Viacom Reports Results For Third Quarter 2012 [3Q12]You can read Viacom Inc.'s 'Results For Third Quarter 2012' Press Release in full (with in-depth tables) here on the official PRNewswire website, PRNewswire.com.
NEW YORK, Aug. 3, 2012 /Viacom Inc. Press Release via PRNewswire-FirstCall/ --
Fiscal Year 2012 Results
[...]
Viacom Inc. (NASDAQ: VIAB, VIA) today reported financial results for the fiscal third quarter, which ended June 30, 2012. Revenues decreased 14% to $3.24 billion, driven primarily by the mix of Filmed Entertainment titles and lower advertising revenues. Adjusted operating income was $903 million in the quarter, down 9%, reflecting the overall decline in revenues, partially offset by lower expenses. Adjusted net earnings from continuing operations attributable to Viacom declined 12% in the quarter to $512 million, and adjusted diluted earnings per share from continuing operations decreased 2% to $0.97 per diluted share.
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The comparison with 2011 was impacted by the fact that Viacom's 2011 third quarter included substantial timing benefits from major films and television event programming, as well as digital distribution agreements.
Sumner M. Redstone, Executive Chairman of Viacom, said, "We continue to develop outstanding creative content on every platform while efficiently executing Viacom's strategy. We are confident that Viacom's unrivaled portfolio of powerful brands will continue to grow and evolve over the long term as we entertain and inspire new audiences around the world every day."
Philippe Dauman, President and Chief Executive Officer of Viacom, said, "Despite challenging year-on-year comparisons with last year's strong third quarter, Viacom remains committed to pursuing its long-term strategy of international expansion, continued programming investment and ongoing focus on operational discipline. Viacom continues to bring cultural powerhouses to fans around the world, and we are aggressively investing in our brands to create new hits, like Workaholics and Legend of Korra, now the most watched kid's program on cable in the quarter. Paramount also continued to strengthen its platform by aligning its slate to provide upcoming releases with the best possible opportunity to succeed in the global marketplace.
"Looking forward, we will continue to operate efficiently to maintain our competitive and creative edge, and over time, return significant value to shareholders."
[...]
Quarterly revenues of $3.24 billion decreased from $3.77 billion in the prior year. Media Networks revenue declined 5% to $2.27 billion, driven by lower advertising and ancillary revenues. Domestic advertising revenues decreased 7%, impacted by the timing of event-driven programming compared with the prior year's quarter. Worldwide advertising revenues decreased 9% in the quarter. Domestic affiliate revenues decreased 1%, reflecting the significance of digital affiliate revenues in the same quarter last year. Excluding the impact of digital distribution arrangements, our domestic affiliate revenue growth rate was in the high-single digits. Worldwide affiliate fees increased 1%.
Filmed Entertainment revenues were down 29% to $1.01 billion. Worldwide theatrical revenues decreased 52% in the quarter to $283 million, reflecting the number and mix of our current quarter releases. During the quarter, Paramount released three films, DreamWorks Animation's Madagascar 3: Europe's Most Wanted, The Dictator and Titanic 3D. In the comparable period of 2011, Paramount released four films: DreamWorks Animation's Kung Fu Panda 2, Marvel's Thor, Super 8 and Transformers: Dark of the Moon. Worldwide home entertainment revenues declined 8% in the quarter, driven by the mix of available titles, and worldwide television license fees decreased 24% reflecting both the number and mix of titles. Worldwide ancillary revenues increased 44% to $104 million in the quarter, driven by higher digital revenues.
[...]
Adjusted operating income decreased 9% to $903 million in the quarter. Media Networks adjusted operating income declined $99 million, reflecting lower overall revenues, partially offset by a decrease in expenses. Filmed Entertainment adjusted operating income decreased $3 million, reflecting the revenue decline, substantially offset by lower expenses. Corporate expenses decreased $15 million, principally reflecting lower variable compensation costs.
Quarterly adjusted net earnings from continuing operations attributable to Viacom decreased $71 million, or 12%, in the quarter ended June 30, 2012, principally due to the decline in adjusted operating income. Adjusted diluted earnings per share from continuing operations for the quarter were $0.97, a decrease of $0.02 from the prior year's comparable quarter.
Stock Repurchase Program
For the quarter ended June 30, 2012, Viacom repurchased 14.8 million shares under its stock repurchase program, for an aggregate purchase price of $700 million. As of August 2, 2012, Viacom had $5.18 billion remaining in its $10 billion stock repurchase program.
Debt
At June 30, 2012, total debt outstanding, including capital lease obligations, was $8.16 billion, compared with $7.37 billion at September 30, 2011. The Company's cash balances were $774 million at June 30, 2012, a decrease from $1.02 billion at September 30, 2011.
About Viacom
Viacom is home to the world's premier entertainment brands that connect with audiences through compelling content across television, motion picture, online and mobile platforms in over 160 countries and territories. With media networks reaching approximately 700 million global subscribers, Viacom's leading brands include MTV, VH1, CMT, Logo, BET, CENTRIC, Nickelodeon, Nick Jr., TeenNick, Nicktoons, Nick at Nite, COMEDY CENTRAL, TV Land, SPIKE, Tr3s, Paramount Channel and VIVA. Paramount Pictures, celebrating its 100th year in 2012 and creator of many of the most beloved motion pictures, continues today as a major global producer and distributor of filmed entertainment. Viacom operates a large portfolio of branded digital media experiences, including many of the world's most popular properties for entertainment, community and casual online gaming.
For more information about Viacom and its businesses, visit www.viacom.com. Keep up with Viacom news by following Viacom's blog at blog.viacom.com and Twitter feed at www.twitter.com/Viacom.
Cautionary Statement Concerning Forward-Looking Statements
This news release contains both historical and forward-looking statements. All statements that are not statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements reflect the Company's current expectations concerning future results, objectives, plans and goals, and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause actual results, performance or achievements to differ. These risks, uncertainties and other factors include, among others: the public acceptance of the Company's programs, motion pictures and other entertainment content on the various platforms on which they are distributed; technological developments and their effect in the Company's markets and on consumer behavior; competition for audiences and distribution; the impact of piracy; economic conditions generally, and in advertising and retail markets in particular; fluctuations in the Company's results due to the timing, mix and availability of the Company's motion pictures; changes in the Federal communications laws and regulations; other domestic and global economic, business, competitive and/or regulatory factors affecting the Company's businesses generally; and other factors described in the Company's news releases and filings with the Securities and Exchange Commission, including its 2011 Annual Report on Form 10-K and reports on Form 10-Q and Form 8-K. The forward-looking statements included in this document are made only as of the date of this document, and the Company does not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. If applicable, reconciliations for any non-GAAP financial information contained in this news release are included in this news release or available on the Company's website at http://www.viacom.com.
[...]
SOURCE Viacom Inc.
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Also, from Seeking Alpha (featuring only the excerpts which talk about Nickelodeon):
Viacom Management Discusses Q3 2012 Results - Earnings Call TranscriptAlso, below is a Zacks Investment Research, Inc. Press Release from PRNewswire:
[...]
Philippe P. Dauman
[...] good morning, everyone. Thank you for joining us today.
Despite challenges, Viacom made solid progress on several fronts in the third quarter of our fiscal year. Our industry-leading brands continue to grow and evolve across platforms, as well as geographic and demographic borders. We continued our sustained investment in creative content, especially at Nickelodeon and other key networks, and we are seeing promising signs that this investment will bear fruit.
[...]
Let's move on to highlights in our divisions. Our Media Networks experienced some cyclical rating softness that we are well equipped to overcome, as we have demonstrated in the past. More than any other programmer, Viacom's networks are built for reinvention, powered by our $3 billion investment in content this fiscal year. Our networks each have clear, established brand filters, to which they are introducing more and more original content. From BET to MTV to most recently VH1, our brands are consistently able to evolve with audiences, create hits and capture the cultural conversation. For example, 50% of VH1's current primetime schedule consists of returning hits, the highest percentage in 4 years, and the networks hit ratio was up 22% of our fiscal 2011.
Domestic advertising revenues decreased 7% due to the timing of 2 key award shows, as we previously signaled in our second quarter earnings call, as well as rating softness at certain networks. This year, the Nickelodeon Kids' Choice Awards aired in the second quarter, and the BET Awards aired early in the fiscal fourth quarter. Both aired in the third quarter last year, resulting in difficult year-on-year quarterly comps.
Worldwide advertising revenues decreased 9% for the quarter due to softness in Europe. As I mentioned earlier, we concluded the June quarter by successfully completing our upfront negotiations. We are very pleased with the outcome. Despite ratings issues in Nickelodeon, we were able to maintain the same share of the kids' upfront volume as last year. Overall, our total upfront dollars were more than $2.8 billion, up from last year, and we secured solid mid-single-digit increases in pricing.
Looking at the current quarter, while it is still early and difficult to predict, we are tracking to sequential improvement in domestic advertising revenue performance.
[...]
Also notable in the quarter, our continued strategic moves to expand our consumer products business. In the past few weeks, the first toys and merchandise based on Nickelodeon's forthcoming Teenage Mutant Ninja Turtles series debut on shelves at Toys ‘R Us. The line of action figures, vehicles and more will be available in its entirety across all retailers this month in advance of the much-anticipated series premiere in September. Products for Nickelodeon's Winx Club have also begun to roll out and will continue to hit retail stores into the fall.
Despite rating softness, Nickelodeon had success with new episodes of iCarly and SpongeBob SquarePants and the original TV movie, Rags, which reached 14 million total viewers. In the current quarter, the network is beginning to show momentum. Nickelodeon premiered a new SpongeBob special, Super Spongy Square Games, on July 22 with average 3.7 million total viewers. Following the episode, Nickelodeon gave fans a sneak peek in an upcoming series, You Gotta See This!, and the episode retained the overwhelming majority of the SpongeBob audience, including 99% of teens 9 to 14. A bright spot for Nickelodeon has been its new hit game show lineup. Figure It Out premiered in the third fiscal quarter with new episodes averaging 2.2 million total viewers. And Splatalot was added to the schedule in the current quarter, which is retaining 99% of the kids 6 to 11 audience from its Figure It Out lead-in. Splatalot is also showing solid time period gains over the months prior.
In addition to new programming, we're aggressively fine-tuning the schedule to drive viewership, which is resulting in significant time period gains for a number of Nickelodeon's signature series. The recent SpongeBob special posted big gains in its time period versus a year ago and the month prior. Big Time Rush is averaging 2.2 million viewers per episode this quarter, up double digits in all key demos versus a year ago. And just last Saturday, the new -- the newest Fred movie, Camp Fred, averaged 3.5 million viewers and ranked as the #1 cable telecast for the week for teens 9 to 14.
As we've said previously, Nickelodeon is debuting 650 new episodes of original programming for the upcoming broadcast season, including more than 130 from October to December. And just today, Nickelodeon is announcing a programming slate of 14 new series, TV movies and pilots, adding live-action and animation. As we have continually seen, fresh content drives renewed and expanded engagement, particularly among young viewers. Nickelodeon is now poised for an upsurge and soon. That includes the long-awaited debut of Teenage Mutant Ninja Turtles on September 29; new episodes of animated series, including SpongeBob SquarePants, Kung Fu Panda and the Penguins of Madagascar; new episodes of live-action hits, including Big Time Rush, Victorious and the final season of iCarly; and great-event programming, including Worldwide Day of Play, The HALO Awards and a SpongeBob Christmas special.
This fall, Nick at Nite will premiere See Dad Run, a new family comedy starring Scott Baio. Nick at Nite has gained recent momentum from Friends, which is seeing a 6% increase in ratings year-over-year. Also this fall, the NickMom nightly programming block, which is being enthusiastically received by advertisers, will debut on Nick Jr. with 4 new original series.
[...]
Moving onto international. We continue to see some softness in the international economic environment, particularly in Europe. However, strong affiliate growth from both digital distribution and organic growth, combined with strong cost management, offset lower advertising ancillary sales in the quarter.
We continue to expand the regional success of our adult-focused business internationally, as ratings for COMEDY CENTRAL improved 27% across the board; with double-digit increases in markets, including the U.K, Germany, Spain, Poland, The Netherlands, Sweden and Hungary. The Paramount Channel performed very well in its first quarter on air and signed 120 advertisers in its first 3 months of operation despite tough economic conditions in Spain. Nickelodeon also saw ratings improved by about 5% internationally. And in an effort to drive popular content in new audiences around the world, MTV's Jersey Shore began MTV U.K.'s Geordie Shore, which is enjoying its highest-rated season so far and remains the highest-rated series in the network's history. The series is a bona fide international hit, attracting big audiences in all the other countries where it airs, particularly Spain, Australia and Ireland. Despite difficult economic times, we continue to invest. COMEDY CENTRAL is fast becoming our third global brand, and we plan on launching at least 5 additional Paramount Channels in 2013.
[...]
As we look into 2013, the studio will be releasing sequels to existing franchises, including G.I. Joe: Retaliation in March; and the next installment of Star Trek, directed by J.J. Abrams, in May, both of which will be in 3D. In June, they'll release World War Z, which stars Brad Pitt. Looking at Paramount's developments, they have started production on Noah, which is directed by Darren Aronofsky and stars Russell Crowe; and soon, they will begin production on the new installment to the Jack Ryan series, with Chris Pine in the lead role. Paramount is also in development on the Nickelodeon-branded Teenage Mutant Ninja Turtles movie, which is being produced by Michael Bay; as well as on a sequel to Anchorman, which will reunite the original cast.
In summary, we remain focused on growing our businesses organically and using our free cash flow and the incremental capacity generated from our balance sheet to return capital to our shareholders. While we have experienced rating softness, we remain committed to investing in our brands and increasing the level of original programming on our networks in order to strengthen their competitive position. We continue to be encouraged by the incremental opportunities we see to monetize our brands and franchises on both traditional and digital platforms. The ability to secure long-term growth in our affiliation agreement and the opportunity to grow our international profitability and to develop global franchises with consumer products appeal will enhance our long-term growth. We believe our focus on organic investment, combined with disciplined management of our core structure and an aggressive capital return program, will drive value for our shareholders over the long term.
I want to thank you for listening. And now we'll turn the call over to your questions. Operator?
Question-and-Answer Session
[...]
Philippe P. Dauman
Well, we're very -- obviously, very, very focused on ratings issues, and it does go through cycles. And we have great leaders in our company. We have made a lot of changes in the programming departments across several of our networks, and we continue to reinfuse talent, promote talent. We've gotten into a lot of new genres at several of our networks. And we also have reached out very significantly to the outside production community in a significant way. There's a very intensive focus on content. That's what we do. And we have a culture of accountability, and we have been implementing that at the many layers of the company. And I'm confident that -- we have steps we are taking. And if you look at Nickelodeon, for example, we're really now starting -- beginning to see the fruits of what we're doing, and we have a very strong lineup coming, coming forward. I should point out, by the way, that some of our Nickelodeon brands are doing extremely well, like Nick Jr. and Team Nick [ph], the ratings are up. If you look at Nickelodeon Family, we've been moving forward. And we will -- we're also looking at how we schedule shows and what networks that will appear in. And we are aggressively pursuing this at all levels.
[...]
Douglas D. Mitchelson - Deutsche Bank AG, Research Division
2, I guess, Philippe and Tom. Philippe, any update you can give us on the percentage of Nickelodeon viewing that's coming from Netflix would be interesting. But mostly, interested in any updated thoughts you have on the investor concern around kids' viewing movies online and how that might impact the company. And for Tom, you've been working hard to manage SG&A and offset the impact of some ratings softness this year. I think margins are coming at about flat for fiscal '12. So for cable networks, I guess, one, is that right? Is that more to do in the cost side? Or has the low-hanging fruit been captured?
Philippe P. Dauman
Thank you, Doug. I'll take the Nick question. The Nick viewing on Netflix has been pretty stable. As we've talked about before, there's really no significant difference, and I've spoken before about my perception of that impact. We clearly have to be where consumers are and where they are. That's why we do -- we are rolling out apps with our -- in partnership with several of our distributors. You'll see more of that in the fall. We already have it at -- with distributors like FiOS, you'll see it in Time Warner Cable, you'll see it at some of our distributors, so that our audiences can view the on-demand content, they’ll be able to view Linear in the home. Eventually, when we have measurement [ph] and other issues sorted out, they'll be able to watch it out of the home on various devices. So yes, we're very anxious to deliver content to our audiences wherever they want to view it. And I think we're -- we'll soon be able to monetize more effectively the viewing on these other devices.
[...]
Benjamin Swinburne - Morgan Stanley, Research Division
I wanted to ask 2 questions: maybe one on the Nick Upfront and the other on EPIX. On EPIX, can you just sort of comment on the DIRECTV terms or at least what the EPIX situation? I think the announcement was that they have the option to carry EPIX. Maybe add just a little more detail on whether you expect them to or not. And then you have Netflix. I think the over-the-top exclusivity expires this month or very shortly. What's your expectation there? Do you expect ending up going out and shopping that to other online providers? And give us a sense for what you think the opportunity is. And just on the Nick Upfront, it's such a big part of next year. You guys had the view that Nielsen had a lot to do with the ratings declines. I'm just wondering if you were able to sort of guarantee quite a bit of ratings improvement, at least flat or maybe even up, looking out because you start to lap that panel change and how that might have fit in to the overall Upfront. Just trying to get a sense for whether Nick can grow next year or if the Upfront results, given the ratings declines last year set you backward, that's going to be pretty tough?
Philippe P. Dauman
Thanks, Ben. So starting with your EPIX questions. As far as the DIRECTV options, I have a 1-year option on pre-negotiated terms to take EPIX, and the decision will be their's over the next year. We obviously think that EPIX is a highly desirable service with great movies, but it really will be up to them. And as far as the Netflix exclusivity, which is over-the-top exclusivity that is, which is expiring soon, we have -- we're not beginning discussions. We've had discussions with several parties. EPIX is doing very well. Netflix has been a great partner, great partner for EPIX, great partner for Viacom in general. And EPIX certainly drives a value for Netflix. We expect to have an announcement on the outcome of these discussions within the next couple of weeks. So you should expect the announcement from EPIX very shortly on that point. As far as the Nickelodeon Upfront, our advertisers have been very supportive of Nickelodeon. Clearly, in terms of ratings fold in the Upfront, we looked at it based on the new reality that Nickelodeon has. If the ratings will improve, there will be opportunities for us, and it's got a market.
David Bank - RBC Capital Markets, LLC, Research Division
I guess kind of a follow-up on Rich's question from before that if I look at the contract, I think, you've given in the past about both the BET Awards as well as the Kids' Choice Awards, it looks like it was something like a 350-ish-kind-of-basis-point headwind in the quarter you just reported, where you reported it down 7. And so yes, there is a 150-basis-point headwind from the impact of direct on advertising. But if you're not seeing a material -- an acceleration of kind of a couple of hundred basis points, if my math is right, then the core looks like it's decelerating. And if it's decelerating, is that a function of ratings or market? Could you just give a little bit more color around that? And maybe my math is wrong in the first place, so please correct it, if this needs.
Philippe P. Dauman
Well, I'm not quite sure I followed where you were going with that. But in terms of -- about half of the decrement in ad sales in the quarter that was just completed related to the difference in the award shows in the quarter. So that part is correct. As I mentioned earlier, the -- in this quarter that we're in, since the BET Awards were not in the comparable quarter, that's an uplift. That uplift is offset by the advertising loss during the 9 days of the DIRECTV blackout. So we're -- on a comparison with last year, we're back to apples-to-apples, if you will.
Thomas E. Dooley
Clearly, David, the ratings are creating some headwinds in terms of the advertising sales progress. And I mean, it's good -- the good news is that we're starting to see some really good performance. We're rebuilding Nickelodeon half-hour by half-hour. And as we continue to do that, that ratings performance will drive the revenue growth back to where it needs to be.
[...]
David Bank - RBC Capital Markets, LLC, Research Division
Can I just ask one follow-up as to -- in trying to understand this a little better too. What is the lag that you see between ratings impact and revenue on the way down and, hopefully, on the way up? What kind of lag do you think we see there?
Philippe P. Dauman
Right now, I mean, when you have a significant ratings shortfall, as we experienced in Nickelodeon, that, obviously, eliminates inventory we have available to sell, and you get into mako [ph] situation. That creates an inability to take advantage of the cash market. On the flip side, as that improves, that will just open up inventory for us to monetize. So we'll be able to see a pretty good short-term impact as ratings improve.
Thomas E. Dooley
Many of the networks, David, are positioned so that as soon we get the ratings, we'll be able to draw down on the liability banking and create revenue right away. So we'll come back very quickly when the ratings come back.
[...]
Jason B. Bazinet - Citigroup Inc, Research Division
Yes, I just had 2 quick questions. The first is, it doesn't -- I remember back in like the '06, '09 time period, we were all very nervous about Paramount and sort of was it going to flip into negative operating income. For a couple years now, and I think based on what you said on the call, you generated sort of $300 million-ish of operating income pretty consistently. Because I think we all struggle with how to model that, I was wondering if you could talk about how much of that is something that is structural, that sort of change the cost structure of Paramount as opposed to just the vagaries of how well or poorly your films do? And my second question is on the ratings. If things go according to plan, what month do you think we can begin to see ratings improve if the investments work out?
Philippe P. Dauman
Jason, as far as Paramount goes, yes, we've made very significant structural changes year after year at Paramount. And as I've said many times in meetings with investors, that's money in the bank. And as you've correctly pointed out, we're, obviously, subject to the vagaries of the film business. But we've been very [indiscernible] and very disciplined on that front as well. We -- as I've talked about before, we've modified the strategy -- the film strategy of Paramount to focus on a more limited number of releases and focusing on franchises and our brands, and that reduces the risk. We very much look at it as a risk-reward situation. And that's why our ROI has been pretty steady at Paramount, and we will endeavor to keep it that way despite the vagaries of the studio business and some of the dynamics that you all know about, such as the decrease in DVD revenue marketplace, somewhat offset by digital revenues coming in. As far as predicting months, what month or what week or whatever rating quarter, we can't -- we don't do that. What we do is we focus on building, on the programs that work, expanding them, adding new programs, and you can never predict the magnitude of a hit when it comes. When it comes, and you take a lot of it best, when it comes, you just ride it. And we, obviously, hope to improve it. We're certainly making an investment. We -- as I mentioned before, we have intensified our focus on programming talent. And our long history in the business shows that, that will -- that, will bear fruit over time. But we're not able to predict days, weeks or particular months, but the magnitude of the new programs coming on gives us reason to believe we're going to see improvement as we head into the new fiscal year.
Thomas E. Dooley
And we've already seen improvement. As we said before, half-hour by half-hour that the ink show block that Philippe referred on Nickelodeon is doing very well and beginning to put us back on track there. And we really have to rebuild it half-hour by half-hour to take market share back from the competitors. And we're doing that, and we're going to continue to do that.
The Zacks Analyst Blog Highlights: Viacom, CBS, Time Warner, News Corp and Walt DisneyFrom The Hollywood Report:
CHICAGO, Aug. 21, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Viacom Inc. (Nasdaq: VIAB), CBS Corp. (NYSE: CBS), Time Warner Inc. (NYSE: TWX), News Corp. (Nasdaq: NWSA), and Walt Disney Co. (NYSE: DIS).
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Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513
Here are highlights from Monday's Analyst Blog:
Reiterating Viacom at Neutral
Viacom Inc. (Nasdaq: VIAB) posted disappointing results for the third quarter of fiscal 2012. Both the top-and bottom-lines fell below the Zacks Consensus Estimates. Advertising revenue (both domestic and international) dropped significantly, primarily due to serious concerns regarding the weak viewership ratings of its flagship Nickelodeon and MTV channels. Similarly, customers' responses to new box-office releases of Paramount Pictures were lukewarm.
However, there are several positive factors that still remain for Viacom. Management is hopeful that its affiliate fee revenue will accelerate in fiscal 2013 and that its advertising revenue will improve in the ensuing fourth quarter. Further, Viacom is generating strong free cash flow enabling the company to raise its dividend rate and to pursue a systematic share repurchase program. We believe Viacom is currently fully valued and therefore, reaffirm our Neutral recommendation.
Viacom benefits from a well-balanced asset mix with entertainment content at its core. The company enhanced its brands worldwide through the creation and acquisition of hit programs, new channels, successful motion pictures and other forms of entertainment, including video game offerings.Viacom competes with CBS Corp. (NYSE: CBS), Time Warner Inc. (NYSE: TWX), News Corp. (Nasdaq: NWSA), and Walt Disney Co. (NYSE: DIS) to name a few.
An improving U.S. economy together with Viacom's disciplined management team continue to make us optimistic about the company's future growth prospects. We believe that Viacom is well positioned for long-term growth as it continues to benefit from its predominately cable networks-based business model, hit movie releases, and monetization of contents from multiple distribution platform.
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Edinburgh TV Fest: Netflix's Ted Sarandos Defends International Expansion, Content SpendingAlso, from Seeking Alpha:
UPDATED: The company's content guru says digital release dates still vary too much around the globe, but "if you believe in the international growth model, you invest in Netflix."
EDINBURGH - Netflix has confidence in its international strategy and will continue launches in new countries to become a global player over time, chief content officer Ted Sarandos said here Thursday. He also defended big bets on original content, saying that taste-based algorithms give the company trust that it won't have major flops that cost it big amounts of money.
"If you believe in the international growth model, you invest in Netflix," he also said during a Q&A after his Futureview Address at the Edinburgh International Television Festival when asked about the company's weak stock price. "If you don't, you don't." The company has previously said it would return to profitability in 2013 following near-term losses due to its international expansion.
Netflix's stock has been under pressure this year amid new competition and international losses. On Wednesday, the stock had closed at $65.49, giving the company a market value of $3.63 billion. In late August 2011, it had set a 52-week high of $241.88, but early this month, it set a 52-week low of $52.81.
Sarandos vowed that the online streaming giant would continue its expansion outside the U.S. after launches in Canada, the U.K. and Latin America. A Nordic service is coming in the fourth quarter.
Netflix is currently in multiple markets, and it wants to be global, he emphasized. "The rest of the world will follow. It's just a question of time," he said when asked what territories will be next. He didn't comment when asked if France or Germany could be next. Netflix picks markets where it sees ability to reach scale rapidly, he said.
He also made light of continuing reports about how Netflix is stealing viewers from Viacom's Nickelodeon and other traditional TV networks. "It makes very good press," he said, but in reality, Netflix is a "friend and ally" for consumers and TV companies, Sarandos said. The company helps to globalize content and has struck financial deals with content producers that "increasingly make it possible for high-quality TV shows to be produced," he said.
But he called on changes to digital licensing deals and release schedules around the world. Hunger Games is offered by Netflix "in all our markets," but the launch dates are months apart, because the company had to strike deals with different companies in different territories. Latin America saw an Aug. 18 debut of the film on Netflix, Canada will get it in another four months, the U.K. in another six months, and the U.S. only a few months after that. That will "cause piracy to flourish" and people to be frustrated, said Sarandos, vowing to try to create "more global relationships" given the Internet's global reach.
Sarandos cited examples for how Netflix helps content producers and networks. For example, 50,000 people in the U.S. watched the fourth season of Breaking Bad in the 24 hours before the premiere of the new season, he said. Also, Mad Men gained viewers during its latest season, a rare feat for a show that has been around for several years, Sarandos said.
Asked about how he evaluates licensed and original content, Sarandos said Netflix's licensing groups are measured in terms of viewing. "It's the engagement that matters," he said.
Taste-based algorithms, track records and hunches count when it comes to originals. Kevin Spacey's and David Fincher's fan base, data about the interest in the old BBC mini series House of Cards and a production firm with a track record all make House of Cards a good bet, Sarandos said. In the worst case, he said he will end up with a somewhat mediocre show, lackluster views and a possible loss, he said.
Netflix's original content strategy, built around such upcoming series as the $100 million David Fincher project House of Cards and the return of Arrested Development, was another key topic that he discussed in front of the TV industry crowd. And so was whether content and pay TV giants should worry about Netflix, to which he reiterated that Netflix is an ally.
With eight episodes shot for House of Cards, "we are very thrilled," Sarandos said, showing a brief trailer.
Talking about Arrested Development some more, he showed some production stills. He quipped that the cast seems so excited to be back working on the show that they "keep tweeting pictures." The shoot for Hemlock Grove is a couple of episodes into production, he added, showing a couple of stills as well.
While he didn't put a dollar figure on Netflix's original programming strategy despite several questions, he said it was a small percentage of the company's total content costs.
Sarandos opened his speech by emphasizing Netflix's increased role for TV companies by highlighting that it was his first time at the gathering. "As a TV nerd myself, this is heaven," he quipped.
Earlier this week, Netflix said that it has crossed the 1 million-subscriber milestone in the U.K. and Ireland within seven months of launch - "faster than in any other territory it has launched." Sarandos also addressed the topic of European competition from the likes of Amazon.com's LoveFilm. Sarandos said he didn't know how many of them were short-term promotional users, but said the figure was likely in line with other territories.
Asked about competition with U.K. pay TV giant BSkyB, he said that Netflix will negotiate for various upcoming pay TV content packages and see how things go. Sarandos also mentioned a recent U.K. Competition Commission decision, which confirmed that pay TV giant BSkyB, in which Rupert Murdoch's News Corp. owns 39 percent, has no material advantage in pay TV movies. It said that it would not suggest any regulatory action, citing the rise of streaming video providers Netflix and LoveFilm.
Asked if BSkyB's Now TV online-only content service was a threat for Netflix, Sarandos said: "I don't know that it's a direct threat." He said he would be more worried about TV Everywhere services, such as Comcast's Streampix. "We just have to compete with them and beat them," he said in expressing confidence. In terms of service offered, he said he was really confident about Netflix's competitive position. And in terms of content licenses, he said he was also fairly confident based on past experience, emphasizing that Netflix is now a key part of entertainment companies' financial returns.
So should European pay TV giants like BSkyB or Canal Plus be worried? No, because Netflix is giving consumers the choice and content that allows them "to fall in love with TV again," Sarandos argued.
Asked about competition with Amazon.com's LoveFilm, Sarandos said Netflix is competing using its "superior" product.
Questioned if the costs of its U.K. push was too high to digest, Sarandos said "we are investing in this market, because we believe it has the potential to be a big market." He added: "If you think the [content] fees are too high, then they are too high for the BBC and Sky, too."
Sarandos on Thursday didn't comment on Netflix's plans for its current digital content distribution deal with U.S. premium TV venture Epix. The exclusivity period of the deal ends in the coming days, and Netflix can choose to extend it or continue the arrangement on a non-exclusive basis. That would allow Epix to also do digital distribution deals with the likes of Amazon.com and others.
He also didn't mention and wasn't asked about Time Warner's HBO, which Netflix CEO Reed Hastings has called a key competitor for the company, but one the firm would like to work with. In his latest quarterly earnings letter to shareholders, Hastings had said there might be ways for the two parties to work together - only for HBO to come out and say it wasn't in any talks with Netflix and wasn't planning any collaboration.
You Should Consider What Don Yacktman Is BuyingFrom Seeking Alpha:
In this article I analyze what top portfolio manager Don Yacktman, founder of Yacktman funds, bought in the last quarter. I consider essential to analyze what Yacktman purchased because he is a prominent value investor that has a remarkable track record of beating the general indexes year after year. I analyzed his holdings via whalewisdom.com.
[...] Yacktman also invested in Viacom (VIAB) which is another media stock I like. VIAB is estimated to spend $3 billion on new content this year, with new upcoming shows such as Teenage Mutant Ninja Turtles in September 2012 on Nickelodeon. VIAB is also experiencing success in current programming sessions. For example, MTV UK's Geordie Shore is enjoying its highest rated season and remains the highest rated series in the network's history.
Profiling Recent Berkshire Buys: Viacom - A Video Content Giant
This is the sixth article in a series profiling publicly listed companies recently bought by Berkshire Hathaway (BRK.A). I've previously profiled BNY Mellon (BK), DaVita (DVA) and DirecTV (DTV). This time I'll have a look at a content company called Viacom (VIAB). Berkshire Hathaway added to their stake of Viacom in their most recent quarter and the stake is now worth about $370 million. In dollar terms the addition is quite small relative to Berkshire's total stock portfolio, but the stake has quadrupled during the last quarter, indicating some real interest in the stock. The buying is most likely done by one of Buffett's lieutenants, Ted Weschler or Todd Combs.
According to their latest annual report, Viacom is a global content company that connects with its audiences through television, motion picture, online and mobile platforms. The company reports their earnings in two categories: Media Networks and Filmed Entertainment (MN and FE for short). Media Networks consists of some of the best known TV channels in the world, aimed at young demographics, including MTV, Nickelodeon and Comedy Central. Media Networks forms the largest part of Viacom's revenue (61% as of FY 2011). The Filmed Entertainment segment produces motion pictures under multiple brands such as Paramount Pictures and Nickelodeon Movies. [Click here for] a pie chart showing Viacom's revenue formation.
As illustrated, Media Network segment's advertising revenues are the biggest piece, followed by Media Network affiliate fees. They are fees Viacom collects from cable, satellite and internet TV distributors in exchange for permits to air bundles of Viacom's channels. Geographically Viacom derives more than two thirds of their revenue from the U.S., and the rest mostly from the U.K. and Germany. Let's take a look at Viacom's profitability over the last few years: (click [here])
The slump in 2010 is explained by a technical change in accounting. Viacom got over the financial crisis smoothly, indicating that TV and film consumption seem quite recession proof. Net profit margin is looking good and getting better at almost 15%. Let's look at Viacom's debt profile over the same years (Total Debt + Other = Total Assets): (click [here])
Viacom has been prudent with debt. The company could take advantage of today's low interest rates and leverage their balance sheet more, but for now they seem to be doing well. The company is returning their earnings to shareholders in two ways: buying back shares, indicating a bullish sentiment toward their own stock, and by issuing quarterly dividends.
Viacom's shows have faced some weakness in ratings during the last years, but the company is still a strong player among the few big content producers. MTV still has sticky audiences and large mindshare with hit shows like Jersey Shore and Teen Mom, and Paramount Pictures still retains some of the industry's best talent periodically coming up with new blockbuster movies. They also have a great film library with rights to such iconic films as the Titanic and Forrest Gump.
The recent additions of Viacom together with DirecTV in Berkshire Hathaway's portfolio might suggest Buffett's team thinks the whole TV industry is undervalued, and that these two companies are the pearls that stand out the most. Perceptions of shifting viewing habits through online platforms and piracy concerns seem to be dragging the sector down, but the people at Berkshire seem to think the pay-TV ecosystem will persist and flourish in the future. What do you think?
Viacom is currently trading with a market cap of $28 billion, trailing 12-month P/E of 13 and a dividend yield of 2%.
