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Viacom Sets Radical Revamp of Cable Operations, Adapting to Skinny-Bundle Era

Viacom unleashed a slew of changes for its cable operations on Thursday, all designed to focus the conglomerate’s resources on six core channels that Viacom CEO Bob Bakish hopes will be a must-have for any pay-TV bundle.

In designating a half-dozen of Viacom’s 25 cable channels as “the flagship six,” as Bakish called them, the company is acknowledging the change in the pay-TV marketplace that has put Viacom at a disadvantage because of the size of its portfolio. Bakish, who formerly ran Viacom’s international networks division, on Thursday outlined a vision to investors that the U.S. pay-TV arena, which is undergoing radical changes of its own, will become more like Europe and the U.K. in offering consumers flexibility to buy themed packages of channels — entertainment, news, sports, etc. — rather than big catch-all bundles.

Before that happens, however, Viacom’s leaders have work to do to revitalize channels that have seen significant losses in ratings and overall subscribers.

“From my perspective Viacom needs focus and direction — that’s how we’ll make progress,” Bakish told Variety.

The decision to rebrand Spike TV as the Paramount Network in early 2018 is an effort to craft a broad-based general entertainment channel to complement a portfolio that covers kids (Nickelodeon, Nick Jr.), younger viewers (MTV, Comedy Central) and African-Americans (BET).

With all of the changes, Bakish is not vowing to increase content spending for the six core brands. “I call it a remix,” he said of resources and development spending. “It had been a very democratic approach (in the past) — lots of the smaller networks got a lot of resources. It’s about prioritization going forward.”

Bakish said Viacom’s content spending for the cablers has grown at high single digits for at least a few years, despite the perception that the company had not been investing as much in content creation as its media rivals. The investment is there, it just needs to be channeled in a more effective way.

The flagship six brands were selected for two primary reasons: all of those channels have a global presence and all of them have potential to develop film franchises with Paramount, as well as digital and live-entertainment offshoots. The tighter integration of film and TV is the cornerstone of the new “holistic” approach to management that Bakish talked up to investors Thursday after Viacom released fiscal first quarter earnings that included a $180 million operating loss for Paramount and a 7% decline in operating income for the media networks unit.

Among the key developments outlined by Bakish:

  • Scripted programming efforts for the cable group will be concentrated on Paramount Network. Bakish said the fact that each of Viacom’s major cablers were dabbling in scripted made it harder for any of them to get traction. “Right now it’s all very scattered and sub-scale,” he said. “You had Spike TV trying to launch (drama) ‘The Mist,’ but the problem was they were only launching ‘The Mist.’ They didn’t have enough to develop a night. We were spending money but not doing in a place where we’d have a high probability of an attractive return.”
  • MTV in particular will significantly reduce the volume of scripted programming, returning its focus to unscripted and music. A new slate of programming, developed by new MTV/VH1/Logo chief Chris McCarthy and his team, will be unveiled at the upfront this spring and be on the air by summer. “Ultimately the scripted strategy for MTV on a large-scale basis didn’t really work,” Bakish told investors. “Under Chris McCarthy’s leadership he’s bringing back a better balance to MTV including a real push on reality that is very attractive to the audience and has very compelling economics for us. It’s really right (for MTV) from a brand-filter perspective.”
  • A new team of development executives will be assembled to focus on cross-company collaborative efforts between Paramount Pictures and the flagship six cable brands. Those executives will have a dual reporting structure to Paramount and the various channels.
  • The 19 other channels in the portfolio will be seen as “reinforcing” channels but will no longer receive as much investment in programming and marketing as the flagship six.
  • Viacom does not intend to shutter any channels, at least not yet. “This is not a light-switch turning off a whole bunch of networks,” Bakish said. And for good reason. Veteran analyst Todd Juenger of Bernstein Research noted that the 19 non-core channels still deliver about $1 billion a year in earnings for the company, although that value will likely shrink in the coming years as the channels see subscriber erosion.
  • Bakish during a CNBC interview raised the specter of selling “non-strategic assets” to help cut down Viacom’s debt burden.

The moves unveiled Thursday stirred up a host of questions about management structures and more changes to come within the channel group. Bakish said those decision and details will be made in the coming months. He’s been on the job as permanent CEO for all of two months. He spent most of his time so far conferring with senior execs to develop the vision for the brand-centric revamp of the company that has been battered in recent years by internal turmoil and seismic external shifts in viewing habits of the young audiences that Viacom channels have long courted.

Bakish had not had the luxury of time to hammer out his business plans. Viacom has been grappling with a heavy debt load, falling earnings, huge losses at Paramount and the perception that the company was rudderless under Bakish’s predecessor, Philippe Dauman. All of that combined to sink its stock price down by more than 40% inside of two years.

With Viacom’s earnings and annual shareholders meeting earlier this week, Bakish was under pressure to demonstrate his vision for turning around the company that was once considered among the most cutting-edge in media. For Bakish, the first priority was to articulate a focus for how the company’s ample resources will be redeployed.

“I’m a big believer in strategy first, then enabling the organization,” Bakish said. “You can’t build an organization if you don’t know what you’re trying to do.”

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