You are using an older browser version. Please use a supported version for the best MSN experience.

Viacom Unveils Turnaround Plan as Quarterly Profits Drop But Revenue Tops Expectations

Variety logo Variety 2/9/2017 Cynthia Littleton
© Provided by Variety

UPDATE: Viacom shares shot up 5% in the first hour of trading Thursday, indicating a positive response from investors to the turnaround plan. 

The new regime at Viacom unveiled a turnaround plan for Paramount Pictures and its cable network group as the conglom surprised Wall Street Thursday with better than expected revenue for its fiscal first quarter.

Net earnings and operating income were down year-over-year for the quarter ending in December, however, underscoring the weaknesses that new president-CEO Bob Bakish is vowing to address with a plan to focus more resources on six core cable brands — including MTV, Nickelodeon, Comedy Central and BET — and more deeply integrate Paramount Pictures with its TV assets.

Viacom’s revenue for the winter quarter came in at $3.32 billion, a 5% gain and ahead of expectations of around $3.18 billion. Operating income dropped 16% to $706 million while net earnings fell 12% to $396 million. Paramount had another rough quarter of red ink, posting an $180 million operating loss, down 23% year-over-year. The media networks division saw a 7% decline in adjusted operating income, falling to $987 million.

Bakish said in a statement: “Today we share a strategy that will enable Viacom to realize the full potential of its premier global portfolio of entertainment brands. Building on our leading domestic and growing international footprint, this strategy will expand the depth and reach of our flagship brands across multiple platforms and around the world, while also providing for more competitive differentiation and increased adaptability for our business overall. There is much work to be done, but we are confident we have the plan and people to take our brands to greater heights and build a bright future for our company.”

On the cable side, Viacom said it would focus most of its energy and resources into six core brands: BET, Comedy Central, MTV, Nickelodeon, Nick Jr. and Spike TV, which will be rebranded early next year as the Paramount Network with a focus on general entertainment. Viacom has Paramount-branded channels around the world, so the shift for Spike TV is in keeping with Bakish’s vow to bring a more globally cohesive strategy to a company that has previously been run as film, TV and international fiefdoms. Bakish previously ran Viacom’s international networks group.

Paramount Pictures, meanwhile, will work more closely with the core cable channels to develop co-branded film franchises. The first wave of those efforts is a plan to co-develop four feature films with Nickelodeon. The first of those efforts, “Amusement Park,” is expected to be released in the summer of 2018.

Viacom also said it would launch a short-form content unit, and would step up its activity in developing live experiences and consumer products, which the company said would create “valuable new channels for marketing, talent development and connecting with audiences.”

Bakish, who was named Viacom’s permanent CEO in December, has been candid about Viacom’s need to mend its “frayed” relationships with distributors.

The company’s large suite of 25 domestic cable channels is out of sync with industry trends a time when traditional MVPDs are facing a host of competitive pressures and upstart digital distributors are focused on assembling smaller channel bundles at lower price-points for consumers.

Media watchers say it is inevitable that Viacom will have to shutter some of its low-performing channels, such as the many MTV and Nickelodeon spinoffs. Viacom has not confirmed any plans to drop channels but there is already speculation about MTV and VH1 combining into a single entity and the rebranded Paramount Network absorbing content from TV Land and CMT.

“Twenty-five networks cannot survive. You have to drop the weaklings,” wrote Bernstein Research analyst Todd Juenger in a note Thursday. But according to Juenger, about $1 billion, of 27%, of Viacom’s earnings come from the 19 channels that were not on Viacom’s core list. So the company faces a difficult process of balancing an inevitable hit on earnings with shedding under-performing channels.

Bakish’s five-point turnaround plan included a pledge to “revitalize and elevate approach to content and talent,” to “make big moves in the digital world and physical world” and “continue to optimize and energize the organization.” The statements are a tacit admission of how badly the company suffered in the final few years under former CEO Philippe Dauman, who was ousted in August after 10 years at the helm. Dauman at the end of his tenure was criticized for a focus on cost-cutting to prop up earnings and stock buybacks to keep share prices high at a time when Viacom should have leveraged its strength to invest in content and platforms.

Dauman’s exit was preceded by a nasty and very public legal fight with Viacom controlling shareholders Sumner Redstone and Shari Redstone, a process that had the effect of hobbling the company for most of 2016. The 93-year-old Sumner Redstone was also drawn into a salacious legal battle with a former companion starting in November 2015 that was a major distraction for the company and its board.

Bakish has earned high marks from Viacom insiders for moving decisively after mere weeks on the job. He’s a 20-year company man, who worked in business development before taking the helm of the Viacom International Media Networks in 2006.

Viacom’s fiscal first quarter numbers had some bright spots. Filmed entertainment revenue via Paramount grew 24% to $758 million, driven by improved theatrical revenues of $192 million thanks to Oscar nominee “Fences” and sci-fi thriller “Arrival.” Domestic theatrical revenues were up 128% and international revenues increased 73%. Viacom attributed some of the operating loss at Paramount to the timing of marketing expenses for 2017 film releases.

For media networks, the operating income loss was chalked up to higher programming expenses. The unit saw affiliate revenue inch up 2% to $1.14 billion. Advertising revenue fell 2% to $1.29 billion. As with other major cable programmers, Viacom disclosed a “modest” decline in overall subscribers in the quarter.

Gains in international affiliate revenue drove the growth in that category and would have been up 12% but for an adverse 9 percentage point hit in currency exchange rates.

AdChoices
AdChoices

More from Variety

AdChoices
image beaconimage beaconimage beacon