recently recombined company.

In a strategic update as part of its first earnings report as a recombined company, ViacomCBS 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.

Management, led by CEO Bob Bakish, further shared a new target for the merger synergies of $750 million, compared with the original guidance for at least $500 million in cost savings, plus revenue synergies in such areas as distribution, advertising, content licensing and streaming. 

And the company for the first time disclosed new metrics for its streaming and digital video business, including domestic revenue of $1.6 billion.

ViacomCBS on Thursday also reported $589 million in programming charges in the fourth quarter as it swung to a loss for the latest period. The charges "principally reflected accelerated amortization associated with changes in the expected monetization of certain programs, and decisions to cease airing, alter future airing patterns or not renew certain programs, in connection with management changes implemented as a result of the merger," the company said.

Wall Street analysts have said that ViacomCBS must prove the benefits of the recombination. For example, Credit Suisse analyst Doug Michelson recently cut his rating on the stock from "outperform" to "neutral," saying, "ViacomCBS is clearly in the ‘show-me’ category, with a need to prove out merger execution and synergies."

Management on Thursday outlined its plans for the combined company with its three core strategies.

The plan to accelerate its streaming business is expected to get particular attention. Here, the firm said it would "take a differentiated approach that builds on ViacomCBS’ unique foundation in streaming, plays to its strengths and fulfills unmet audience and partner needs." It said the goal was also to complement its free Pluto TV and premium pay Showtime OTT offerings by adding a "broad pay offering" that would be a "House of Brands" product expanding CBS All Access "by adding the company’s scaled assets in film and TV, including world-renowned brands, and reaffirm and expand the value of entertainment, news and sports — through on-demand and live experiences — for audiences around the world."

ViacomCBS is expected to add such Viacom brands as Comedy Central, Paramount Network, BET, MTV and Pluto TV, and CBS News, among others. The company said it would look for partnerships with both traditional and new distributors, domestically and internationally, for the service. All Access has been led by original programming from the Star Trek franchise, including the Discovery and Picard series, as well as scripted dramas like The Good Fight and a Twilight Zone reboot.

Currently, CBS All Access and Showtime together boast about 10 million subscribers, with All Access priced at $6 per month and Showtime at $11. Viacom's advertising-supported streaming service Pluto TV, which the company acquired for $340 million in January 2019, has reached about 20 million monthly users. 

This new ViacomCBS service will compete in a landscape that includes Netflix (167 million global paid subs), Amazon Prime (150 million customers), Hulu (30.7 million subs), Disney+ (28.6 million subs), ESPN+ (7.6 million subs), Starz (6.3 million streaming subs) and YouTube TV (2 million subs). That's not to mention Apple TV+, which hasn't disclosed its subscriber count, or WarnerMedia's upcoming HBO Max and NBCUniversal's upcoming Peacock. 

Beyond streaming, another priority for ViacomCBS will be maximizing its content across the merged company. Management said that would include putting "the full power of the company behind its biggest priorities, while applying more rigor to managing content mix, investment and returns." The firm said that will also mean prioritizing content investment in streaming and studio production, two of its key growth areas, "while also optimizing programming mix to improve content return on investment (ROI)."

ViacomCBS' third strategic priority will be maximizing its biggest revenue generators. In distribution, it said that would mean combining "must-have content across broadcast and cable with [a] proven partnership model to drive growth and share." In advertising, the company hopes to "benefit from leadership positions in linear and digital, and apply advanced advertising capabilities" across its expanded audience reach." And in content licensing, the company said it would "package TV and film to create new content licensing opportunities and better meet client needs."

Bakish on Thursday expressed optimism. "In less than three months since completing our merger, we have made significant progress integrating and transforming ViacomCBS. We see incredible opportunity to realize the full power of our position as one of the largest content producers and providers in the world," he said. "This is an exciting and valuable place to be at a time when demand for content has never been higher, and we will use our strength across genres, formats, demos and geographies to serve the largest addressable audience, on our own platforms and others."

Vowed the ViacomCBS CEO: "We've set clear targets for the year and are providing increased transparency around our business to demonstrate ViacomCBS’ ability to create shareholder value today, as we continue evolving and growing our business for tomorrow.”