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15 August 2019

ViacomCBS virtually irrelevant without streaming spending spree

CBS and Viacom have at long last agreed on a merger that matters to very few in a content landscape barely recognizable by the two industry old guards. Most mainstream coverage of the deal announced this week has regurgitated the merged entity’s own vision of dislodging the established content companies – yet in a streaming era, even start-ups on the scene look better positioned than ViacomCBS.

For all its clout and merged market valuation of $30 billion, the only way we see ViacomCBS growing rather than shrinking is to embark on an aggressive acquisition streak – rolling up emerging media firms making waves in the OTT video space. Viacom is planning to build studio production into a $1 billion business by 2020 by making original content for the likes of Netflix and Amazon in OTT – while CBS has strong D2C ambitions. Management teams of the two respective sides of the coin have endured feuds and scandals over the years, but these disagreements must become water under the bridge sooner rather than later in order to smooth over differences and concentrate on building an effective content strategy rather than the clash of interests which is currently evident.

Even the amalgamation of household names like MTV, Nickelodeon, Comedy Central and Paramount from the Viacom side, with CBS channels watched by millions along with its Showtime and All Access streaming assets, has barely instilled a morsel of excitement pending any disruptive pedigree.

That said, together CBS and Viacom are certainly in a stronger position in terms of bargaining chips with advertisers as well as cable providers than they would be separately. Most recently, CBS was tied up in a licensing dispute with AT&T which has since been settled, but a merger might mean more blackouts to come as media conglomerates continue to demand higher license fees.

Now this is interesting when we remember that reports emerged around February this year that CBS was perusing the market for an entertainment outfit in the guise of Discovery, Sony Pictures or MGM, prior to revisiting the awkward Viacom merger. Discovery was quick to publicly deny the report, published by CNBC, effectively running for the hills – but that doesn’t mean Shari Redstone’s hunger for fresh meat has subsided. CBS-Viacom would do well to corner Discovery although should perhaps set its sights a little smaller first, an asset akin to PlutoTV, the Viacom-owned live streaming service offering around 100 channels, or Awesomeness TV, the original production company specializing in Gen Z titles bought by Viacom earlier this year. You could say then that Viacom brings a better spread to the table than CBS, but we can’t help thinking that there is a pivotal piece of the puzzle missing.

Shari Redstone, the President of National Amusements which controls stakes in both CBS and Viacom, after prizing control from her father Sumner Redstone who initiated the 2006 separation of the two companies, has appointed existing Viacom CEO Bob Bakish as CEO of the conjoined ViacomCBS. Redstone referenced a quote from her estranged media mogul father this week, who has been less than kind to Shari in past public comments. “My father once said ‘content is king’ – and never has that been more true than today.” She is absolutely right of course, except that ViacomCBS fundamentally lacks the type of content that today’s kings are made of.

CBS CEO and Chairman Joe Ianniello reckons his company’s drawn-out merger with Viacom will boost its OTT video services CBS All Access and Showtime thanks to an injection of new content, which will have been a key bargaining chip for CBS to agree to any merger. As well as Viacom content and Paramount movies, AVoD properties like CBS Sports HQ and ET Live are set to land on Pluto TV.

CBS has high hopes, however, projecting 25 million DTC subs by 2022 across CBS All Access and Showtime, more than tripling from 8 million today. This optimistic forecast is based on the predicted trend that subscribing to ten or more streaming services will be a common occurrence in the future, rising from an average of three per consumer today, according to CBS Interactive President and COO Marc DeBevoise.

Both companies published results last week. CBS second quarter revenue increased 10% to $3.8 billion, driven by 14% growth in subscription fee revenues from its D2C streaming services, as well as 7% growth in ad revenues and 12% increase in content licensing and distribution revenues, mainly as a result of higher domestic licensing sales. Viacom meanwhile delivered 6% revenue increase to $3.35 billion, again driven by strong advertising performance as sales increase 7% – where Pluto TV was the standout performer as MAUs soared 50% for the year. Viacom highlighted Pluto TV’s integrations on Comcast Xfinity X1 and Cox Communications’ Contour video and broadband platforms as major pillars for the free streaming service’s growth.

Yet despite reporting cable network revenue growth, CBS viewing figures are down just like everyone else’s, between 5% and 35% depending on which channels you look at, and Viacom’s fading brands like MTV are hanging on by a thread. ViacomCBS must start stocking up on lifejackets and shifting the deadwood if the merged company wants to stay afloat in a streaming era.