Q4 2019 Earnings Call
Good day, everyone and welcome to the Viacom CBS Conference call today's call is being recorded.
At this time I'd like to turn the call over to executive Vice President Investor Relations Mr. Anthony Diclemente.
Please go ahead Sir.
Good morning, everyone. Thank you for taking the time to join us for our fourth quarter and full year 2019 earnings call. Joining me for today's discussion or Bob Bakish, our president and CEO and Chris speed our CFO.
Please note that in addition to our press release, we're trending schedules containing supplemental information available on our website.
We also have an accompanying slide presentation and you can use in order to follow along with our remarks I want to refer you to the second slide in the presentation I remind you that certain statements made on this call. Our forward looking statements that involve risks and uncertainties. These risks and uncertainties are discussed in more detail in our filings with the FCC today's remarks, we'll focus.
Just on adjusted result, reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website now I will turn the call over to Bob Good morning, and thank you for joining us for the first Viacom CBS earnings call.
It's been less than three months since we completed our merger and I'm pleased to say, we're making significant progress integrating and transforming Viacom CBS as we move quickly.
The full power of this now unified company.
It includes organizationally, we built the best in class management team and consolidated structure operationally as we started executing as a combined and see in a meaningful way, including through Salesforce consolidation more streamlined groupings of networks as well and integration of digital assets and capabilities.
And financially where cost synergies are already being realized in our target is being increased from 500 million to $750 million in annualized run rate cost saving.
Importantly, this progress is not reflected in Q4.
Which given the timing workloads in the transitional one and overwhelmingly reflects two separate companies executing on separate strategies.
Chris will cover our Q4 and full year results in detail, but let me highlight a few things.
First there are as you'd expect a significant south merger related items that were a headwind for expenses in cash flow.
Second at the operating level from a revenue perspective certain lines reflect the impact of challenges that will be mitigated in the combined company.
Certainly it is an example here well others such as AD sales provide insights into the potential of the company to perform more strongly as we extend capabilities across the portfolio.
Lastly, our operating results reflect the impact of legacy content investment decisions at some business units.
As I will explain in a few minutes here, we are evolving our strategy to significantly improve content ROI and free cash flow.
I'd now like to discuss our strategic vision and priorities for Viacom CBS and what we're going to deliver in 2020.
A year, where we anticipate delivering revenue growth in the mid single digits, adjusted OIBDA of $5.8 billion to $6.1 billion and free cash flow, excluding integration costs to achieve a $1.8 billion to $2 billion for 2020.
With an additional $500 million in free cash flow benefit in 2021.
Let's start at the top.
Hi, Tom CBS is one of the largest content producers and providers in the world.
And that is an incredibly exciting and valuable place to be at a time when both consumer and commercial demand for premium content is only growing.
We have an unrivaled ability to create value through the media ecosystem and to serve the largest addressable audience globally.
We do this by operating our own platforms and by supplying others.
Taken together, we believe Viacom CBS can be the most important content partner in the industry.
Why.
Because first and foremost we have and make an incredible volume of content.
Through our global spanning production capabilities depth of IP ownership and talent relationships and underpinned by our library of more than 140000 television episodes and 3600 film titles.
All continually refreshed and grown fire over $13 billion annual cash content investment.
In fact, we make content across every genre and format, including news sports and entertainment, both scripted and unscripted and our television reach extends across 4.7 billion cumulative homes in over 180 countries.
And we don't just make content, we make hits as evidenced by our number one positions across broadcast and cable viewing in all key audience demographics.
And our number two ranking in tubular social media video views in the media and entertainment category. Another clear indicator of the power and appeal of our IP.
We also have the ability and flexibility to monetize all this content in a variety of models across both owned and third party platforms, which we believe is distinct and important competitive advantage.
And by serving the largest addressable audience across every segment and platforms, we're aggressively creating new opportunities to bring our brands and IP to more audiences extend franchises and grow revenue streams.
Now, let's talk more specifically about our three priorities for 2020.
First maximize the power of our content.
Second unlock more value from our biggest revenue lines and third accelerate their momentum in streaming.
First content.
Our content strategy isn't about spending more it's about better aligning the combined company spending with growth potential and maximizing the value of our content IP and franchises across our now larger asset base.
That means putting the full power of the company behind our biggest priorities.
This includes the massive promotional platform that we can exploit for our own benefit.
Our leadership on and off linear TV, including the largest broadcast footprint in the world and more than 1.5 billion social fans and followers provides an incredible opportunity to maximize the impact of our biggest priorities from franchises to football a platform. We look forward to deploying include.
Thing in support of Super Bowl 55, taking place next February.
But it's more than promotional impact. It also includes focusing on global Cross company franchise management to get the most out of our powerful IP across our brands and platforms.
Nexstar track as an example, a globally enduring franchises that we will make even bigger.
On the heels of the card on CBS, all access which broke all records for total streams and subscriber sign ups were now taking the star Trek franchise and extending it across the house.
Building on discovery and per card. We now have two additional series in production at all access a Nickelodeon and two more serious in development.
Plus a series of the cardinal levels being rolled out that Simon and Schuster, Yeah. The highly anticipated New Star Trek feature at Paramount.
Very importantly, we're also maximizing the power of our content by applying more rigor to managing our content mix investment and returns.
In fact, we see this has a significant opportunity to improve some of the cash softness you saw in Q4 and full year 2019.
In 2020 that means prioritizing content investment in streaming and studio production, both of which our growth areas at the same time, our linear TV content spend levels remain consistent with last year.
And effectiveness will increase as we shift the mix within networks and increase cross comfortably utilization to improve ROI.
The demonstrate this strategy work I'd like to focus on Showtime.
Powerful important brand with culture defining hits, what a business that consumes significant working capital in 2019.
Make no mistake high end scripted programming enhanced like billions shameless and homeland, we'll continue to be a key pillar of the brand.
Well by shifting some of the content mix, including through new uses a Viacom Cvs brands, we can attract subscribers in a more cost effective way.
Take VH ones recalls drag race for example, with a large and loyal following we believe this franchise will be additive to Showtime subscriber dynamics, which is why we will air especial new season of Paul's drag race, all stores on Showtime on a first window basis.
We're also confident this move will further improve the already strong ROI of this franchise.
And we see an even bigger opportunity to grow Showtime subs are making better use of its plex channels. Some of which are currently under utilized.
To that end, we will be rebranding and re launching showcased at show.
This summer featuring African American scripted series from Showtime and BT as well as popular movies and specials.
We see this as a compelling value creation play that will allow us to benefit from the growing demand for premium African American content across platforms.
This brings me to our second strategic priority for 2020, unlocking more value from our biggest revenue lines.
With the expanded Viacom CBS asset base, we see a significant opportunity to drive growth of our own platforms benefiting affiliate and AD revenue.
This larger asset base combined with the licensing pullback of some of our competitors also sets the stage for growth in our content licensing and studio production businesses.
Take distribution.
Viacom CBS with leading broadcast and entertainment brands and strength in life local news and sports is a must have for any distributor.
And by working with partners to deepen and extend our relationships through advanced advertising broadband products and more we can continue to grow share a strategy that will drive growth in the face of macro trends within the industry.
We've already seen the benefit over combined portfolio with the recent renewal of our carriage agreement with Comcast, which by the way bring CBS all access to set top boxes for the first time.
And it's not just TV with a diverse in growing theatrical slate for Paramount we are critical to theaters and the broader film distribution ecosystem too.
Q4 may have been software Paramount when it came after eight consecutive quarters of year over year improvement.
And just look at the huge opening of our current films Sonic which did approximately $70 million last weekend in the U.S and Canada alone and became the biggest opening ever for video game adaptation.
And we couldn't be more excited for Q twos upcoming and highly anticipated titles, including acquired plays part to top gun Maverick and the next bunch, Bob movies sponge on the Ron.
So Viacom CBS is a must have partner for all types of distributors no question.
We're also a must buy for advertisers our leadership in us reach across linear and digital combined is clear our advanced advertising capabilities continue to scale.
Our in high demand and were a key driver of our domestic cable networks AD growth in Q4 and 29 team.
Among other things this sets us up for a strong upfront.
Especially as we apply viacom's advanced AD business Clos CBS is massive audience reach.
And as we continue to expand our premium digital video inventory, which is already amongst the largest in the industry.
In content licensing to Viacom CBS is a critical partner I mentioned before the extensive library of IP, we now have.
And importantly, with a single content licensing sales force now in place, we can extract incremental benefit through the packaging of film and television.
Tailoring offerings to better meet client needs, helping take share while simultaneously being able to support our owned and operated platforms in both linear and streaming.
In content licensing. We're also focused on continuing to unlock the value of our quickly scaling third party studio production business.
While there are some working capital headwinds in this business in 2020. This is a fundamentally profitable business that we expect to deliver $1.3 billion in revenue for the year with double digit margins and virtually no risk.
It also allows key franchises to reach more consumers and serves as a component of a multifaceted franchise development and growth strategy.
And since most of this business is essentially a rental model versus the sale also enable us to grow our content in IP library for the long term in an economically efficient way.
Which means we're also building asset value.
Put it all together and you will begin to see why we believe Viacom CBS can become the most important content partner in the media ecosystem.
Finally, our third strategic priority for 2020 is to accelerate our momentum in streaming.
Let me explain how we're approaching the opportunities in the space.
Very importantly, it starts with building on the unique and strong foundation, we already have in streaming in AD supported we have the leading free streaming TV service include OTV with over 22 million monthly active users in the us up 75% year over year, and we expect to exit 2012.
Any with approximately $30 million may use domestically.
In pay our subscription offerings account for more than 11 million domestic subscribers up 50% year on year and we expect this to grow to approximately 16 million subscribers as we exit 2020.
The growth we've achieved so far is overwhelmingly in the U.S, but we're making early stride to expand internationally.
Pluto is already in the UK, Germany, Austria, and Switzerland, and its launching in Latin America next month.
On the pay side all access is available in Canada, and Australia and are Paramount plus a noggin products are also live in numerous territories.
What are streaming foundation is not just usage. It's also financial in 2019, our domestic streaming and digital video business, which includes subscription revenue and digital video advertising at approximately $1.6 billion in revenue.
We see this as a key metric for Viacom CBS and anticipated growing between 35 and 40% this year with relatively modest incremental operating expenses.
Of course, the opportunity is much much larger and pursuing that opportunity Viacom CBS will take a differentiated approach that builds on a running start plays to our strength and fulfill unmet audience and partner needs.
Our going forward approach to streaming is rooted in the belief that the streaming world will evolve similarly to the linear world that means it will up three broad pay and premium pay segments and just like in the linear world well have streaming product for each.
I haven't robust offerings in each segment. We will also have the ability to migrate consumers across them through promotion and bundling, which creates advantages in subscriber acquisition retention and lifetime value.
Our free offering is Pluto TV and our premium pay offering is Showtime OTI.
To complete our portfolio, we will take CBS, all access and expand it to be a robust and compelling offering to serve the broad pay streaming segment.
This offer will reaffirm and expand the value of entertainment news and sports content through on demand and live experiences for audiences around the world.
Built on the foundation of CBS, all access, including the technology content and subscriber base.
Adding substantial content assets in film and television plus the power of world renowned brands to create a.
A combined house of brands products.
More specifically, we will add significant content from Nickelodeon comedy Central MTV.
And Smithsonian in addition to popular films from the Paramount Library.
And we will do this at scale to the tune of approximately 30000 episodes of TV and up to 1000 movies.
This differentiated offering will provide the powerful combination of live linear over 200, local CBS stations plus on demand content spanning news sports films drama reality kids and more.
Global platform and infrastructure from which to market and scale it.
Importantly, no that we have decided this offering to be compatible with the evolving distribution landscape.
We see it as a value creating opportunity to further broaden our partnerships with traditional distributors akin to our recent Comcast relationship expansion to CBS all access and we also see it as a robust offering for distributors in the broader otcs space, including mobile.
Obviously, we'll be sharing much more information in the month ahead, but we're already hard at work across Chuck content branding marketing them more to bring this evolve product to life.
And we will soft launch the product later this year.
As we execute on each of our priorities for 2020 maximizing the power of our content unlocking new value from our biggest revenue lines and accelerating our momentum and streaming we're positioning Viacom CBS to deliver significant shareholder value.
At the same time, we're making non operating moves to unlock meaningful value.
These include the divestiture of noncore assets like the sale of Blackrock, which we are in the market with as we speak in addition to other opportunities. We're currently evaluating.
The proceeds of these transactions will be used to delever, our balance sheet buyback stock and further strengthen the financial position of the company.
With that I'll turn it over to Chris to report on our fourth quarter and full year results and to provide detailed 2020 guidance.
Thank you Bob and good morning, everyone. It's great to be here for our first Viacom CBS earnings call.
You know our merger was effective December 4th so our fourth quarter full year 2019 results largely reflects lower by common CBS within delivered as separate company.
2020 will express the power of our combination with some of the greatest assets in media and an efficient growth strategy underway. We are strongly equipped to capitalize on our position as a preeminent global content company.
And by maximizing free cash flow from our traditional businesses, while prudently investing in our growth areas, we will create long term value for our shareholders and our stakeholders.
First I am going to outline a reporting segments and key revenue type.
Then I will give you more details about our fourth quarter and full year 2019 result.
Finally, I will provide further context about our 2020 guidance and capital allocation strategy.
As you can see in our earnings presentation, Viacom CBS comprises four business segments.
TV Entertainment cable networks filmed entertainment and publishing.
We are also presenting five key revenue tight.
Advertising affiliate content licensing theatrical and publishing.
And we are providing a breakdown of revenue by type within each of our business segments.
In addition, given the increase prominence of our streaming services, we are giving greater visibility into their performance by providing domestic revenue subscribers and monthly active users for fast growing streaming and digital video business.
Now, let me give you more details about our fourth quarter results.
Q4 of 2019 was a transitional quarter.
As a result, we had several merger related adjustment.
They include $589 million in programming charges, resulting from an evaluation by new management of our content strategies for the now combined company.
$268 million in restructuring charges related to our synergy initiatives and $191 million in other merger related costs.
In addition, our fourth quarter operating results were primarily affected by several items, including declines in the Paytv universe and legacy Viacom rate resets.
Lower political spending following a record results in 2018.
Investments in programming and the timing of content licensing sale.
Importantly, as Bob mentioned, we believe these areas of impact will be substantially mitigated in the combined company as we evolve our strategy to benefit from our collective asset base.
We also delivered growth in a number of key areas during the fourth quarter.
Silly at revenue increased 1% despite declines in the pay TV landscape. The growth was driven by Retrans and reverse comp, which was up 25% and our subscription streaming revenue, which included a record quarter for subscriber growth at CBS, all access and a record month in December for streaming sign ups at Showtime.
At the same time, our domestic cable networks advertising revenue was up a strong 9% benefiting from Pluto, which is an integral part of our advanced advertising offering.
So you can see the advantages of our streaming strategy across our company as these services continue to scale.
On a full year basis, our 2019 revenue showed healthy gains.
We delivered total revenue growth of 2% with increases in advertising affiliate in content licensing.
Advertising was up 2% driven by CBS is broadcast of Super Bowl 53, and the NC double a final four in championship game as well as strong growth in digital advertising led by Pluto and CBS all access.
This growth was somewhat offset by FX headwinds as well as lower political advertising.
Affiliate revenue grew 3% benefiting from a 20% increase in retrans and reverse comp as well as strong growth and subscription streaming revenue, which offset linear declines in the pay TV ecosystem and content licensing was up 5% driven by growth in production for third party streaming platform from our CBS and.
Paramount television studios as well as the licensing of our library programming.
In addition, our domestic streaming and digital video revenue in 2019, which includes subscription revenue and digital video advertising increased approximately 60% to $1.6 billion with growth across Pluto CBS, all access and Showtime boutiques.
Our solid end of year performance across these three key services is a strong starting points for 2020 and provide the necessary momentum to scale the future growth at these businesses.
Turning to free cash flow, our 2019 adjusted free cash flow was one point Q4 billion dollars, which excludes $366 million of restructuring and merger related payment.
These results were affected by higher content investments across our businesses, including more original series produced for on platform as well as for third party and the expansion of our film slate.
In addition, we had higher cash taxes, a $437 million in 2019, including $260 million that was driven by tax regulations finalized in 2019, and the absence of the cash tax benefit that we had in 2018.
Now, let me go into more detail about EUR 2020 outlook.
As you heard and our first full year as Viacom CBS.
We expect to grow across key metrics with total revenue up mid single digits.
Adjusted OIBDA in the range of 5.8 billion to $6.1 billion and adjusted diluted EPS from continuing operations in the range of $5 in 15 cents to $5.50.
Our 2020 outlook also assumes the realization of about $250 million of our $750 million of cost synergy target before consideration of one time costs to achieve them.
Our new target came after five months of detailed work on our integration program.
Now see that we will keep more than the $500 million that we identified during our due diligence period.
Incremental opportunity across areas, where Viacom ncbs have the most overlap.
Namely duplicative organizational areas under sourcing and to a lesser extent real estate consolidation.
We expect to achieve our cost synergy target over three years with an incremental $350 million in 2021, and the balance of $150 million to be substantially realized in 2022.
For 2020, adjusted free cash flow, we have line of sight to significant improvement, which will enable us to achieve adjusted free cash flow in the range of $1.8 billion to $2 billion.
The growth in free cash flow will be fueled by the key revenue drivers, we see this year, including Retrans and reverse comp as well as political advertising from the presidential election.
We will also drive free cash flow by strategically reprioritizing, our content spending to high growth areas across our businesses, which will substantially improve our working capital and we anticipate a cash benefit of approximately $200 million from the $250 million in cost synergies that we expect to the.
Liver this year.
In 2021, there are several items that will drive approximately $500 million of additional free cash flow.
They include tailwind from continued strategy driven working capital improvements.
Further realization of merger integration synergies and the benefit of having the Super Bowl, partly offset by the absence of political.
Now, let me give you more detail on our 2020 revenue drivers.
We expect to deliver increases across all four of our segments in all five of our revenue types in 20 Twond.
In advertising, excluding the Super Bowl and political spending we anticipate domestic advertising revenue to grow in the low single digit as we go to market with expansive us reach across linear and digital platforms.
Scaled advanced advertising and ease of buying across our portfolio.
In addition, political spending is shaping up to be a record which will further lift our results.
In affiliate, we expect our domestic revenue to grow in the low single digit as we go to market with our unified broadcast and cable portfolio.
We see continued strength in retrans reverse comp and our subscription streaming services on a combined basis, which were more than offset pay TV pressures.
In content licensing 2020 is shaping up to be a good year, we will benefit from our deal to license South Park, and we will see more opportunities to leverage our vast library bundle, our film and TV programming for domestic and international licensing and ramp up production for third party.
Backed by the growing capabilities of our studios as others pulled back from the marketplace, leading to greater demand for premium content.
In theatrical we're thrilled with Sonic and we feel great about our upcoming expanded film slate and in publishing we have a strong lineup of titles from best selling in big name authors, including Stephen King, Jerry Seinfeld and routes where.
Looking at metrics beyond our reported financial we are guiding on domestic streaming and digital video revenue, which we expect to increased by 35% to 40% in 2020 off a base of $1.6 billion in 2019.
This assumes domestic streaming subscribers reached approximately $16 million and domestic Pluto any.
Each approximately $30 million by the end of the year.
It is important to review our 2020 quarterly cadence.
This year's first quarter will be compared against last year's results, which included the Super Bowl.
In the second quarter, we will realize the licensing revenue for South Park.
In the third quarter affiliate renewals that we've already completed will take effect, which will give a lift to our revenue and in the fourth quarter. We anticipate we will have what is already looking to be at record performance for political advertising.
Turning to capital allocation.
We ended 2019 with $18.7 billion of debt when you take into account to $750 million a full run rate merger related cost synergies our debt to adjusted OIBDA ratio calculates to three Titan X.
Excluding the synergies it was 3.4 times.
Looking forward, we remain committed to our investment grade rating with a target of achieving a leverage ratio of 2.75 time.
Taking these synergies into account.
As Bob noted, we continue to make progress on sale Blackrock, we have completed the initial preparation work with CB Ari and are in the market.
We anticipate the sale to close in 2020, and we expect to use the proceeds from this transaction for our mix of debt reduction and opportunistic share repurchases.
Since the merger closed we have declared a quarterly dividend of 24 cents per share and repurchased 2.5 million shares of our stock.
As the year Progressive we will continue to evaluate the use of excess cash for opportunistic share buybacks.
In regard to M&A, we remain focused on our transformational Viacom CBS deal and will only consider acquisitions that are accretive and tightly linked to our strategy. This disciplined approach is exemplified by our agreement to buy a 49% stake in Miramax for $375 million.
Which gives us exclusive long term distribution rights to miramax's catalog of 700 title.
Including a number of award winning film and will enable us to further maximize our programming library.
So in summary, Viacom CBS is well positioned to grow for the long term, we're maximizing cash flow from our legacy businesses, while driving growth in streaming and expanding our reach to new audiences.
We now have an even stronger position in the pay TV landscape as well as an advertising, particularly in advanced advertising and in 2020, we will begin to reap the returns from the investments we have already made especially in film and our streaming offerings.
So as we continue to execute on our growth strategy, we will grow free cash flow capitalize on the benefits of our combination and create value for shareholders.
We are poised for a strong year in 2020, which will deliver growth across our unified company and set us up for consistently strong performance in the years to come.
With that we can open the line for questions.
Thank you.
This time will be conducting a question and answer session. If you like to ask a question. Please press star one on your telephone keypad and the confirmation total indicate your line is in the question Q.
You mean, Chris Star too if you like to move your question from the Q participants using speaker equipment, maybe necessary to pick up your handset before pursuing starkey.
Thank you and our first question will be coming from the line of L. Alexia Quadrani with Jpmorgan.
Hi, Thank you very much just two questions first.
Looking at your guidance for 2020 that you've provided I'm curious about how much confection you have in those numbers you've had a little bit of time since the merger closed and I'm wondering if you feel that this is really a conservative number on and trying to get centre for at the bottom here for the estimates for 2020.
A follow up.
Yes sure Alexia this is Bob.
We've done a lot of work since the close and we have absolute conviction in our guidance as Chris articulated in her prepared remarks as we look at 2020, we see specific catalyst as the year unfolds.
So yeah, we feel very good about our guidance on the top line on the earnings side and on the adjusted free cash flow side.
And then just a follow up on your comment about investment spending content spending in general.
You have obviously a lot of assets.
Yes, you're investing in with CBS all access Showtime you have just really focusing more on Showtime I guess, how do you. How do you balance you know where you're going to put the content spending our investment spending in.
How are you thinking about Showtime specifically in terms of what's the right amount of content spend for that service.
Yeah. So I'd say, there's actually two part Thats makes the three part question, let me take Showtime and then talk about the general question.
Well go over the year Showtime is made strong progress elevating its brand deepening its original programming lineup expanding its reach through TT that said it was a working capital headwind for the company in 19, and the time is right to improve ROI by evolving that programming mix to be clear Showtime will continue to be an important almost scripted.
Joe Spike billions homeland, the L. word penny dreadful and the investments we made in 2019 will clearly pay dividends in 2020.
The same time Showtime does have traction in other formats shows like do some marrow and circus and we see an opportunity to lead more in this direction and there are new Viacom CVSR assets to bring the table starting with through Paul and with more to come also bell towards a line that's a natural fit with Showtime's combat sports positioning.
And I believe a compelling value creation opportunity its own right and the show BDC flux rebranding when we talked about we think that's a home run in attracting incremental subs. So it's really a multifaceted approach to improving content ROI here beyond that it is worth noting that there are some market dynamics in 20, which should be positive for Showtime as you know.
Some competitors have lost Ci distributors that you take self Showtime take share, particularly in linear.
As we mentioned OTI moment OTG momentum has been picking up strong so growth in the past two months and slightly longer term Viacom CBS broader streaming strategy will be additive to Showtime subs over time as it introduces a new consumer funnel. So we're excited about the next leg of journey of this culture defining brand and we look forward to grow.
Following its contribution to Viacom CBS now just quickly in terms of how we decide where to put product. Let me start with a high level reminder, what our strategy is and that's to maximize the value of our content by reaching the largest addressable audience and that's across every segment of platform using our assets and others. There's.
For reasons why this is the right strategy for Viacom Cvs first it makes the most of our greatest strength, which is our content engine and our place in the content industry, which is an industry. That's growing second it allows us to build on our leadership positions across segments, including genres demos formats, while giving us new opportunities to grow brand franchise.
Yes.
Third it allows us access to the largest potential revenue pool, and thats key to balancing adjusted free cash flow delivery and asset value creation and for that gives us flexibility to adapt as the market consumer habits continue to wall. So how do we decide what goes where let me start with a key thought.
The depth and strength of our talent base means we make must watch content for all platforms.
That said, we do have to aside where things go and we have three filters that guide that we look at financial impact, we look at strategic impact and we take into account some partnership considerations.
Now as you think about that there are several other things I want to keep in mind.
That starts with where we have strength, whether it's a franchise maybe mission impossible or genre like Procedurals, you will increasingly see us not license exclusively to third parties in the U.S. we.
We do look at these things across the house, we have a constant helpful. In place to help evaluate opportunities and make recommendations and we look at every content decision as just one window in time. These are assets, we own and we expect to monetize them in different ways in different places overtime.
An example, Nickelodeon.
You know its number one kids brand big hits like sponge, Bob the reality is our linear platform only reaches 40% of kids today, but we can reach beyond that so what we're doing as an example, with NEC as we're putting a spin offs of sponge, Bob on Netflix that will drive direct earnings but also connect these characters with new fans.
Benefiting the franchise and related businesses like consumer products or future theatrical films and ultimately the IP reverts back because remember it's a rental not a sale. So look we give a lot of thought to this we feel great about our strategy, both specifically for Showtime and in general and you'll see us deliver value with it in 2020 and beyond thanks.
Alexia operator, we'll take our next question.
Next question is from the line of Jessica Rafe Ehrlich with Bank of America Security.
Thank you have two questions. So the first one is on advertising, which you both alluded to as as a growth area. So now into Joanne Ross, who is one of the best if not the best advertising executives in the business and then just can you give us more color on how different is your approach to market with all the networks on to one advertising umbrella.
As you said selling across traditional and targeted advertising.
Are you confident you can accelerate advertising growth over time.
Sure Jessica.
I'm extremely excited about our domestic AD picture, let me start by commenting on the market as you know it remains very strong both in Q4 now in Q1, we're seeing scatter premiums in both broadcast and cable of 20, 535% above upfront.
Broadly speaking the issue remains supply not demand and related to that we're also seeing strong and growing demand for premium digital video now if you look more at our performance, particularly in Q4, which I think is helpful to give you insight into where we see this going up overall AD revenues domestic AD revenues were flat now that's.
Driven in part by the fact that there was not a lot of political AD spend in the fourth quarter versus the fourth quarter of a team that was a midterm election year and of course.
We have a little decline in impressions, but very strong pricing, but the real thing to look at is domestic cable at 9% growth with Pluto that is the strategy we've been pursuing over the last.
During the half it's a strategy of combining linear with our advanced marketing solutions, it's really resonating in the market and as promised it's delivering robust growth despite impression that headwinds, it's allowing us to dramatically outperform all cable competitors.
And it's worth noting that HMS is now almost all of our revenue in the quarter, including with CBS. So this is a real piece of business looking forward. It's why we're so excited about our position in the market as Viacom CBS. We're now the clear number one leader we're number one on every double when linear and our analysts offerings.
For the larger as we add CBS granted digital video, including CBS, all access CBSN, which has grown super fast and more which means our combined linear MSL something we know how to bring to market is even more robust and as you pointed out Jessica.
Our AD sales integration is moving very quickly I'm thrilled with Joanne leadership, John how has the COO, who knows the availed thoughts phase I spent last weekend with the senior team they are totally pump and with a bunch clients.
And I'm confident we're going to be extremely well received in this next upfront. Thanks, Jessica operator, we'll take our next question.
Next question is from the line of Michael Morris with Guggenheim Securities.
Thank you good morning, guys two questions one on streaming and then one on the cable affiliates.
First on streaming Bob you talked about the expanded service in the and a little bit of.
Time between now and when that will be available to consumers can you just talked about.
Sort of what the hurdles are to having not up and also.
Just any sense of urgency in terms of time to market given how competitive that space is becoming over the course of the year and then second on cable affiliates in the fourth quarter revenue was down about 8%.
Can you break down for us a little bit of what what the drivers where there there's a number of pieces with Showtime and the legacy Viacom networks.
You used to have some some.
And there are some vo de relationships, maybe just help us with with what the apples to apples comparison is and how to think about those drivers into the new year. Thanks.
Sure Let me take the first one and then Chris will take the second one so look on streaming again, we're very excited about our strategy. We believe this combination of free broad pay and premium pay is where the market will go and the fact that we have products in two of them, which is free and premium and very quickly.
Got it in the market with the third really the middle one we think makes a lot of sense in terms of what we need to do.
The reason we're so excited about this is it's not vaporware, we're building from a position of strength as we said we have we had about a billion six in domestic streaming and digital AD revenue in 19, that's up 60% from 28 team. We have any use at the end of 19 at 22 million actually more than 22 million and over $11 million.
Domestic.
Subs in pay so thats, a real foundation and we're taking that and we're building on the experience. We already had we have benefit in terms of lesson learned in subscriber acquisition in charge management, we understand what gets consumed in free and paid because we've been looking at it for a while we're not launching something new to your question on Tech.
We are working off of proven platforms and models and we know how to work with partners both in a traditional and OTI to space. So when we look at our plan for 2020 in our guide of $30 million may use for Pluto domestically at approximately 16 million subs for us pay offerings with streaming digital revenue growing 30, 540%.
We feel very good about that and again, we're in the market today, and you're going to see us.
Deeper into the market as year goes on so make no mistake Viacom CBS will be very much in this game.
Hi, Mike It's Chris Thanks for the question so relative to the performance for cable affiliate revenue Q4, we did see some pay TV headwinds and we saw legacy Viacom rate resets looking ahead for 2020, we're going to market with our combined cable and broadcast portfolio, we're seeing strong streaming performance and especially in Q1.
We have homeland and we have star track record out there.
We also have new retrans and reverse comp deals coming up later this year. So we feel very good about 2020, and we also have the headwinds that we expect in the market expects to happen in our 2020 guidance.
Thanks, Mike.
Thank you operator, let's take our next question. Please sure next question is front on the line of Ben Swinburn with Morgan Stanley.
Thanks, Good morning.
Bob can you just sort of step back help us think about.
The programming cost growth or the content investment appetite the company has over a longer period of time and.
I'm asking I can't tell but I think last year, the combined companies cash spend over programming looks to be up I don't know 15, 20% satellite.
Sure if that's exactly right, but it was up a lot.
No you're talking about reallocating reprioritizing maximizing content ROI, but can you just help us understand if you look at the entire company over a multiyear period, what is the right level of investment growth.
You think the business needs to achieve your goal. So I think that would help the market understand sort of where the longer term cash flow opportunity as in the business.
Yes so.
Thanks, So our strategy is about taking advantage of this now larger portfolio of assets to improve content ROI and ensure that were investing against growth opportunities and maximizing share in margins in more mature businesses.
You see that split in terms of linear television, where as I said, our current cash content spend is essentially flat 2019.
But through grouping up networks through.
Shifting up mix is we're going to get more effectiveness out of that and again, we have a proven team that's getting more responsibility in that space. So I feel very good about that at the same time, we are prioritizing investments in places where there's clear growth that's in streaming that's in.
Paramount this year as we continue to wrap a slave to that and in the third party studio business, which is.
A significant business with growth essentially risk free and long term asset value. So that's how we're looking at it overall and it's the combination, particularly managing the mature businesses much more tightly that allows us for much more modest cash content expense growth.
On a going forward basis, certainly 19 to 20 and then on work than you've seen in the last couple of years. So that's how we're thinking about it again I look at the combined asset base of this company, we have more than enough resource base to work with and we are absolutely going to get more out of it.
Okay. Thank you very much.
Operator, we'll take our next question.
Your next question is from the line of Michael Nathanson with Moffettnathanson.
Thanks, I have to one similar Ben's question, which is.
At CBS legacy, there's a big source surprised about the number of original shows they make every year talked about 94 shows last quarter.
Doubling from like five years ago I Wonder now you are one company is there a different financial lens, you're breaking into it because you don't see the benefit of all that expense growth and the CBS PNM. So I wonder now that you're in from outside what are you doing differently financially to assess the ROI of of that massive Inc.
Chris in spending of CBS.
Yes. Thanks, So you really got to when you looked at the CBS Studios as an example, there's really two components of it there's product it's making for its owned and operated network in that case CBS news part product, that's making up for third party clients, which will arrange a different clients.
Expense growth in cash obviously covers both as we look at it on the CBS network side. It is worth noting that in Q4 and continuing number one most not watch network in prime five of the top 10 programs five of the top six freshman series. So the network continues to perform strongly thats.
I was with now been last week, and we were talking about CBS and there is actually spending less on pilots. This year because they feel very good about where the network is and therefore are able to be more prudent at the same time, whether it's the CBS studio or the Paramount studio. We continue to have ramping demand in that third party studio.
Production business, yes, that's consumed some cash certainly in my team as a bit of a cash headwind in 20, but I want to reiterate it's a different business. It's fundamentally profitable, it's low risk and we do build long term asset value. So on a cash basis, we are continuing to invest a bit in that but it is really a separate business. So.
But rest assured in general we're looking at everything we talked about Showtime, we're looking at CBS, we're doing a lot of work.
On the linear cable side.
As we're doing all that we see a lot of opportunity in the streaming side and we are focused on improving content ROI and getting more on this asset and that is what we will deliver in 2020.
So if you also Michael I just wanted to supplement that debt. If you look at the TV Entertainment segment, our new segment, which is largely the CBS branded businesses. We did grow high single digits for the full year 18 to 19, 80%, which is a strong performance. So from the standpoint of as we think about the CBS businesses going forward under the.
Umbrella of the combined company now will we will just even be further able to monetize our programming investments.
And then want to Bob internationally, you mentioned included on the expansion, but what are you thinking about broadening out to subscription based businesses internationally and when we have decision.
Sure. So upstreaming clearly a global priority and our global operating footprint, which includes linear reach content ownership on the ground resources and relationships are unquestionably a valuable go to market advantage. We are today in the early stages of entering international streaming on the free side.
You know, it's already launched in growing rapidly in UK, Germany, Austria, and Switzerland earlier. This month, we announced that Pluto will launch in Latin America, Spanish speaking Latin America. The end of March Brazil later.
We will offer 80 channels in Latin America by year end.
Likewise Noggin is also up in Latin America, and we just announced that Apple is launching it in 40 international markets.
CBS all access is already in Canada, and Australia, and we have a paramount plus service streaming in parts of Europe, and Latin America, where it as both TV infill.
So were early days, but we are absolutely working the international space and we'll update you as that plays out later in the year. Thanks, Michael Operator next question.
Next question is from the line of rich Greenfield with flights like I said partners.
Hey, guys. Thanks for taking the questions I've got a couple of questions on a couple of follow ups.
First.
Peers are have been doing from an economic deals. If you look at what do you guys beyond just did for the FCC and you FC wondering as you think about kind of the NFL negotiation that will play out. This year sort of are you prepared to do something that is quote on quote on economic.
Now on Nickelodeon I think your ratings were down somewhere around 20% last year and it looks like you've got a lot worse in Q4 and into early 2020 since the launch of Disney plus just wondering kind of what can you tell us about kind of your plans for the Nickelodeon network and that sort of ties into the Charlie Ergen question, which is dish was clear pretty.
Yesterday on their call that if your ratings are down sharply they are going to look for reductions in rate or is there going to simply drop programming, which they've been doing more and an increasing rate just wondering kind of how you think about the negotiation with dish, which I think is coming up pretty shortly and then Chris I think on the question that somebody asked about cable affiliate.
Being down 8% you kind of talked about what was in the press release, but could you give some clarity of what we're subs down what was the rate reset just adding some actual numbers to the decline would be helpful. I think that's what the follow up was trying to ask.
Lot lot in their rich, but all right. Let's do this quick so on the NFL, the NFL and CBS, our longstanding partners as a combined company Viacom CBS is even better position to deliver value that franchise, you know the NFL values, our broadcast reach in high quality production and you know the combined company ads.
We don't reach both linear and streaming as well as international capabilities, both of which are key to NFL development and thus important to the league we are going to do some stuff.
Around the NFL in the months ahead as we prepped for Super Bowl 55, leveraging our platforms. That's obviously a February 21 event and to be clear as a combined company, we absolutely have the financial resources to get it deal done.
And we do believe it's important to the company and I feel good about getting a deal done when it gets done I don't know we will see that's really more the nfls call on timing.
With respect to Nickelodeon if I look at our our domestic cable portfolio overall.
We actually have pretty solid.
Audience performance 13 of our networks grew share in Q4, hooting comedy DDT Paramount networks Smithsonian.
Actually we see sequential improvement Q1 to date, the whole portfolios up about 4% Nickelodeon continues to be a work in progress it is far and away number one in the space, but that is also why and we do feel good about this latest shows coming but we have pivoted to a multi platform.
Variants of Nickelodeon.
As part of building that brand for the future that combines what we're doing in the linear network, what we're doing in our call. It over the top space, what we're doing with third parties and then how we're monetizing that broader audience, including through things like consumer products.
For that matter, Phil So we are really attacking.
Nickelodeon opportunity in a multifaceted way I feel good about the progress, Brian Robbins, and his team or making I feel good about the pair partnership with Paramount with the next sponge Bob movie coming.
In Q2 by the way, we did a preview of that movie sponge, Bob out awarded last weekend.
And people are feeling very good about the film obviously, the Knick network.
Our consumer products team are totally behind it so.
So you know Nick has a bright future and finally, I'd say back to the streaming discussion in our broader pay product. That's a house of brands Nickelodeon is going to feature prominently in that's going to be good for the streaming product and it's going to be good for the Nickelodeon brand.
Largely I'm going to comment on a particular renewals other than to say, we have a track record of getting deals done.
We have a stronger portfolio than ever including levers, we haven't pulled with some of our clients.
And therefore I feel good about our position.
And then Chris Bridget. Thank you for the follow up so for the cable affiliate the additional thing I'll point out is that what we saw happened in Q4 for cable affiliate trends was similar to what the industry experience. The other thing I'll point out in general that as we look at Viacom and CBS is two separate comp.
And then unifying to Viacom CBS the pay TV.
Landscape has been a headwind, but when we look at how our quarters. We'll build Q4, we had a tough quarter as we head into Q1, and we think through Q2, our momentum well Bill. So Q1, we are going to see some more of the affiliate headwinds. We've experienced we also will have some timing of licensing considerations.
And we do as I alluded to earlier have some big shows in Q1 like Star Trac card and homeland that are strongly performing for streaming in Q1, but then as we go toward Q2 will have the licensing delivery of South Park and momentum will build from there. So again, we'll see the full power a viacom CBS and.
2020, and beyond and harken back to elect skews question that we have strong conviction in the guidance. All of this is contemplated in the guidance and we will see momentum build as we go into 2020 and beyond that thanks rich.
Operator lets take our next question please.
The question comes from the line as John healthy with yes.
Great. Thank you just a couple of follow ups too. So just to those questions first I guess for Chris.
And maybe you just answered it but but the the the 2020 guidance contemplate an inflection in that and that you have cable affiliate trend and if so does it include any new characters from the the virtual distributors and then any update there you can provide and then maybe for Bob you talked about modest increases in expenses as you launch the.
The new broader DTC platform and obviously you guys are starting from a different plays but but theres been usually some some real dilution that comes with these type of launches any any additional color on the size or or or maybe the categories. The spending you might have there. Thanks.
Thanks, John It's Chris So for 2020 guidance, we do assume similar to the industry the headwinds continuing but from the standpoint of our guidance. We are expecting momentum to continue so relative to what we're seeing back to your VNB PT question. Those deals don't come up until later in the year. So the effect on 2020.
Well not be that a big it would really be an impact to 2021, and we feel very good about our positioning.
As we go to look at renewing those deal.
And then how to assuming question. So if you look at the U.S. affiliate landscape Theres No question that Viacom CBS.
His among if not the most important supplier to linear remember we're number one on every demographic in linear we have must see content in news in sports and entertainment and we have a model.
Getting deals done, including having a range of partnership level levers, whether thats in advanced AD sales doing more and more working with them in the broadband space. We started that with Pluto Comcast just did that with.
All access set top box too.
So we have a lot to work with there there may be winners and losers in the space, but we feel good about taking share in getting deals done.
And.
And again.
You will see that track out in the year, we've already had a positive experience.
With one very large MPPD who's not a walk in the park to negotiate with.
On to streaming.
Two things I.
Say in relation to your question. One is remember we are in this business today.
Both in free and in the various pay segments. We have been putting original content you look at what all access did with the card. So it's not like we're ramping from nowhere in fact, we're building momentum and in particularly as we do that and this is Jeff will turn the Pluto side remember Pluto is very key.
Capital efficient that is essentially a rev share model not invest in content and build it out so as we launch in places like Latin America. You don't have this big working capital headwind you have a model that scales with the business. So.
I'm very excited about our streaming plan that financials are absolutely built into the guidance and the incremental capital is modest certainly by standards of what some other folks are doing.
Okay. Thanks.
Oh.
And with that kind of running a little over so I want to thank you for your questions.
In closing we couldn't be more excited about the road ahead, one where we will continue to unlock the power of this incredible combination capitalizing on our position is what are the largest content producers and providers in the world. We believe becoming the most important partner in the media ecosystem, creating valuable new businesses we.
Have the assets we have the plan we have the team we will execute and we will deliver for you.
As we do know that were 100% shirt focused on shareholder value creation, we're committed to providing the transparency and disclosure you need to understand and track the value we are creating.
And before I sign off I also want to thank the employees. The Viacom CBS will brought this company together under three months and who will power our exciting future.
And thanks to all of you for joining today. Thank you foresee your support we look forward to talking you soon.
Thank you. Thank you everyone that concludes our earnings call.
You may now disconnect your lines at this time, thank you for your participation.