Viacom's Paramount Returns to Full-Year Profit After Three Years of Losses

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Viacom CEO Bob Bakish

The company, led by CEO Bob Bakish, reported what are expected to be its final financials before its merger with CBS Corp., which is expected to close in early December.

Viacom, the company behind Paramount Pictures and such cable networks as MTV, Nickelodeon, BET, Comedy Central and Paramount Network, on Thursday reported better-than-expected fiscal fourth-quarter earnings and a return to a full fiscal-year profit for the Paramount studio for the first time in several years.

Its film unit posted its 11th quarterly bottom line improvement in a row, allowing Paramount's film unit to return to a full fiscal-year profit of $78 million.

Paramount had recorded an adjusted operating loss of $39 million for the previous fiscal year ended in Sept. 2018 after an operating loss of $280 million in the fiscal year before that and a loss of $445 million in the fiscal year ended in Sept. 2016. Its adjusted operating profit for the fiscal year ended in September 2015 had amounted to $111 million.

Viacom, led by CEO Bob Bakish, on Thursday reported what are expected to be its final results before its merger with CBS Corp., which like Viacom is controlled by the Redstone family's National Amusements. The mega-deal, unveiled this summer, is expected to close in early December.

Bakish on a morning analyst call said planning to fold both companies into one was well underway. "This integration is not just about cost savings. It's about extracting more value from our content," he said, while pointing to a focus on revenue opportunities and cost synergies.

On the revenue front, Bakish underlined efforts to boost content distribution and affiliate fees, U.S. advertising sales and income from content licensing and streaming, which will cross free and pay TV markets, and includes CBS All Access and Showtime.

"We're uniting a Hollywood film slate with substantial TV production across multiple entities, whether that's CBS, Showtime or Viacom Media Networks and Paramount TV," he said as Bakish surveyed the ViacomCBS waterfront.

The combined entity will also support ViacomCBS' own production divisions and third-party platforms. That will include licensing IP to rivals, as with Paramount Pictures on Thursday announcing it had licensed the sequel rights to Beverly Hills Cop to Netflix for a fourth edition of the popular franchise to star Eddie Murphy and be produced by Jerry Bruckheimer.

Much of the analyst call was devoted to what ViacomCBS is expected to retain in production and library content, and what it will sell to rivals to feed its bottom line. "Demand for content from third parties is incredible. And the combination of our assets and capabilities with the fact that some of our competitors are pulling back makes this sector an enormous opportunity for ViacomCBS," he told analysts.

Bakish pointed to the deep programming libraries at ViacomCBS, a strong slate of movies and TV series in development or production, which will allow the merged entity to feed a number of mouths, including its own. "We think this balanced economy is the right way to create returns and manage risk, which creates substantial value over time," he added.

Bakish also touted Paramount as an iconic Hollywood studio set to be a jewel in ViacomCBS' crown. "The library is truly irreplaceable. This is an asset that we love to own, we love the momentum we're seeing and the road ahead is really exciting," he told analysts.

The studio, led by chairman and CEO Jim Gianopulos, who was earlier this week confirmed as continuing in his role after Viacom's merger with CBS Corp., has grown its TV production business, managed costs and turned around its theatrical business, Viacom reported.

Full-year film revenue grew 1 percent, "driven by licensing and ancillary revenues, which were partially offset by lower theatrical revenue" due to a tough comparison with Mission: Impossible – Fallout in the previous year. The licensing revenue improvement was "driven by growth in TV production," the firm said. "Ancillary revenue grew 33 percent for the full year, driven by higher licensing fees from international theme parks and a new music rights agreement."

Adjusted operating income at the film unit for the fiscal fourth quarter increased 42 percent to $54 million. Film releases in the latest period included Dora and the Lost City of Gold and Crawl, plus Rocketman continued to contribute. Licensing revenue jumped 26 percent for the quarter, driven by growth in TV production.

Viacom on Thursday also reported its second quarter of U.S. advertising growth in a row for its media networks unit, up 6 percent, after posting declines since 2014 and said its affiliate fee revenue also rose. Its Advanced Marketing Solutions business was one of the key drivers behind the ad gain. For the full fiscal year, Viacom reported its first U.S. ad gain in six years.

The company also lauded a full-year and quarterly gain of 1 percent each in U.S. affiliate revenue, "driven by the extended reach of Viacom's distribution across more viewing platforms," such as higher streaming and studio production revenue and "contractual rate increases, which were partially offset by subscriber declines."

Streaming service Pluto TV saw its monthly active users rise to approximately 20 million in the U.S., up nearly 70 percent this calendar year, according to the company. "Our ad-supported free TV streaming product Pluto is on an incredible growth trajectory," Bakish told analysts.

Viacom during the latest quarter posted adjusted earnings from continuing operations for the latest quarter, ending Sept. 30, of $321 million, or 79 cents per share, exceeding Wall Street consensus expectations for a profit of 76 cents per share. In the year-ago period, the company had reported adjusted earnings from continuing operations of $400 million, or 99 cents a share. Revenue fell 1 percent to $3.43 billion.

Bakish on the analyst call took the opportunity to insist CBS expects to renew its contract with the NFL. "Sure they'll want a bigger check, but I'm confident we'll have a strong partnership for years to come," he insisted as the pro football league will continue to prize the mass market reach of broadcast TV.

The NFL rights are expected to come up for renegotiations after the league reaches a deal with the NFL Players Association. Bakish also touted the younger audience that CBS will bring for the NFL.