M+E Connections

Viacom continues to search for sub-$40 over-the-top (OTT) “skinny” TV bundles to meet the demands of U.S. consumers who increasingly want access to content when they want it, across all devices, with more “choice across price points,” according to company CEO Robert Bakish.

Despite reporting stronger results for the third quarter (ended June 30) than a year ago, Viacom shares were down 8.4% at $37.74 in early afternoon trading Aug. 4. That was likely due to the weaker-than-expected forecast that the company gave for its fourth quarter. Its outlook was “much worse” than Pivotal Research Group analyst Brian Wieser expected, he said in a research note.

“The ship has sailed on everyone having a $100 bundle,” Bakish said Aug. 3 on Viacom’s earnings call. “Many consumers want lower-priced options, including options below $40,” and Viacom intends to be a “core part of that offering,” he told analysts.

Bakish predicted that such “low-priced entertainment packs will be a reality,” and will be a “critical development in the arc of pay TV subscriptions” that “will be a positive development for Viacom.” The company also continues to experiment with new distribution offerings internationally, he said.

The comments were in line with comments Bakish previously made. For example, he told an investor conference in March that most of the skinny bundles in the U.S. have been very similar so far, costing about $40 a month or more and featuring a bundle of TV networks “heavy” on broadcast sports content that not all consumers wanted.

Viacom, meanwhile, has “made considerable progress” on its turnaround strategy, he said on the earnings call. The company made “meaningful improvement” on its balance sheet in the third quarter and saw gains across all its filmed entertainment businesses, with operating income in that division returning to growth for the first time since the fourth quarter of 2015, he said.

Viacom was also “making clear progress” on its strategy to “revitalize” its core brands, he said, pointing to Q3 ratings bright spots that included BET, Comedy Central, MTV, Nickelodeon and VH1. The company was also “seeing some growth” from the virtual multichannel programming distribution side of the business, he said.

Total Viacom Q3 revenue grew 8% from a year ago, to $3.4 billion, while profit from continuing operations increased to $680 million from $432 million. Media networks revenue grew 2% to $2.6 billion and filmed entertainment revenue soared 36% to $847 million. While theatrical revenue jumped 189% to $263 million thanks to the strong global performance of the Paramount movie sequel “Transformers: The Last Knight,” home entertainment increased 14% to $218 million and licensed revenue inched up 1% to $300 million thanks to higher revenue from deals with subscription video on demand distributors, Viacom said in its earnings news release.

Concerns for Pivotal’s Wieser, however, included Viacom projecting that affiliate fees will decline by low single digits due to a shift in spending from the September quarter to the June quarter, he said. Also, Viacom’s expectations around affiliate fee inflation, subscriber declines and the ship sailing on $100 bundles “suggest that longer-term expectations embedded in our model have probably been too high given the challenges that Viacom (and most other cable network groups) face,” he said. He added: “Ongoing needs to invest in content while skinnier bundles proliferate and advertising stagnates or declines lead to slower revenue growth and margin compression as time progresses.”