Market Insight

Remerged ViacomCBS plots growth strategy around direct-to-consumer and production

August 16, 2019  | Subscribers Only

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CBS Corporation and Viacom have entered into a definitive agreement to combine in an all-stock merger, reuniting two US-based media giants which split in 2006. The merger will reunite the CBS free-to-air broadcasting business, the Showtime pay TV network, basic cable channel brands MTV, Nickelodeon and Comedy Central, and the Paramount film and TV studios, as well as burgeoning online brands including CBS All Access and Pluto TV. Both CBS and Viacom are owned by National Amusements Inc.

The new company will be called ViacomCBS and will be headed by Bob Bakish, currently president and CEO of Viacom. This week’s merger announcement describes ViacomCBS as ‘a leading global, multiplatform, premium content company, positioned to be one of the most important content producers and providers in the world’.

IHS Markit Channels and Programming Intelligence estimates that combined revenues for the channels business of CBS and Viacom were $17.3 billion in 2018, of which 88% was generated in the US. Based on reported data, the production and distribution revenues were $7.1 billion last year. 

In terms of programming expenditure, the combined global total in 2019 for CBS and Viacom is an estimated $10.2 billion. This ranks the combined ViacomCBS third in terms of programming spend behind the $18.2 billion of Walt Disney and NBCU’s $13.4 billion. Netflix’s estimated $10 billion programming spend puts it just behind the new ViacomCBS.

CBS shareholders will own approximately 61% of the combined company, with existing Viacom shareholders owning approximately 39%. National Amusements owns approximately 79% of the Class A voting shares in both CBS and Viacom. The transaction is subject to regulatory approvals and is expected to close by the end of the year.

Our analysis

The CBS/Viacom remerger comes in the wake of two major US combinations: Walt Disney’s acquisition of most of 21st Century Fox and AT&T’s takeover of Time Warner. While all three are slightly different in nature, they all have a common motivation: to position the company in a new media environment where viewers are watching more content online and traditional advertising and subscription-funded media are seeing their revenue model being undermined.

One of the rationales behind the split of Viacom and CBS in 2006 was a fear that the mainly advertising-funded CBS part of the business faced inevitable decline while the cable network business of Viacom would be free to grow more dynamically. But CBS has arguably proved to be a more robust business, with the flagship network leading the US national network ratings for a number of years and feeding a string of hit properties like CSI and NCIS into syndication. Viacom, meanwhile, has been particularly exposed to cord-cutting in the US and the flight of its younger audience demographic to online.

With non-core activities like publishing, outdoor advertising and theme parks sold off, ViacomCBS is certainly more focused and its future strategy looks to be fairly closely aligned to the one so far followed with some success by Viacom under Bakish. ViacomCBS states that it will pursue growth by accelerating its direct-to-consumer offering, seeking enhanced distribution and licensing opportunities, and setting out to create a leading global producer of premium content for third parties.

In the online space, CBS All Access has strong subscriber numbers in the US (3.3 million subscribers in 2018 according to IHS Markit Channel and Programming Intelligence), though this is overshadowed by the Disney-owned Hulu (24.4 million US subscribers at end 2018) and Netflix (58.4 million). CBS All Access is currently also offered in Canada and Australia (as 10 All Access) and it could be expanded globally. The other strand of the Viacom CBS online growth strategy will be ad-funded streaming platforms, with Pluto TV, acquired earlier this year, starting to roll out in international markets.

Part of the success of CBS All Access has been driven by original content like the latest iteration of Star Trek and legal drama The Good Fight. The fact that rights to both series have been sold to third parties (Netflix has worldwide rights to the sci-fi epic) shows that the direct-to-consumer strand of the ViacomCBS growth strategy could potentially conflict with another: third party production and licensing.

ViacomCBS says it has a library of more than 140,000 TV episodes and 3,600 film titles and a worldwide production business with facilities across five continents. As separate entities, the two companies have followed differing production strategies with regard to third parties. CBS Television Studios has been focused on producing for CBS, The CW (its joint venture with WarnerMedia) and Showtime. In contrast, Viacom has pursued a production strategy embracing third parties. For example, in 2018 MTV Studios made a new series of The Real World for Facebook Watch rather than its original home, MTV. Bob Bakish also highlighted in 2018 that the company’s Paramount Television had grown in four years to a $400 million production business in 2018. With customers including Netflix and TNT.

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