M+E Connections

The improved domestic theatrical performance by Paramount Pictures, driven by strong box office for the movies “A Quiet Place” and “Book Club,” provided Viacom a significant lift during its third quarter (ended June 30).

“When you look at what we achieved in Q3 and our momentum in Q4, I think you will clearly see that the Viacom turnaround is delivering demonstrable and measurable results,” Viacom CEO and president Robert Bakish said Aug. 9 on an earnings call.

But the strength seen in its Filmed Entertainment business and continued improvements made in its Media Networks business, weren’t quite enough to offset ongoing weaknesses in Viacom’s advertising sales as total company revenue fell 4% to $3.24 billion.

Profit from continuing operations attributable to Viacom declined 25% to $511 million. But operating income grew 1% to $752 million, mainly driven by a restructuring charge in the prior year quarter and improvement in Filmed Entertainment operating results, the company said.

The strong Q4 momentum includes the strong initial box office performance of Paramount’s “Mission: Impossible – Fallout,” which already grossed almost $330 million globally during its first two weekends and its release is “still to come” in China and other major markets, Bakish told analysts. Its opening performance is the best so far for any film in the “Mission: Impossible” series, he said.

Domestic Paramount Pictures theatrical revenue grew 58% in Q3. But total Filmed Entertainment revenue decreased 9% to $772 million in the quarter, as a 20% increase in domestic revenue to $464 million was more than offset by a 33% decline in international revenue to $308 million, Viacom said. Total theatrical revenue fell 21% to $208 million. Domestic and international home entertainment revenues, meanwhile, decreased 47% and 41%, respectively.

“A Quiet Place” grossed more than $188 million domestically to date, making it the second-highest grossing horror film in the U.S. over the past decade, according to Viacom. The film earned more than $332 million globally at the box office at a production cost of about $20 million, it said. “Book Club,” meanwhile, earned more than $68 million at the domestic box office since its May release — more than six times its acquisition cost of $10 million, according to Viacom.

Paramount’s fiscal 2019 theatrical release slate will “nearly double” the number of global theatrical releases from the studio compared to fiscal 2018, Bakish pointed out on the call.

Media Networks revenues dipped 2% to $2.5 billion in Q3, as a 17% increase in global ancillary revenue to $158 million was more than offset by a 4% decline in global ad revenue to $1.19 billion and a 3% decrease in worldwide affiliate revenue to $1.15 billion, according to Viacom. Domestic and international revenues each declined 2%, to $1.99 billion and $509 million, respectively.

Domestic ad revenue decreased 3% to $922 million, reflecting lower linear impressions, partially offset by higher pricing and growth in Advanced Marketing Solutions (AMS) revenues, which increased 33%, according to Viacom. International ad revenue decreased 4% to $269 million, “driven by an unfavorable impact from foreign exchange,” it said in an earnings news release. Excluding a 5-percentage point unfavorable impact from foreign exchange, international ad revenue inched up 1% in the quarter, according to Viacom.

On the AMS front, Fox “agreed to license the powerful data science platform behind” Viacom’s Vantage ad-targeting platform and “will be the first media partner to use the Vantage engines to power its linear optimization service across its network,” Bakish told analysts. He called it a “validation of our leadership in the space,” adding: “As we work to secure additional licensing partnerships with publishers, we’re excited by the potential of this new business to accelerate the ecosystem and evolve into an incremental revenue stream.”
Also, on the positive side, Bakish pointed to an area of “continued improvement” in domestic Media Networks viewership: “Viacom flagship brands have now produced five straight quarters of year-over-year share growth, with particular strength at MTV, BET and Comedy Central.”

Despite the various turnaround successes and growth initiatives cited on the call, Pivotal Research analyst Brian Wieser said in a research note: “All of this is dwarfed in consequence by the looming likelihood of a combination between Viacom and CBS. Synergies involved in any combination would be beneficial – and the two probably would have enhanced negotiating power with advertisers if operating together – which could lead to some upside to our valuation. On the other hand, we are also mindful that a combined company may feel that it will need to enhance its investments in content and invest more aggressively in new (lower-margin) activities in support of long-term growth opportunities.”