Viacom Plans Streaming Service -- WSJ

Venture to include hundreds of hours of shows denied to rivals; revenue fares poorly

By Keach Hagey and Austen Hufford 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 9, 2018).

Viacom Inc. plans to launch an ad-supported streaming-video service by September that will offer shows and other content from across its portfolio, which includes cable channels such as MTV and Comedy Central.

Viacom executives, who had only hinted vaguely at such plans, provided details about the service, still in development, during a conference call on Thursday to discuss earnings for the latest quarter.

The content on the new service will include thousands of hours of programming Viacom purposefully chose not to license to online-video services.

"It's going to be significant, and it's going to also be differentiated from what's in the marketplace today," said Viacom Chief Financial Officer Wade Davis, adding that it was only possible because "we kind of built and husbanded [our] library to be able to use for our own strategic purposes."

The quarterly earnings report reflected a company in the thick of a difficult turnaround. Viacom posted a deeper-than-expected revenue decline as its television networks in the U.S., hurt by customers dropping cable TV, pulled in less advertising and subscription revenue. Cost cuts and growth in international markets helped partially offset those declines.

Despite the challenges, Mr. Davis hit some bright notes in the company's earnings outlook, saying subscription revenue would decline "at the low end of mid-single digits" in percentage terms for the fiscal year ending in September, instead of the earlier projection of simply a mid-single-digit decline. The revision is partly because of more favorable cable-TV carriage contracts.

The company said it expects advertising revenue to return to growth in its fiscal fourth quarter, and overall revenue growth to resume in the next fiscal year.

Shares in Viacom rose 7.2% to $32.71 on Thursday.

Investors are watching for a potential merger between Viacom and CBS Corp, a deal that would reunite the two big pieces of Sumner Redstone's media empire. Last week the companies disclosed that their boards had formed a special committee to evaluate a deal. As is customary with such talks, no update was provided during the earnings call.

Viacom said profit in its fiscal first quarter, which ended Dec. 31, was boosted by the enactment of the new U.S. tax law. For the quarter, Viacom reported a profit of $537 million, or $1.33 a share, up from $396 million, or $1 a share, a year earlier. Excluding the tax benefit and other one-time items, Viacom posted an adjusted profit of $1.03 a share, beating analysts' estimate of 94 cents a share.

Revenue fell 7.6% to $3.07 billion, below analysts' estimates of $3.14 billion.

Revenue at the media-networks unit that houses Viacom's cable-TV channels fell 1% overall to $2.56 billion. U.S. advertising revenue decreased 5% to $937 million, due to lower TV ratings, partially offset by higher pricing and digital ad growth. Domestic subscription revenue decreased 8% to $907 million. A bright spot was a 13% increase in international revenue, excluding a favorable impact from foreign exchange.

Revenue in the Paramount Pictures movie division decreased 28% to $544 million in the quarter, as U.S. revenue fell 42% to $270 million and international revenue declined 6% to $274 million.

The company said it had made progress on cost cuts and was on track to achieve $100 million in new cost savings this year and "hundreds of millions more" in 2019.

Viacom has been lining up programming for the direct-to-consumer offering for some time. In one of Chief Executive Bob Bakish's first strategic moves after being named to the post in December 2016, Viacom pulled its new content off streaming-video service Hulu in part to help improve relations with pay-TV distributors that carry its channels.

In the call on Thursday, Mr. Bakish emphasized that the direct-to-consumer product would not upset these relationships, saying it was a "complement product," not a substitute for pay TV.

He also said the company was in talks with several mobile carriers in the U.S. about putting its content on their services, perhaps in the same mold as the deal the company just struck with Telefónica SA in Latin America. In that arrangement, Viacom's live channels will broadcast via mobile and the company will get a per-subscriber fee just like it does with traditional pay-TV distributors.

Mr. Bakish said the promise of such deals "upends the whole argument of the decline of the pay-TV business because mobile is the most ubiquitous platform in the world."

Write to Keach Hagey at [e-mail] and Austen Hufford at [e-mail]

(END) Dow Jones Newswires

February 09, 2018 02:47 ET (07:47 GMT)

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