Paramount will continue to ride movie franchises Mission Impossible, Star Trek, GI Joe, and World War Z and roll out animated films for SpongeBob SquarePants and Monster Trucks, the company told analysts this morning as execs offered a rosy picture of Viacom’s growth prospects. CEO Philippe Dauman also crowed about the attention that Miley Cyrus’ sexually charged dancing brought to MTV’s Video Music Awards in August, calling it a “moment that is still reverberating across the pop culture landscape.” But some investors likely will be more concerned about the company’s acknowledgement that the original programming planned for its pay TV networks will drive costs up by a high single digit rate in 2014. “Original programming gives us the ability to build our brand better,” Dauman says. “It creates a lot of value for us.” In addition, Viacom says that its stock repurchases — which accelerated to $2.7B in the September quarter — will come closer to $850M in the three months ending in December.
Viacom‘s shares have been hovering around their all-time high and, unless I’m missing something in the weeds, the latest earnings report shouldn’t change that. In the September quarter the entertainment company generated net earnings from continuing operations of $806M, +25.4% vs the period last year, on revenues of $3.65B, +8.6%. The revenue number beat analyst expectations for $3.6B. Adjusted earnings from continuing operations at $1.55 a share also topped forecasts for $1.44. At the main Media Networks unit revenues came in at $2.46B (+7.4%) with operating income of $1.04B (+10.9%). Domestic and overseas ad sales each were up 10% while rate increases elevated fees from pay TV and digital streaming providers by 6%. The Filmed Entertainment operation, which includes Paramount, exceeded the Street’s expectations with revenues +11.1% to $1.21B and operating income +49.2% to $291M. The company says that World War Z helped to drive a 31% increase in theatrical revenues. Home entertainment — which had one additional release vs last year — was +24%. “Viacom’s commitment to creative and operational excellence, and our continued investment in content, delivered an outstanding quarter and a strong fiscal year,” CEO Philippe Dauman says. He adds that he’s “very optimistic about Paramount’s ambitious pipeline of branded and franchise films” and notes that the company repurchased $2.7B worth of stock in fiscal Q4 — bringing the total cash returned during the year to $5.4B.
The company’s leading Wall Street critic, Bernstein Research’s Todd Juenger, raises the provocative idea this morning in a report that questions whether Viacom‘s stock — now hovering around its all-time high — can continue to rise. The share price has appreciated 55.4% so far in 2013 as investors grew confident that the company had reversed a startling decline in Nickelodeon’s ratings that began to show in late 2011. CEO Philippe Dauman says the turnaround largely reflects the success of new programs including Teenage Mutant Ninja Turtles. But Juenger says this morning that the ratings gains — and improvements in ad sales — are about to slow. Nickelodeon benefited in part because it began to target pre-Kindergarten viewers from 8:30 AM-2 PM — loading up on programs such as Dora The Explorer, Umizoomi, and Bubble Guppies – while Nick Jr focused on franchises “with arguably less audience appeal.” As a result “Nick Jr. lost about 250-300k average daily viewers [while] Nickelodeon gained about 100k.” Meanwhile, Nickelodeon squeezed SpongeBob SquarePants which now accounts for 45% of the channel’s programming hours, up from 25% in January 2012. “We know of no other network that relies so heavily on one single franchise,” Juenger says. It’s “undeniably risky to be so dependent on one franchise, especially
That doesn’t necessarily mean Viacom will skimp on spending where needed, CEO Philippe Dauman told investors at the Goldman Sachs Communacopia Conference. For example, Paramount has a new Transformers film planned for next year that has “a very high budget but very low risk. Same with Mission: Impossible and some of the other franchises.” With new versions of its latest franchise, World War Z, “we will alleviate the risk by bringing in co-financing.” Broadly speaking, though, “we have a history even in tough times of maintaining or growing margins” and that means keeping “a tight lid on expenses, including in programming.” At the movie studio Dauman expects to distribute about 15 films a year including three animated titles in 2015. But he adds that he’s “excited” about next month’s Jackass Presents: Bad Grandpa with Johnny Knoxville, which Dauman calls “a fun movie, and a profitable one.” He’s also optimistic about Paramount’s revived television production operation.
LOVEFiLM, an Amazon company, today announced the arrival of hundreds of hours of popular reality TV series, comedy and children’s entertainment on the LOVEFiLM Instant streaming service following a deal with worldwide entertainment leader Viacom International Media Networks (VIMN). The wide selection of new shows will allow members of LOVEFiLM Instant in the UK to experience some of the greatest entertainment from across VIMN’s exciting broadcast portfolio – which includes MTV, Nickelodeon, Nick Jr. and Comedy Central.
It just might if it frightens them enough to accelerate their efforts to make people pay for broadband based on how much they use — the same way they pay for electricity or water. ”This isn’t just a side show,” independent analyst Craig Moffett says. “This is THE central issue defining the value of the cable industry going forward.” And the pricing model could rock streaming companies including Netflix or, perhaps, Sony. It would be “a material risk” to Netflix’s prospects if a Sony-Viacom agreement leads to usage-based pricing, Bernstein Research’s Carlos Kirjner says.
This could be a big breakthrough for tech companies that want to create an Internet-based alternative to traditional cable and satellite services. The Wall Street Journal reports that Sony has a preliminary agreement to carry Viacom‘s channels on a service it hopes to launch by year end. The programming would initially go to those with Sony devices including its PlayStation gaming console and Bravia HDTVs, with tablets and smartphones to follow according to “a person familiar with the matter.” If Sony and Viacom complete their deal it would be the first time a major programmer has agreed to provide its most popular pay TV channels to an online service. Intel and Google are among the other companies hoping to use the Internet to challenge cable and satellite video offerings. Sony’s talking with other programmers including Disney, Time Warner, and CBS.
The debt offering takes advantage of the market’s low interest rates, and will help fuel Viacom’s recently announced plan to double its stock repurchase effort to $20B — including $3B to take place in 2013. The decision to raise overall debt led Moody’s Investors Service to lower Viacom’s senior unsecured rating to Baa2 from Baa1. The buy-back “appears to be a one-time effort to smooth over the anemic growth by returning more capital to win the favor of shareholders,” Moody’s said. The plan has worked so far: Viacom shares are up 10.2% following the repurchase announcement. As for the debt, Viacom says that it will consist of three offerings with $500M in senior notes paying 2.5% due in 2018, $1.25B in senior notes at 4.25% due 2023, and $1.25B in senior notes at 5.85% due 2043. Citigroup Global Markets; J.P. Morgan Securities; Merrill Lynch, Pierce, Fenner & Smith; and RBS Securities are the joint book-running managers.
UPDATED, 11:14 PM: YouTube today dismissed the support that IATSE, the DGA, AFM and SAG-AFTRA has shown for Viacom’s efforts to get another day in court with its $1 billion copyright infringement suit. Not only does the Google-owned company say in a statement that the unions’ brief “recycles” a previous filing from 2010 in the suit but that they “don’t seem to have followed developments in the case.” Read the statement YouTube issued via a spokesperson late Monday below:
The brief filed by entertainment industry unions recycles their brief from the first appeal in 2010. They don’t seem to have followed developments in the case or recognized the changes to YouTube’s place in the entertainment ecosystem. The Court has twice rejected Viacom’s unfounded copyright infringement claims. And even Viacom has conceded it doesn’t object to how YouTube has operated for the last five years. YouTube has signed licensing agreements with every major movie studio and record label, has developed an industry-leading Content Identification system used by 4,000 media partners, and does more to prevent piracy than any other major video hosting provider.
PREVIOUSLY, 6:33 PM: Despite another recent court loss, Viacom’s latest attempt to revive its billion-dollar copyright suit against YouTube has just gotten some very vocal support again from some old friends. “YouTube’s role in the rampant, systematic distribution of content in violation of the exclusive rights of copyright holders caused and continues to cause harm to the entertainment industries and the members of the Guilds and Unions working in those industries,” said a joint brief filed late last week by lawyers for the Directors Guild of America, SAG-AFTRA, IATSE and the American Federation of Musicians. “We urge the Court to consider the full ramifications of YouTube’s actions, and request that the Court reverse the lower court’s decision.” The unions offered similar such support as they did last week back in 2010. Filed on August 2 this year, the quartet’s new 28-page brief (read it here) comes after Viacom filed materials on July 30 with the 2nd Court of Appeals asking for a new judge in the long-running case. That expected legal move against Judge Louis Stanton followed the NY-based U.S. District Court judge granting YouTube yet another favorable summary judgment in the matter on April 18. That was the second such decision for the Google-owned entity in the case. Viacom first launched the $1B action in 2007.
Philippe Dauman jumped on the bandwagon of media execs lamenting the oversupply of big-budget films competing with each other this summer. Although he told analysts this morning that Viacom will see “significant profitability” in the current quarter from its recent films which include Star Trek Into Darkness and World War Z, the numbers will be lower than execs expected. “This summer had a particularly high volume of tentpole pictures from all the studios combined,” he said. That’s a problem: “We hope to drive the viewing of tentpoles for a longer period of time, and the crowded schedule limited a lot of pictures — ours included.” He assured analysts that it’s “not going to happen every year.” DreamWorks Animation CEO Jeffrey Katzenberg made a similar point this week to explain the disappointing performance of his film Turbo. This summer included 50% more tentpole releases than in the same period last year, he said. What’s more, “we’ve seen more animation this summer by about 100% than we’ve ever seen before.”
The devil’s going to be in the details for investors who want to see from the latest earnings report how basic operations performed in the June quarter without help from two successful tentpole films (Star Trek Into Darkness and World War Z), and a streaming deal with Amazon. But many likely will start and stop with Viacom‘s announcement this morning that it will double its share repurchase commitment to $20B. It “highlights the confidence we have in our business and the value of Viacom stock,” CEO Philippe Dauman says. “We will continue to focus on maintaining a strong and flexible balance sheet, which supports robust investments in our brands and franchises as well as substantial capital return to shareholders.” As for the basic fiscal Q3 numbers: Viacom generated $643M in net income, +20.4% vs the period last year, on revenues of $3.69B, +14%. The revenue number beat the $3.58B that analysts expected. Adjusted earnings from continuing operations, at $1.29 a share, were a penny shy of forecasts. At the main TV networks business revenues were +13% to $2.57B with operating income +24% to $1.16B. It benefited from a rise in affiliate fees, +28% domestically and +26% worldwide, although without the streaming deals the number would have been up “in the high single digits,” Viacom says. Domestic ad sales increased 5%. Over at Filmed Entertainment, which includes Paramount, revenues were +15% to $1.16B including worldwide theatrical …
Rest easy, Sumner Redstone, Philippe Dauman and Thomas Dooley: You won’t have to give up millions of your bucks after all. Eleven months after a Viacom shareholder sued the company to get back $36.6M he believed was overpaid in bonuses to the media behemoth’s three top execs, a federal judge in Delaware has dismissed the suit. Robert Freedman’s complaint (read it here) sought reparation for compensation to Chairman Redstone, CEO Dauman and COO Dooley, plus legal fees, and to quash future incentive payouts. U.S. District Judge Sue Robinson filled 26 pages with opinion as to why she sent Freedman home empty-handed, saying he failed to prove his claim that the trio were incorrectly awarded millions by the Viacom board’s compensation committee between 2008 and 2011 in violation of the company’s 2007 executive pay plan. The judge agreed with Viacom’s October request to have the suit tossed.
Did hell just freeze over? It must have, because this morning Viacom‘s most relentless naysayer on Wall Street, Bernstein Research’s Todd Juenger, upgraded the stock to “market perform” from “underperform” raising his target price to $73 from $64. It’s not that he thinks CEO Philippe Dauman has turned things around after a series of problems including last year’s ratings woes at Nickelodeon and MTV. Indeed, Juenger says that “there are storm clouds gathering on the horizon” including a possible decline in revenue from streaming services led by Netflix, rising borrowing costs, falling ratings at Nick Jr., and dwindling home video revenues at Paramount. “This has seemed to us like a business in a death spiral — suffering short-term problems, causing the company to resort to desperate short-term actions, which lead to longer-term problems,” Juenger says. But with the share price +47.2% over the last 12 months, Juenger acknowledges that “we have ultimately been wrong on the stock.” Dauman’s aggressive share repurchase efforts have impressed investors, he notes. And if they weren’t scared off when DirecTV resisted Viacom’s effort to raise its prices (which resulted in the company’s channels going dark on the satellite service for 10 days last July), the ratings troubles, and the recent expiration of its licensing deal with Netflix, then nothing ahead is likely to change the stock’s trajectory. “We are faced with a tough choice on our Viacom recommendation,” …
The agreement provides Amazon with “hundreds of TV shows and thousands of TV episodes” including “a collection of TV shows that customers won’t find on any other digital video subscription service,” the companies say. But it’s especially interesting because it comes days after Viacom’s streaming carriage agreement with Netflix expired. Although execs said last week that they’re still negotiating, Netflix made it clear that it now favors deals that would give it exclusive access to programming. “We valued [Viacom's] content for sure, we just disagreed about the value of the content,” Chief Content Officer Ted Sarandos told investors at the Nomura U.S. Media & Telecom Summit. “We’re into a whole new space about what people are watching and what it’s worth.” But Viacom CEO Philippe Dauman told the same gathering that he doesn’t want to be tied down. “There isn’t a player or potential player doesn’t come by our door and we work with all of them.” Streaming, he added, “is a continuing good overall opportunity for us and any growth opportunity for us.” Viacom shares are up about 2% in early trading. Here’s today’s release:
Viacom CEO Philippe Dauman had better hope he doesn’t have to testify at a congressional hearing where Sen. John McCain’s asking the questions. The entertainment exec gave the back of his hand today to the Arizona Republican’s new campaign to promote a la carte pay TV pricing. McCain “got a lot of publicity for his solo sponsored bill which he’s been doing for 15 years now,” Dauman told investors at the Nomura Global Media & Telecom Summit. The proposal has “no co-sponsors, [and is] going nowhere.” One big reason, Dauman says: The current pay TV bundles are “great for consumers. Consumers are enjoying what many call the golden age of television because we have a number of networks….come from nothing and know that they have distribution.” But he says “the opposite would be true” with a la carte pricing. “Consumers would get fewer channels without saving any money.” Although some analysts wonder whether online video will promote cord cutting, Dauman still sees the businesses as complementary. MTV will introduce an app for streaming programming “very soon,” following Nickelodeon’s which the CEO says has been “very successful.” Indeed, he says that channel apps “can be the method by which you get TV Everywhere” as opposed to apps from pay TV distributors. Viacom’s program carriage deal with Netflix expires at the end of this week…
The quarterly outlay rises beginning July 1 to 30 cents a share from 27.5 cents for both the Class B stock (which the public owns) and Class A (79.4% owned by Chairman Sumner Redstone). This is the third increase in the three years since Viacom began paying a dividend. “Our solid balance sheet and strong cash flow provide us the flexibility for continued investment in our popular brands and properties while delivering substantial capital directly to stockholders through dividends and our ongoing $10 billion share repurchase program,” CEO Philippe Dauman says. The boost “underscores why we continue to like this stock” and makes Viacom’s dividend yield “one of the highest among the diversified entertainment companies,” says Wells Fargo’s Marci Ryvicker.
Shares opened up more than 4% this morning after Philippe Dauman reassured investors that Viacom will continue to generate lots of cash from deals with streaming services — even if its program licensing pact with Netflix expires at the end of this month. “We’re still in discussions with Netflix…and with others,” he told analysts in a conference call. “We’re open to licensing content, some of it on an exclusive basis.” Netflix CEO Reed Hastings raised some fears last week when he said that his company would let its current deal with Viacom expire. Netflix is shifting its focus to “exclusive and curated content” as opposed to “non-exclusive, bulk content deals,” he said. The streaming service would be fine without Nickelodeon shows because “with all the recently added fresh programming from Disney, Cartoon Network, Hasbro’s The Hub and DreamWorks Animation, we have a great kids offering.” But Dauman also says that Viacom has little to fear without Netflix — and has “enough visibility” to know that the entertainment company can realize its forecast to see streaming revenues grow 10% this fiscal year.
Several key numbers were down, although cost-cutting at Paramount appears to have enabled Viacom to slightly beat the Street’s profit expectations. The company’s fiscal Q2 net earnings from continuing operations came to $489M, -18.4% vs the period last year, on revenues of $3.14B, -5.9%. Analysts thought revenues would reach $3.19B. But earnings at 96 cents per share were a penny above forecasts. At Viacom’s core pay TV networks operation, revenues increased 2% to $2.23B while operating income fell 2% to $873M. Domestic affiliate revenues were up 3%, but the company says that if you factor out the streaming deals that helped last year’s results the number would be up by a low-double-digit percentage. Ad sales in the U.S. and abroad were up 2% — an upturn that many investors wanted to see after last year’s ratings declines at Nickelodeon. Filmed entertainment was the weakest link with revenues -20% to $941M and operating income -43% to $65M. Viacom says its worldwide theatrical revenues fell 15% without a film that provided the same boost it saw last year from Mission: Impossible — Ghost Protocol.
Analysts expect to hear encouraging news across the board from the barrage of Big Media Q1 earnings reports and conference calls this week and next. But they’ll be listening especially carefully to Viacom on Wednesday. Its shares — which recently hit all-time highs — are down 3.6% since Monday night, when Netflix said that it will let its streaming deal with Viacom expire next month. Netflix says it would rather secure exclusive rights to particular shows instead of broad deals for shows that also appear on other streaming services including Amazon and Hulu. That worries some investors: Viacom has reassured them that all’s well following Nickelodeon‘s ratings dive last year — and backed up its confidence by promising to repurchase $2.5B in stock this year and pay $1 per share in dividends. The question now is whether Viacom can afford to make good on those vows. “Cash, rather than content, remains king,” Pivotal Research Group’s Brian Wieser says this morning. The Netflix news adds to the concerns about Viacom already held by Bernstein Research’s Todd Juenger — the company’s toughest critic on Wall Street. “We don’t think Netflix will bid a big sum for the specific programs it wants from Viacom,” he says this AM. “If they were willing to do so, they wouldn’t have gone through this exercise.” Nor does Juenger believe that Amazon will become a white knight. It “has all the leverage. Anything they offer to Viacom is better than nothing.” He adds that it would be “the ultimate irony if Viacom claimed the loss of Netflix would help their linear ratings, given years of arguing the opposite.” Others are more sanguine about Viacom’s prospects.