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Viacom One Year Later: What’s Better and What Still Needs Work as Possible CBS Reunion Looms

By any measure, Viacom is in a better place than it was this time last year.

The company’s quarterly earnings report on Thursday will mark a year since president-CEO Bob Bakish unveiled his expansive turnaround plan for the beleaguered media conglomerate.

In the past 12 months, Viacom has changed the management of key units — most dramatically at Paramount Pictures — and refocused programming resources at its cable channels to emphasize the “flagship six” outlets that drive the bulk of Viacom’s TV earnings (Nickelodeon, Nick Jr., MTV, Comedy Central, BET, and Paramount Network).

“It’s a different company in terms of morale. There’s a different mindset there now. There’s more strategic thinking,” said Bank of America Merrill Lynch media analyst Jessica Reif, a longtime Viacom watcher.

The biggest improvement under Bakish, Viacom observers say, is the effort by Bakish and his team to repair the company’s severely strained relationships with the MVPDs that are so crucial to its profitability. Bakish has publicly acknowledged that Viacom needed to change what had been an adversarial tone to its negotiations with distributors.

Most notably, Viacom set a new carriage agreement last year with Charter Communications, the nation’s third-largest MVPD, that saw its monthly subscriber fees trimmed in light of the ratings declines at its networks. But under the previous regime led by CEO Philippe Dauman, there was concern that a deal wouldn’t get done at all. On the cable side they’ve renegotiated more than 50% of their (MVPD) deals. There was concern a year and a half ago that the ratings were down so much that the channels would be dropped,” Reif said. “Their new deals are pretty wide-ranging in terms of data and advertising. They were made in the spirit of finding an agreement that benefits all parties.”

Overall, Bakish gets high marks for taking the reins in December 2016 at a chaotic time for a company that was once seen as on the cutting-edge of the entertainment industry. As Bakish begins his second year on the job, there is a renewed push by Viacom controlling shareholder Shari Redstone to reunite the company with its former corporate sibling, CBS Corp., also controlled by Redstone’s National Amusements holding company. That effort raises questions about how much longer Bakish will be steering the ship. But there is no doubt that Bakish’s leadership during the past 14 months has made the possible corporate reunion more attractive to CBS Corp. shareholders.

Bakish’s biggest accomplishment to date has been to “stop the bleeding,” said Tuna Amobi, media analyst for CFRA Research. “He’s provided some measure of visibility in what to expect as far as investors were concerned and providing some certainty as to the fate of (Paramount). Prior to his tenure, concerns were pretty high about how this company could survive in this fragmented and consolidating landscape.”

In a nod to the heightened focus on margins and cost controls, Viacom on Tuesday initiated layoffs that were expected to total less than 100 people, mostly in back-office and administrative positions.

The financial picture at Paramount Pictures is significantly improved thanks to better management of its operations and its vast library under chairman-CEO Jim Gianopulos, who came on board last April. Since then, Gianopulos has recruited a slew of outsiders to bring new energy to a studio that had steadily shrunk its release slate during the past few years and still racked up some $500 million in losses in 2016. AwesomenessTV founder Brian Robbins is leading the newly launched Paramount Players production arm, and DreamWorks Animation alum Mireille Soria is leading the charge in animation. Paramount also has new heads of production, domestic and international marketing and home entertainment.

Viacom is looking ahead to 2019 as the year when Paramount realizes the first fruits of the Gianopulos regime. Viacom’s cable networks, of course, move at a faster pace. The company has seen some ratings improvement, particularly at Nickelodeon. MTV has also made strides with ratings inching up for the past two quarters as the channel executes a more focused programming strategy rooted in live events and celebrations of pop culture (i.e. the resurrection of “Jersey Shore”).

As goes Nickelodeon, so goes the company, in the view of Jefferies media analyst John Janedis.

“There are pretty good signs at several networks,” Janedis said. “There’s a lot more to be done there but they’ve done a good job of swapping out some of the more expensive scripted programming for less expensive reality shows. That’s allowed them to get more (ratings) tonnage without spending materially more.”

The rebranding of cabler Spike TV as the Paramount Network was a strategic move to build a scripted programming beachhead on one channel rather than sprinkling shows across more than a dozen channels in its portfolio. Paramount Network’s first big series launch, drama “Waco,” has pulled in a respectable 2.6 million viewers in multiplatform viewing (including reruns on cabler CMT) since its Jan. 24 debut. “Waco” and the upcoming “Yellowstone” are a sign to the creative community that Paramount Network is willing to spend for high-profile projects. They’re not playing at the HBO or Netflix levels, but they are writing bigger checks than they have in the past, as evidenced by the wide-ranging film and TV pact unveiled last year with Tyler Perry.

Janedis also cites Viacom’s renewed activity on the international front — buying Argentina’s content-rich Telefe broadcaster and getting more aggressive in streaming distribution deals — and the disciplined effort to pare down its considerable debt load as other positive developments of the past year.

Viacom’s stock was still in a slump for most of 2017 prior to getting a late-year bounce from M&A speculation spurred by Disney’s surprise acquisition of 21st Century Fox. Janedis sees that as part and parcel of the larger worries among investors about the headwinds traditional media face in contrast to the soaring shares of the FAANG digital herd. For 2018 so far, Viacom shares are up about 1% (they were up 5% before the market swoon on Friday and Monday). For the past 12 months, Viacom shares are down 25.6%, and that comes on top of a nearly 50% plunge in stock value in 2016.

“Viacom has executed well and the market hasn’t really given them credit for it,” Janedis said.

Regardless of what happens with CBS, Viacom’s long-term health will be determined not by distribution muscle or how many channels they can sustain but whether they can get back into the big leagues of the content game, Reif said. Viacom’s fade under the Dauman regime as a magnet for talent and showcase of innovative creative efforts is the biggest affront to the legacy of its chairman emeritus Sumner Redstone, the media mogul who coined the term “content is king.”

“It’s all about the content – really driving the quality of the content,” Reif said. “While they’ve improved their (market) share, there’s not a lot they can do about a shrinking (pay TV) universe. Their content has to really stand out so that it can be repurposed and resold to drive value. The real driver of value has to be exceptional content.”

(Pictured: Bob Bakish)

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