ViacomCBS Swings to Loss in First Report After Merger, Stock Tumbles

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ViacomCBS CEO Bob Bakish

Stock in ViacomCBS fell nearly 18 percent to $29.36 after the freshly combined entity released its first financial results since the merger of CBS and Viacom.

ViacomCBS, in its first earnings report since the recombination of Viacom and CBS Corp. in December, swung to a loss for its latest quarter, which included various deal-related and other charges, such as $468 million for restructuring and other matters, as well as $589 million in content-related write-downs.

That loss sent shares in ViacomCBS tumbling nearly 18 percent to $29.36 in morning trading on the NASDAQ Exchange. During the fourth quarter, the company was hit by a disappointing box office, continued cord-cutting and difficult political advertising comparisons in addition to the charges in what it called a "transitional" quarter. It said that it was also affected by "operating items expected to be mitigated through the benefits of the combined company."

The company, led by CEO Bob Bakish, reported a loss of $258 million for the merged company's fourth quarter (as ViacomCBS uses CBS' old fiscal year, which is the same as the calendar year, while Viacom's former fiscal year used to end in September), compared with earnings of $887 million in the year-ago period. The firm's loss from continuing operations amounted to $273 million, or 44 cents per share, compared with a year-ago profit of $884 million, or $1.43 a share.

The results fell short of Wall Street estimates. Quarterly revenue fell 3 percent to nearly $6.9 billion.

Studio boss Bakish on a morning analyst call, while acknowledging "headwinds" from recent merger costs, to restore investor confidence set 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.

"It’s been less than three months since we completed our merger, and I’m pleased to say we are making significant progress integrating and transforming ViacomCBS as we move quickly to unlock the full power of this now unified company," he argued. Bakish also pointed to a 2020 priority to boost the value and investment returns for film and TV content from the freshly combined Viacom and CBS entity.

Take the studio's Star Trek franchise, set to grow further under the ViacomCBS umbrella. Going beyond Star Trek: Discovery and Star Trek: Picard, the studio has two additional series in production at CBS All Access and Nickelodeon and another two Star Trek-branded series in development. Paramount is also at work on a new Star Trek movie.

Bakish also addressed Showtime, which remains a key premium pay TV offering for the studio, but one that ate up significant working capital in 2019. He said Showtime scripted series like Billions and Homeland will continue to be a "key pillar" of the brand but the content mix would be shifted from other ViacomCBS platforms to drive subscriber growth.

A new "special edition" of RuPaul Drag Race All Stars will be added to the Showtime lineup as a first window. And ViacomCBS, as it revamps its Showtime plex channels, will rebrand Showcase as Show BET and feature scripted shows from Showtime and BET aimed at an African American audience.

Elsewhere at the studio, Bakish reported the CBS network is spending less on pilots this year, "because they feel very good about where the network is and therefore are able to be more prudent." That was offset by "ramping demand" in ViacomCBS' third-party studio production business.

Bakish on the analyst call also talked at length about the streaming space as he pointed to a future online video landscape much like linear TV in that it has free, "broad pay" and premium pay offerings, and with ViacomCBS producing content for each of those platforms. He pointed to Pluto TV as ViacomCBS' free streaming platform and Showtime OTT as its premium pay offering.

Bakish said ViacomCBS will shortly expand into the third "broad pay" streaming arena. And he discussed ViacomCBS expanding its CBS All Access service to be the backbone for a “House of Brands” service.

The "House of Brands" product, yet to be named, will add content from Nickelodeon, Comedy Central, MTV, BET and other channels, "And we will do this at scale," backed by around 30,000 episodes of TV and up to 1,000 movies," Bakish told analysts. A soft launch of the "House of Brands" offering is expected later this year.

Bakish also signaled that ViacomCBS, as it expands in the streaming space, will do fewer third-party content deals in the U.S. as it does more in-house deals while it spreads some of its programming across its varied platforms. "Whether it's a franchise, maybe Mission Impossible, or a genre like procedurals, you will increasingly see us not license exclusively to third parties in the U.S. ... These are assets we own and we expect to monetize them in different ways and in different places over time," he argued.

Viacom and CBS as earlier separate entities did third-party licensing deals like Paramount selling the rights to a Beverly Hills Cop sequel to Netflix and HBO Max nabbing the streaming rights to South Park.

During the latest financial frame, Paramount Pictures' quarterly results were hit by the underperformance of Gemini Man and Terminator: Dark Fate. It posted a quarterly loss of $119 million, compared with a year-ago loss of $77 million, as theatrical and home entertainment revenue each fell 13 percent and licensing revenue dropped 18 percent.

At the company's TV networks, affiliate revenue increased 1 percent in the fourth quarter "as strong growth in reverse compensation, retransmission and subscription streaming revenue more than offset declines in the pay TV landscape."

Domestic advertising revenue was "affected by significant declines in political advertising compared with the prior-year quarter," but domestic cable networks' ad revenue grew 9 percent. 

The company recently unveiled that former NBCUniversal executive George Cheeks will join it in March as CEO of the CBS Entertainment Group, replacing former CBS Corp. president and acting CEO Joe Ianniello, who has been serving as chairman of CBS Entertainment Group.

ViacomCBS late last year agreed to acquire a 49 percent stake in Miramax, which has a library of 700-plus titles, including Pulp Fiction, Chicago, Scream, Good Will Hunting and No Country for Old Men, for $375 million in a deal with BeIN Media Group.

Feb. 20, 7 a.m. Updated with comments by ViacomCBS execs made during a morning analyst call.