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Viacom plans fall into place with Netflix deal, sugarcoating cuts

Production studios the world over are undergoing significant shake ups and one of the largest, Viacom’s Paramount Pictures, has been violently oscillated by CEO Bob Bakish in recent years, whose plans began to take shape late last week upon news of inking an exclusive new deal with Netflix. The tie up not only marks how the major OTT video services are pulling more and more strings in terms of content, but of the declining value of the mega production studio.

While Viacom has a number of dying brands whose future remains uncertain, a budding licensing relationship has been in place with Netflix for a number of years now and this is about to be taken to the next level. It will set a trend for other studios which are too finding themselves in financial straits as a direct result of the combined demise of the cinema and excessive and outdated pay TV packages.

Specifics of the deal have not been revealed but executives on the company’s earnings call spoke enthusiastically about a deal representing an “incremental revenue stream,” which for now concerns a small number of titles and infers small fees initially, with Netflix writers and directors presumably deciding exactly what goes. Crucially, the Viacom team promised “more capacity for great production than the theatrical systems can accommodate.”

Viacom has long spoken about upping its game in OTT video, but we suspect the ongoing quarrels with CBS have been an unwanted source of distraction, as has the continuing issue of the aggressive internal overhaul. With the former now behind it, Viacom has finally found some momentum.

Awesomeness TV, the troubled teen media firm Viacom bought this summer and then immediately ripped the guts from, was one of its standout performers in the last quarter, again on the back of Netflix. Bakish highlighted the delivery of All the Boys I’ve Loved Before as one of the most watched Netflix original films ever – saying there’s much more to come from the team (which is now less than half the size). This is the Bakish legacy, having slashed over 500 jobs since his appointment as CEO two years ago – a strategy which is beginning to seep out in Viacom’s books.

He cited Awesomeness-made content for both Netflix and Hulu as “cost-effective hits” and said he sees a lot more opportunity in this particular space, with the stabilization of the core business coming on the back of improving its core product, which is content production, not taking risks such as launching a wannabe rival to Netflix which could be irrevocably damaging to its brand. Ultimately, this strategy has driven the company’s first net income for four years as it gears up for a big 2019.

It echoes what Bakish declared in September, saying his company is not attempting to build its own streaming service after speculation surfaced. His reasoning was that the SVoD space has become crowded and capital-intensive, while there remains great opportunity in the studio production business specifically in the episodic space.

Such is the significance of the Netflix deal, among others, that Paramount projects its Home Media and Global Television distribution to generate revenue increases of more than 30% next year, rising from $1 billion in fiscal 2018 to over $1.3 billion in fiscal 2019.

Viacom International Studios was also established this year, signing a series of deals across Latin America, US Hispanic and broader international markets, including two new Spanish language series announced last week. Last month, the new international unit signed a MOU with Baidu’s Chinese streaming service iQiyi, involving the production and distribution of the second season of iQiyi’s original 3D animated children’s TV show Deer Run. The series will show on Nickelodeon’s international networks outside of China.

“You know the spend of Netflix, Amazon, Google and Apple in 2018 was over $20 billion. While they have increased their internal capabilities, they are looking for great properties and we have great IP, great development, great creative relationships and potential to develop with them. So that evolved into a discussion with Netflix, coming out of some of our recent film relationships. And so we’re looking at properties that are suitable for Netflix and that we can produce, and this is really in some ways just an evolution from an historic practice, the difference of course is that in this case, the quality of some of these films is much higher, making these relationships even more valuable and it plays to the strength of a large well established studio like Paramount,” said James Gianopulos, Chairman and CEO of Paramount Pictures.

Viacom posted revenue of $3.5 billion for Q3 this year, up 5%, making it $13 billion for the fiscal year, a slight year on year decline of 2%. Operating income slipped 9% to $645 million for the quarter but rose 3% to $2.5 billion for the year to date period, its first full year operating income growth since fiscal 2014.

As for the flailing music channel MTV, Viacom launched MTV Studios back in June this year and the new unit has struck a deal with Facebook to produce three international shows for distribution on the Watch streaming platform, although this will surely serve only as a temporary life jacket.

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