Specialist
Former EVP at ViacomCBS Inc
Agenda
- ViacomCBS’s (NASDAQ: VIAC) operating environment – 12-18-month outlook for affiliates, advertising and content licensing
- Digital initiatives – PlutoTV, Paramount+ and CBS All Access
- Cable network longevity – rising risk of MVPD (multichannel video programming distribution) network drops and affiliate pressure
- Outlook for 2021 and beyond – content licensing scalability and consolidation opportunities
Questions
1.
What key recent trends or drivers have been impacting ViacomCBS the most? Obviously, there are a number of dynamics playing out, whether it’s in advertising vs affiliate vs content licensing.
2.
Warner Bros announced today it will simultaneously premiere its 2021 film releases on HBO Max and in theatres. This is evidently a big change from maintaining the window of 17 days or so that a lot of the theatrical receipts come in. To what extent might this decision indicate an inflection for theatrical business?
3.
How should we frame the recovery prospects for advertising? Do you still expect spend to be flat-to-down when we compare ’21 to ’19?
4.
You suggested Viacom may have faced cord-cutting headwinds even earlier than peers. Some recent news flow with anonymised media execs indicated the US could fall to 50 million pay-TV households by 2025. Do you have a stance on whether pay-TV subscriptions will stabilise, or whether these forecasts are accurate?
5.
Do you think we’re still multiple renewals away from MVPDs becoming more aggressive towards the networks? There’s been plenty of news flow around the absence of much EBITDA for the video business model, given the programming costs. How do you think MVPDs envisage the video business evolving?
6.
How might ViacomCBS’s cash flow profile and comparative lack of size nuance its D2C pivot, relative to the activity so far from Disney, WarnerMedia or Peacock?
7.
I appreciate your point around Disney’s ability to more aggressively forgo legacy licensing revenues. That said, do you think Disney can still realise a framework for Disney+ that is ultimately NPV-positive? Will that be driven through sheer subscriber scale and ARPU expansions, or will Disney have to utilise a flywheel strategy to tap into incremental free cash flow opportunities?
8.
What is your longer-term outlook for the competitive landscape and the number of streaming platforms that will ultimately be sustainable? Is it really only flywheel companies such as AT&T, Comcast, Disney or Amazon that can sustain the streaming platform model? Will the companies who cannot execute on the flywheel strategy need to revert to studio-only licensing into the remaining streaming platforms?
9.
What’s a good framework to identify a cadence for optimal per-year original programming? I appreciate the number of moving parts at play, and that this will vary for subscription vs retention. Disney+ is the golden goose example, by only having The Mandalorian as new content and the subscribers it gained over the last 12 months. How many new shows per year are necessary for smaller platforms?
10.
Would it be feasible for Disney to match a 12-shows-per-year-type cadence across 2021? Have the promotional efforts and go-to-market insulated Disney+ from the apparent faltering in the content engine, or could the content output correct itself and make this cadence manageable?
11.
What are the biggest risks or opportunities that ViacomCBS is likely to face over the coming years?
12.
What dynamics are informing the apparent lack of breakout IP you noted for ViacomCBS? Does creative talent resonate to where the biggest budgets sit, and does that just not exist for ViacomCBS?
13.
Does that potential inability to secure creative talent necessitate the consolidation of ViacomCBS, Discovery and other subscale networks? Would that even change things enough to fix the creative issues?
14.
How should we frame the NFL as a profit loss leader, and the limits ViacomCBS should place on its bids? A specialist in a recent Interview referenced the potential for 60-80% spend increases upon renewal [see Sports Rights in an OTT Ecosystem – Disney, NBCUniversal, AT&T & ViacomCBS – 23 November 2020].
15.
Do you think ViacomCBS will face a like-for-like replacement threat with the NFL at subsequent renewals? Could the NFL pivot towards less exclusivity, or try to de-aggregate games even further? How much headroom is there to drive higher revenue streams from rights monetisation by dividing it among more stakeholders?
16.
What is your assessment of ViacomCBS’s management and their strategy? What changes do you expect from Naveen Chopra’s appointment as CFO, or Pluto TV’s Tom Ryan heading up the streaming business?
17.
Is there an inclination that Paramount+ will not reach similar subscriber levels to Disney+, which necessitates including advertising into the business model? If so, do you think the Pluto business model provides any unique capabilities for Paramount+?
18.
Can we break down secular declines in affiliates, and the potential for MVPDs to become more aggressive? ViacomCBS’s domestic cable affiliates grew in Q3 2020, which is reversed from Q2. Do you think pay-TV operators are caring less about programmer demands? Is there an expectation they won’t threaten blackouts or low rates, and will accept hikes and assume price-sensitive customers will churn out and go broadband-only over time? If so, to what extent does that benefit ViacomCBS or other programmers?
19.
What is your outlook for the non-core networks, given they will be less exposed to cable players seeking to pare down the bundle? Do you think ViacomCBS can maintain some of its smaller channels, or will these be especially challenged even in the medium term? How does this ultimately impact their long-term viability?
20.
How will ViacomCBS’s profitability and free cash flow be impacted by its efforts to maintain legacy businesses to a greater extent than players such as Disney? Is there any way ViacomCBS can potentially source the necessary investments for streaming purely at the expense of the programming spend it put into the networks historically? It just announced the sale of Simon & Schuster. How should we evaluate asset sales as a means to not increase the overall CAPEX to fund the streaming efforts?
21.
How high do you think content spend in aggregate will go? There’s some debate around the rationality of the decision-making and ROI based on the current bids from streaming players. Do you think there will eventually be a reversal in the amount that all these companies are willing to spend on content?
22.
How should we formulate a break-even point for streaming services, which many players have forecast to occur in 2024? What are your expectations for streaming margin over the long term, especially as Netflix is still sitting at less than 20% operating margins?
23.
Do you think Netflix’s main competitive advantage is its sheer content spend? Do you think the company can optimise this spend in a more saturated, mature market? Will any drop-off in content spend still likely have an impact on pricing power or subscriber volumes, even if it’s not a direct one-for-one trade-off?
24.
Why do you think Netflix hasn’t decided to move into advertising? Do you expect Netflix to still refrain from doing so in the long term?
25.
ViacomCBS’s content licensing revenue declined 33% YoY in Q3 2020. Why do you think the company hasn’t been able to grow that business YoY, given the backdrop of aggressive content bids across players?
26.
What are your expectations for Paramount+ in 2021? How might subscriber scale trend from where CBS All Access’s current volumes already sit? Do you think ViacomCBS can right the TV studio business to drive more premium content onto the platform?
27.
How should we model the eventual break-even subscriber volumes for the Paramount+ business, if we formulate some assumptions relating to the content strategy?
28.
How do you expect ViacomCBS’s business model to evolve over the next 5-10 years? There have been many schools of thought and questions around its ability to remain as a standalone.
