Q1 2020 Earnings Call
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Hello.
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Good day, everyone and welcome to the Viacom CBS first quarter 2020 earnings Conference call. Today's call is being recorded at this time I'd like to turn the call over to executive Vice President of Investor Relations Mr. Anthony Diclemente. Please go ahead Sir.
Ewing in all T. audience demos.
This leadership starts with broadcast.
C.B.S.. We're finished the season as America's most watch network for the 12 straight year.
C.B.S. was number one in all T. day parts in the corner with five of the six top comedies. The top two dramas. The number one news program and the number one late night show.
Plus five of the top six freshman series.
In sports the 29 teams season or the N.F.L. on C.B.S. deliver this largest audience in three years.
We also maintained our leadership at the number one rated cable cable portfolio in total day.
Owning nearly half of the top 30 original series in the key 18 to 34 demographics and nine of the top 10 Kids series, Thanks to Nickelodeon.
Oh, no comedy Central Marcus 12 straight quarter of year over your share of.
By the number one late night talk show with millennials.
And Showtime scored the top two scripted shows on premium cable, including the number one comedy and the number one drama.
Internationally, we continue to build on a global footprint that includes 192 million broadcast homes the largest in the world.
Our broadcast cornerstones network 10 in Australia, and tell us a in Argentina have each produce strong year over year share gains.
This was also our strongest streaming quarter ever a milestone that was ontrack, even before the Kobe 19 crisis, putting us well on our way to meet the subscriber in user targets, we laid out last quarter.
Pluto T.V. continues to leave the U.S. in free streaming T.V. as a platform delivered it's best quarter ever.
Pseudo domestic monthly active users group, 55% year over year to more than 24 million as a quarter and <unk>.
But even stronger games in total consumption.
On top of that our domestic pay streaming offerings also grew robustly.
Subscribers, totalling 13, and a half million at the end of the quarter and increase a 50 per cent year over year, driven by original hit programming from C.B.S., all access and Showtime O.T.T.
Both services broke their own records for sign ups streams and time watch in the corner.
Overall this growth in both paying for you drove a strong increase in domestic streaming in digital revenue in the corner, which was up more than 50 per cent versus a year ago.
And the appeal of our streaming in digital offerings has been made even more clear over the last six weeks, where we've seen a strong acceleration in momentum across both freeing pay as audiences follow stay at home guidelines.
We also demonstrated the strength of the Biocomm C.B.S. portfolio by striking new agreements with our partners in the quarter and in the weeks since.
For example, C.B.S. reach the deal with the N.F.L. to broadcast one additional wildcard gaming 2021 as part of the N.F.L.'s playoff expansion with alive stream on C.B.S., all accessed and the separately produce telecast on Nickelodeon tailored for a younger audience.
This is a perfect example of how our partners are using our combined asset base to grow the footprint and reach a diverse audience.
We've also made important strides in domestic distribution, where we struck significant carriage agreements.
Earlier this year, we announce to Comcast would become the first M.D.V.D. to launch C.B.S. all access.
Please to share that we actually began rolling out on their X. 50 platform today.
And in March we reached multi year C.D.S. renewals with two of our largest affiliates nexstar in Maryland.
In April we closed our first true combined company affiliate deal with rising.
Despite the fact that Viacom and C.B.S. deals were not coterminous going in.
Disagreement marks are truly comprehensive multi platform partnership spanning pay T.V. connected T.V. and mobile.
And it will drive a tremendous expansion of pluto's distribution footprint.
And today, we're announcing a new deal with you tube TV.
This deal not only were new C.B.S.N. Showtime early but will shortly bring viacom's cable networks to the high growth you to T.V. platform.
To state the obvious this fills in a key white space for our cable networks distribution and as a clear proof point for the Viacom C.B.S. combination.
Meanwhile, in film Paramount scored a bonafide hit with Sonic the Hedgehog.
Which means we have a new franchise to build on.
Worldwide the film earn more than $300 million at the box office and was made available for digital on demand March 31st.
Setting paramount's record for first day digital sales and became the studios all time record holder in less than three weeks.
The title has now sold nearly 2 million U.F.T. units worldwide and it's also exceeding expectations on V.O.D.
These operational highlights and more drove t. financial wins in the corner.
Chris will cover our results in detail in a moment, but I do want to highlight a few items.
On the revenue side, excluding the impact of the Super Bowl and the cancellation of the N.C. double A. tournament advertising group two per cent year over year.
Affiliate, Rob you also increased year over year.
And we improve the rate of change in domestic cable networks affiliate revenue by 270 basis points sequentially.
In addition.
C.D.F. delivered sequential improvement across all T. earnings and cash flow related metric.
Including operating income adjusted only been recorded then adjusted diluted earnings per share and adjusted free cash flow.
Which is back to a material positive almost half a billion dollars.
Again, indicating the progress we made it in our first full quarter and demonstrating our commitment to strengthening our financial position and creating shareholder value.
Just as the quarter was ending we were of course faced with the Kobe 19 crisis.
I want to spend a few minutes sharing with you how we are proactively managing through this.
As cobin spread to the U.S., we quickly moved to ensure we had the financial flexibility and balance sheet strength to whether a sustained crisis.
Do that and we issued two and a half billion dollars upon in April.
Add in our strong cash flow in the corner and our Undrawn committed three and a half million dollar revolver and it means we are in excellent shape from a liquidity perspective.
We have also taking a series of significant cost reduction measures to mitigate Kobe relayed revenue in packs for the year.
At the same time, we ramped up our focus on business continuity.
Including significantly adjusting operations around the three most affected areas.
Production AD sales and film.
Like most media companies, we have seen it almost total shut down in production.
But we are managing through employing alternate virtual models in some cases and leveraging current and library product from across the company and others.
Because of this we continued have captivating content on air and there will be substantial near term cash flow savings.
As we look to the balance of the year on the production side, we expect little impact to our on our product, particularly given the stability of our schedules, assuming we can get back in production, albeit with modifications by mid summer.
In AD sales, we've seen advertisers insignificantly affected categories temporarily pulled back spend.
But we are working closely with our clients to mitigate the impact.
At this point, we know there'll be a significant impact on AD sales in Q. too.
But based on what we're seeing today, we will we believe there'll be an improvement in advertising and the third and fourth quarters, assuming businesses begin to reopen at scale.
In terms of the up front, we expect it to be later and longer than normal.
What we're ready whenever our clients are and deals will get done.
In fact, this week, we invited more than 5000 agency and marketing executives to our virtual presentation on may 18th and 19th.
Regarding film we have shifted our slate later into 20 and 21 to preserve its value.
We also sold the Lovebirds to Netflix, where we saw unattractive monetizations opportunity in the early Kobe environment.
And while our film business will of course be dependent on theaters reopening and major market.
From a cash perspective, the delay in revenues is substantially offset by the Kobe driven production shut down.
Finally, I want to highlight the support we're providing for our employees.
Audiences and communities emits this pandemic.
A key priorities, the health and wellbeing of our employees and their families.
In March we move the vast majority of our employee base to work from home.
Something it has worked incredibly well.
Which is very limited exceptions for critical operations and facility staff, who continue to work onsite under strict safety protocols.
We've also committed $100 million for relief for non stop employees and freelancers livelihoods have been especially affected by the pause in our production.
And I'm proud of how Viacom C.B.S. has come together to deploy or platforms for Kobe 19 consumer education.
Annually.
From our enormously successful P.S.A. campaigns like hash tag alone together to the specials, we've air to help raise money for the car.
Oh this to say I'm enormously grateful to all our employees for their initiative creativity encouraged at this time in adapting and driving under the toughest of circumstances to ensure we can continue to entertain and inform audiences everywhere.
It goes without saying that we're all looking forward to getting on the other side of this crisis.
But through it all we are focused on creating value by executing our strategy and looking to continued costs and revenue opportunities that will create both the media and laughing benefit.
This starts with what we see as an even larger cost opportunity for the company.
In addition to one time Kobe delayed cost reductions I mentioned earlier, we remain on track with our committed analyzed runrate synergy target of $750 million over the next three years.
In fact, we now see a greater opportunity to create sustain financial benefit on top of $750 million informed by how we've had to we think our operations over the past six weeks.
We have proven we can do more with less and can operate without being physically co located.
As a result, we are now exploring opportunities to further consolidate facilities.
Migrate more activities to lower cost locations and increase sharing of capabilities.
All to further leverage our scale.
Yeah I'm costs, we are on locking revenue opportunities across the combined company.
And distribution, we've only scratched the surface or what Viacom C.D.F. can do on an integrated basis to unlock additional opportunities with both traditional and new distributors.
On the advertising front the combination of our number one when your position and our high growth advanced add solutions all delivered through an efficient single point of customer contact means we are extremely well positioned for the rebound associated with the return to business.
Importantly, we overwhelmingly serve national advertisers that segment that should rebounds first.
In sports, we will benefit from the enormous pent up viewer demand starting with the return of golf has a P.G.A. tour plans to resume its schedule engine.
And it Paramount, we will be ready with a set of amazing films, including a quiet place.
Part two sponge, Bob sponge on the run and top gun Maverick.
That would be big hits once they're released.
Finally, there's no question the crisis has proven the power of streaming.
And we're moving quickly to sees a significant revenue opportunity.
We know fundamental consumer needs around quality convenience in cost.
Changes and how they consume content.
And we're focused on addressing all three neat.
Fielding off our momentum in user subscriber and consumption growth across our platforms, we will capitalize on our positions across freeing pay adding substantial content assets and user experience enhancements supported by marketing to serve consumers with a robot differentiated sweet a link.
Offering.
We will continue to build on Pluto T.V.'s number one position in free streaming.
We know T.V. is a great platform for consumers, who won a free high quality T.V. experience.
Whether on a smart T.V. or a mobile device.
In March we rolled out poodles, most significant product upgrade ever delivering new features and design changes that further enhance the platforms ease of use.
And with the continued edition of new content partners. It offers consumers are superior experience relative to the other free services and or entering the market place.
And we were expanding poodles reach both in the U.S.N. internationally, including three important deals with not only varieties and but also with X. box and row cool.
We don't now has a growing presence in the U.K., Germany, Austria, and Switzerland, as well as in Latin America, where kudos April launch brought over 12000 hours of content to 17 country.
Yeah over the next 12 months, we expect to roll out Pluto in Brazil.
In France and Italy.
The Pluto T.V. platform is powerful and the world is quickly embracing it.
But you shouldn't just think of it as a standalone service <unk>.
It is also key to our integrated streaming strategy.
Where it will serve as an important compliment to and funnel for our pay services.
In June we will introduce click through add units on Pluto embedded in relevant content to allow users to subscribe to C.B.S. all accent.
As time goes on this integration will continue to a ball as we create UN owned and operated streaming ecosystem with a massive three point of entry combined with ups L. pay option.
And speaking of pay we are accelerating our plans for an expanded subscription service.
Fielding off our C.B.S. all access platform with major changes coming this summer as we track towards the rebrand and re launch of a transformed products.
We believe audiences want their entertainment on demand and their news sports and events lives.
Yeah, I'm through our expanded offering we will be the service that gives them what they want how they want it all in one place and and a great value.
This will be a compelling foundational service for some consumers.
Differentiated compliment to what some other consumers already have.
On the entertainment side, we start with what all access has today.
Yes network programming, a very deep C.B.S. on demand library, and an expanding slate of original.
Add to that content from Nickelodeon comedy Central Missoni N.M.T.V.B.E.T.N. Paramount.
This starts with over 100, Paramount films launched this week on the platform as well as thousands of additional hours Cross T.V. in film arriving in current in coming months.
Yeah, we will build on this incredible base of content.
Catalog multiple times larger than many of the new <unk> why expanding our original slate across the portfolio.
This will bring first window content from each of our brand to this platform.
Our biggest franchises will be key to this strategy.
As real are abroad programming strain for crush on rose.
From animation aside by how many reality kids crime Procedurals and more.
Add to that national and local news from over 200 C.B.S. affiliate.
Avail, both live and on demand.
And a critical mass of lives sports, including C.B.S. network delivered N.F.L.N.C. double A.P.G.A.M. more.
Plus exclusive streaming rights to major properties like women's soccer and you wake up.
And we're doing all this in a targeted capital efficient way.
First we are working from an already developed tech platform and C.B.S.L. accent.
We are not building from scratch.
Second almost every dollar we invest and when you're content across the company will benefit the service with varying windows.
Sure. Our original strategy is designed to leverage our massive library of I.P. fueling growth through a consistent and growing Katie some temples serious.
Our experience makes clear that we can acquire new customers in a disciplined and economically efficient way, while reducing churn and driving customer retention with a deep volume of entertainment news and sports.
For our distribution strategy benefits from existing growing relationships.
Across are paying free products.
Already have distribution deals with the likes of Comcast 18, T. <unk> as well as with Amazon Roko Another tech players.
And we were ongoing discussions with a broad range of partners to expand our streaming footprint in coming months.
And fifth and finally, we will leverage our ability to cross promoted scale.
Where we will benefit from our number one T.V. share in every demo as well as our strong digital reach enabling Viacom C.B.S. to promote too and draw customers into our offering in an impactful and cost effective way.
And going back to where I started.
Promotional platform includes Pluto T.V.
Fast growth broad reached gateway to the Viacom C.D.S. streaming world.
In addition to our domestic strategy I should add that internationally, we will launch a broad pay streaming product in multiple markets over the next 12 months.
This service will harness the full power the Viacom C.B.S. portfolio, creating a meaningful brand present in streaming video in key markets around the world.
So in some we're full speed ahead on streaming seeing strong demand for our services today with a strategy to achieve accelerated growth domestically and internationally in the months and years to come.
For all those reasons in more we're extremely excited about the future Viacom C.B.S.
We are unlocking the very substantial value of this extraordinary company and the best is you have to come.
With that I'll turn it over to Chris.
Thank you Bob in the morning, everyone.
First like to say that are hard to go out to everyone who has been impacted by this <unk>.
Went to acknowledge and thanking pleased that bike on P.B.S.
Extreme care for wellbeing and resilience in this unprecedented time.
I'm proud to be part of the tremendous teamwork currently taking place across our company or industry in our community.
Specific to Viacom T.B.S.
We are faced with a much different financial environment for this turning off and just a quarter about when we close <unk> Hmm.
He gave me like solid result, you 120, 20, our first quarter of the United Company.
And at the end of the corridor, we pivoted manage the restaurant coping 19, while continuing to focus on I'm locking the value of Viacom's P.B.S.
Today I will first.
He actually taken to strengthen our liquidity and financial flexibility.
Then I will walk you through our first quarter, 2020 result, which demonstrate early evidence of the power of bike huh.
And finally I will provide you with some insight into what we are seeing today and income cope with 19 affect.
The action, we are taking can mitigate from.
Proactively managing three this crisis with the security of increase the quickly while aggressively controlling our costs and preserving cash.
The same time, we accelerating them all nice and we are seeing in our streaming businesses position back on C.B.S. well for the future.
Let's start with black on C.D.F. is liquidity and balance sheet early on we prioritize picking the necessary to ensure we have to fission liquidity and financial flexibility to manage can be displayed.
On April 1st we accept credit market in its you two and a half million dollars a debt.
The proceeds from this bond issuance on May 4th we redeemed all about $300 million.
What do you in February 2021, and.
On may 18th we will redeem all of our $500 million that or do you in March 2021.
Remaining $1.7 billion in proceeds from the bond issuance posters I liquidity in order to help us whether the impact of Kobe 19 on our business.
We also continued to have access to the $3.5 billion.
What's your names on your on and provides us with even more financial flexibility.
I was March 31st 2020, when you take into account for $750 million a full run late merger related costs energies are definitely just take away the the ratio calculate to 3.1 time.
Wearing permitted to maintaining our investment grade reading, reaching our target leverage to a 0.75 times, including the benefit of <unk> energy.
We plant you excess cash flow.
Were given in payment.
For the balance sheet until we reach that leverage ratio.
We will not be purchased any of our shares until we complete our plan on or asset sales.
Let me update you on our queuing encore asset sales.
Are previously announced tale of Black rock, it's temporary me on hold until we can allow potential buyers continue to toward the building.
We are also in the process of preparing for sale Simon and Schuster is that the assets ready for divestiture when the market stabilized.
We are encouraged by the significant interest me 18 for both of these assets and look forward to proceeding as market conditions allow.
Now turning to our financial performance.
Keep salad results for our first full quarter as United Company.
Total company revenue was $6.67 billion.
You know maybe that was $1.6 million and adjusted deleted earnings per share was $1.13.
The comparison to last year for all three metrics was affected by the broadcast was just Super Bowl and the N.T. doubling in basketball Planet you 120 19.
Adjusted free cash flow, a $478 million, which excludes $173 million, if restructuring and merger related payment.
<unk>. Thank you for 2019 and a strong start for the year.
Looking more closely at our revenue performance in the corridor.
It'll company advertising was down 19 per cent versus a year ago.
However, advertising was up 2% after adjusting for 21 point headwind, resulting from comparison 'cause Super Bowl and the Cogan related cancellation of the N.C. double A. tournament, which we're in a year ago period.
Advertising breast was also impact by a 100 basis point headwind from <unk>.
He AD market was little boxes without the majority of the first quarter, let's strengthen prime time news political on cable as well the benefit of historically high scatter pacing <unk>.
We also saw continued string in digital advertising costs are athletes screening platform.
Affiliate revenue increase 1% benefiting from strong Retranslate <unk> decryption screening revenue, what's more than offset declines in cable network affiliate revenue and a 100 basis points headwind from F.X.
Importantly, a year over year changing cable network affiliate, rather you mean, you one improved sequentially from Q. for but the domestic cable network affiliate rate of decline improving 270 basis point.
Kinetic screening in digital video revenue, which includes subscription revenue and digital video advertising, what's up an impressive 51% versus the year, though the $471 million.
Reach new record to one and sign up two streams on P.B.S.L. access and Showtime a T.T. and in monthly active user gross 10 minutes you'd on yeah.
Turning to contact licensing.
I agree nine per cent driven by growth in original studio production for third party.
Paramount television studio P.B.S. television studio and cable network media all benefited from strong deliveries during the corridor.
Yeah trickle revenue was down 3% that's strong results from Sonic the hedgehog, where more than offset by fire quarter revenues, which included carry overperformance from Bumble Bee.
Trickle revenue would've been higher hadn't you release, a quiet place part two as scheduled on March 18th.
For publishing revenue increase 4%, reflecting rose from digital book and audio still.
He titles in the corridor included even kings, if it lead and the outsider.
Cassandra Claire chain of gold.
<unk> <unk> <unk>, we benefited from merger related costs energies in the first quarter and her on track to me like $250 million and saving for the full year 2024 consideration of one time costs to achieve them.
Overall, we are pleased with the strong start for back on C.B.S. is result in the first quarter of 2020.
I would now like give you some insight to the impact who've been 19 is having on our business.
<unk> update you on what we are currently seeing in each of our revenue streams and explain the cost actions, we have taken to partly offset the revenue peddling.
Based on our current assessment of the near term impact it's plugged in 19 on or businesses and assuming you actually kind of any begins to reopen early in the second half of 2020, we anticipate the second quarter will be the most significantly affected.
Starting with advertising.
Well, we are seeing material.
Ratings engagement across all of our platform linear and digital like Kobe 19 shut down it's currently resulting in significantly lower add demanding Q2 2020.
Reduction in demand in the marketplace being driven by macro uncertainty and temporary business closures as well as to postpone cancellation sporting events.
Importantly, we continue to expect the benefit from political advertising later 2020.
Moving to affiliate revenue.
So we have had a productive border with several new distribution deal fine.
Well, we expect some acceleration and linear subscriber declines near term you will benefit from our recent affiliates deal and from the materially hire sign up engagement, we are experiencing across all of our screening platform.
Expect domestic screening subscribers to reach at least 16 million and domestic monthly active users you know to reach at least 30 million by the end of 2020.
In two two content licensing revenue in a cable segment will benefit from our South Park feel.
However, the planning of delivery and significant activity in the year they'll quarter and the T.V. entertainment faking it will be a substantial offset.
In regard to theatrical revenue.
We had one significant film that was scheduled to be released at the end you 120 20, a quiet place Park, you, which is now scheduled for September 4th.
R.Q. larger stones that were scheduled for release and the second quarter have also been reschedule.
The sponge Bob movie find on the run has been moved on May 22nd August seven.
<unk> that's been from June 25th December 23rd.
We do not expect really any movies in the second quarter or insult theaters real in broad they will adjust c. beep, hey, if necessary to maximize return on our film content investment.
In light of the impact of this crisis, we are highly focused on reducing our class preserving cash.
The cost reduction fall into three area.
<unk>.
Unrelated expense reduction from the lack of distribution or event.
For example, this includes the axis of sports right I'm recommendations for sports that have been cancelled.
Yeah elimination of production costs associated with the current production shut down and a delay in P.N.A. for films not really.
Secondly, we continue to make progress against the $750 million, an annual I've run rate cost energy, we identified as a result of our merger.
Including $250 million, which will be realizing 2020.
And third we are taking additional cost cutting action and implementing initiative to reduce discretionary expenses.
We are learning from this crisis in finding ways that we can operate even more efficiently.
You see significant opportunities to realize anable financial benefits over the long term.
In summary, we believe this step we are taking both during our liquidity strengthening our commercial partnership screening, yeah, Oh, well aggressively managing our coffees.
Naval after whether the financial affected this crisis emerging better position to build upon our strong consumer relevant.
Thereby creating significant shareholder value.
With that operator, we can open the line question.
Yeah.
<unk> at this time of day conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad.
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I first question comes from the line.
Quadrani with J.P. Morgan he's pretty good question.
Hi, Thank you very Max and I hope everybody on the comments taping Wow I wanted to just catch huh advertising first and then I have a topic is first on the advertising market keep provide any more color on how it trendy April and are you seeing any signs of sort of some strengthening like maybe outside for turned up golf.
And then on on that you keep <unk> congratulations it sounds like it it's great I know there by counting I I guess any more kind of you can give us in terms of Michael C. by a kind of did any incremental color on incremental.
Networking added to the to that contract.
Yeah. Thanks, Alexia, we're all Fine Trust you are as well in terms of advertising as I said in my <unk>, we are seeing a significant impact in too too, but we do see Q3 in q. for improving assuming businesses reopen and and we're well positioned to capitalize on that and gainshare.
Now with respect to two <unk> two two specifically on a relative basis broadcast the strongest then cable than digital locals week as interestingly, though the weakness is dominated by five categories and their categories. You would expect auto restaurants retail travel movies, so they're all significantly impacted or.
<unk>.
Now as we've seen some decline in demand. We also have been using some of that inventory for the benefit our own products, including promoting as far digital books and cross pruning our schedules. So I didn't enjoy hasn't gone to waste. We've also in some cases reduce load to improve the viewing environment and to maintain a strong.
<unk>.
Positive note one of our largest quiets came to market into two with scattered dollars and we know we got the largest share. So that's a good reflection on the power. The portfolio also worth noting that we've seen in May and June scatter improve relative to April. So that's a good sign and we do see categories continuing to.
Reactive in the market Pharmaceuticals, C.B.G. financial services pack and as we looked at two three in particular, Yeah. We'll also see lives sports beginning to return for off the P.J. starts on June 11th in Texas for seem very strong demand for that in golf and as you know the N.F.L. is releasing a there.
Schedule later today. So that's all a positive again, we're very well position against this backdrop, given our our number one position in <unk> linear television as well as R.A.M.S. portfolio and the fact that through the integration. We've done we can now deliver all that to our customers on a single point of contact.
Which is important to the extent that some of our counterparties have either furloughed or reduce staffing Ah. So we feel good I mean, so advertising is tough, but we do see some green shoots and feel good about our ability to maximize that as they grow with respect to you to.
Yes. Thank you we are very happy about that deal, but the quarter with not just about you to we've had very strong activity in terms of renewal in the quarter and subsequent to the quarters and Comcast varieties in you tube. All examples of the power of the combination.
Something were quickly beginning to unlock you know big picture, we're seeing very strong consumption that underscores consumer demand for our products across platforms on linear member number one on TV share number one all key demos that is and in this cobin time in particular very strong.
Consumption benefiting brands like C.B.S., Nickelodeon Nick Junior B.E.T. comedy Central obviously underscores the value of our product and also great momentum on my on streaming you know we talked about that on my prepared remarks real positive trends in sign ups and actually conversions on all accessing Showtime <unk>.
Portfolio is very strong in terms of deals Comcast first M.B.P.D. to add all access were actually launching that today on x. Vanity varieties in our first true Cross company Cross portfolio M.B.P.D. deal very happy with the economics and that poodle component is very significant in terms of rising.
Wireless distribution and now you tube multi year deal includes an extension for C.B.S. and Showtime and the addition of Viacom median networks very soon 14 networks that fills a key B.M.B.P.D. white space for our company. That's obviously important but it's also when for them because it brings our number one T.V. portfolio.
You know to their platform and as they look at the next legged or sub growth that will benefit them.
So very happy with all that I collect the operator, let's take our next question. Please.
Thank you are next question comes on line as Michael Moore isn't high partners. These proceed with your question.
Oh, Thank you could horny guys two questions first on the content side on the the completion of the merger you guys spoke about 13 billion is that approximate level of cash content spend I'm wondering if you have any updated spot on that level of spending in any updates on how you're thinking of of sort of the evolution of how you allocate.
That give it to the breath of distribution options that you have any place you're you're putting more to work or maybe pulling back any and then second I'm curious about the advertising pacing. It pseudo T.V. in particular, you guys disclose each of your digital metrics were up you know, 50% plus in the corridor, if I sorta parse that a little bit yeah.
Talked about how to deal with these things on a relative basis and whether you've seen any whether it's held up better maybe done a little shops are in that sort of still be driven disrupt.
Yeah. Thanks.
Yeah, I'm sure Michael So on content. The company has a very substantial content asset that includes current production through Paramount C.B.S. Viacom media network as well as a huge library and you know the 13 billion dollar cash content spend that we've referred to in the.
Pass is a very material number relative to that number we expect coby to result result in some reduction in overall content expenses in 2020, now that's driven by the cancellation of certain events say the N.C. double A.'s as an example, the reduction in number of episodes of certain seasons, a series of C.B.S. Prime you know a lot.
Series only delivered 18 episodes versus the plan 22, because we have to shut down production early and we did move some films out of 2020. So all those things will will reduce the 13, but that's really a 2020 issue. It's not a plan change and run rate now in terms of that.
Aggregate spend we continue to prioritize investments in our owned and operated platforms and that includes streaming with a growth emphasis on streaming as we shift mix from lower at a higher growth sectors with respect to streaming our biggest franchises will be key to that strategy as well as our abroad.
Programming drank really across <unk> being cave animations crime procedural et cetera.
And so we will be prioritizing those programming areas for our own that operated platforms that said, we will continue to selectively licensed to third parties. It's a big market playing in that market has multiple benefits not just revenue, but also expanding the reach of I.P. to new fans with benefits to for.
Ranch drive and related businesses like consumer products like setting up for theatricals et cetera, we're doing that in a very strategic way. So we're not going to license critical mass of any of our key programming areas kids procedural et cetera to any single player. Likewise again, we're prioritizing franchise I.P. to our own.
Platforms.
And regardless of what we do in the licensing space remember ultimately these deals or rentals and the I.P. does revert back. So that's how we're thinking about it Mike in terms of Pluto you know I referenced the digital was weaker but digital as an aggregation of a lot of different things, we continue to see fantastic Advertiser.
Reception for the Pluto product. It really is the closest thing to linear television on the planet and if you've seen Ah Pluto in the last month with our Benicia upgrade the product is fantastic. The presentation is improved and by the AD guts behind that are also upgraded so we continue see strong demand.
Certainly strong demand in the first quarter, we're doing fine in the second quarter again against a general softer backdrop, which you know everybody, you're saying, but we continue to love the asset and advertisers do too.
Mike Operator, let's take our next question please.
Thank you are next question comes from online I've been Swinburn with Morgan Stanley. Please proceed with your question.
They should morning.
Two questions you guys talked about your plan to balance sheet, an asset sales I'm. Just wondering you know as we try to think about free cash flow generation. This year anything else you can tell us beyond your answer to Mikes question on cash spend out think about the puts and takes for free cash flow further I know, it's hard to give guidance given disability and are you.
They can Bob about additional asset sales or modernization opportunities, even beyond the Blackrock building and Simon and Schuster and then I had to follow up on Paramount.
Well. Thanks, then appreciate the question so relative to our balance sheet. The way, we think about our cash flow with an encore asset sales as I said in my comments Blackrock, we were reading the toward sail process. When the building reopened and we do anticipate that that sail completing 2020 for Simon and Schuster. We're currently.
Harrington make available for sale when the market conditions are loud. So as we look at our capital allocation plan relative to thinking about how we use our cash it's organic free cash for a generation, which we will benefit from the near term production shut down it will be a benefit near term to free cash flow, but then also with the with the proceeds we get from yeah.
Asset sales, we build up to pay down our debt to achieve that 2.75 times leverage ratio.
And then just to follow up with the second part of the question van in terms of the strategic composition of the company you know when I look at it they're really three interrelated elements of our business and those are studios networks and streaming and that gives us a very clear lens to look through to consider where the assets better not based on that again, it's clear that.
That black rock, which is an iconic office building in New York, but doesn't fit any of those three categories and Simon and Schuster, which is a pre eminent publisher and an extraordinary company again doesn't fit any of those segments. So those are non core.
Even though they're super high quality assets and again, we've had lots of interest in them, but when you look at that framework through the rest of the assets we own the company really has a pretty compelling a combination so cobin hasn't changed our view on strategic ethnic composition in anything if anything it's reinforced.
We believe the combination of studios networks and streaming makes enormous synergistic sense together.
Yeah.
Next question please.
Thank you are next question comes from line efforts Greenfield with light shed partners. Please proceed with your question.
Rich you might be on mute.
Rich.
Oh <unk>, let's go to the next question, we can bring ridgeback.
Thank you are next question comes from the line I'm, Jessica reef or like with Bank of America. Please proceed with your question.
<unk>.
<unk> I'm sure you're confident in your ability outperform but given the increasingly challenging parts of the environment.
You are growing let Sharon linear, but as we all know the universe is shrinking that's kind of an alarming rate on you know what gives you that competence to outperform and as you put that just dreaming.
You talk a little more different colored what'd, you think the investment will be over the next year to what is the profitability on that score 171 million and represents how are you thinking about long term marches. It's now one of your core three areas. So.
That that just any color you can give her some where you see that profitability going and then one massive on advertising cute to be cancellations <unk>. What are you staying there where are you seeing parsed demand is it.
Entertainment or news thank you.
Yeah, Jessica I'm sure. So in terms of affiliate I think probably the best way to think about it is if you look at pay subs, we saw a stable trends in Q1 relative to queue for that said given what we're hearing and people are talking about in Q. too we do expect some modest.
Incremental cord cutting, but importantly are deal with you too will more than offset that when it kicks in the summer. So that's to your question about performance on the domestic table affiliate revenue side as you know we got a nice improvement in rate of change between two four and 212 to me.
Move back a bit given what I just mentioned on Subtrends again, we don't know what that actually is but there's a possibility but given the deals we have locked in as of today, we see further improvement in the second half of the year on the domestic cable affiliate revenue trend line. So that's to your question on out performance.
Look on streaming ER profitability again, we're not giving guidance I'm certainly not a into 2020 coded environment I can tell you that we are it it really it's all about the mix of content expenditures across the company and and continuing to re mix from investment.
Higher growth areas that include streaming in the short term, there's a there's a lot of incremental content that we're bringing to the platform that is a existing content and then over time there'll be growing original content on the streaming side, but again, that's largely a mix and and again as we look at a business plan offers.
Naming both in free and pay and more importantly on this integrated link ecosystem. We're very excited about what we see tracking out over the coming years. Finally on two three AD sales again based on everything we see today, we believe two three AD sales.
Will be better than two two and again right now may and June scatter look better than April. So that's a good sign we do see categories active in the market again form a C.P.G. financial services tax we do see for sure demand for sports starting with this June 11th a P.G.A. event.
And you know these P.G. events are are sort of staggered in kinda more open states. If you will and location. So we feel good about that we have a very specific production plan for those which we believe mitigates risk.
Definitely seeing strong demand for that so and again I didn't speak to the power the portfolio. The fact that we can serve advertisers through our number one linear position across really all genres add in Pluto and other a high quality digital assets and importantly deliver it through a single point of customer contact.
I think that'll be even more important as we negotiate say these virtual up front. So that's what I'm, saying, okay. Thanks sounds yeah.
Cigars or next question please.
Thank you are next question comes from nine and French Greenfield with my trade partner.
Mm.
If I could just figure out how to use my headset all would be good but [laughter] quick questions.
Remote work is interesting you know Viacom dishes up this month I think there's a lot of investors on this call for probably thought that Charlie Oregon was going to give you a very hard time in that renewal I'm wondering with literally no sports on T.V. does the leverage with distributor sort of shift a little bit at least until sports come back it would seem.
You buy a comes a pretty large portion of overall content on the air right now they don't the movie business you know you're talking about putting up movies. Later this year. Some of your peers have moved films into you know literally a year if not more do you really plan to put out movies, if they can't generate hundreds of millions of dollars a box office.
How are you going to make the decision of whether to really put things out in August September versus delay until August and September of 21, and just because everyone is literally asking me to ask Bob could you just be very specific Fox said AD sales are down 50 per cent A.M.C. down 30 could you just give us actual specificity on the numbers are bad declining cute too.
Yeah.
Sure, a rich and and yeah I thought you were kinda on mute before and I agree work from home is an interesting concept.
But with that tab yet so.
You know we are seeing incredible consumption of Viacom C.B.S. content in the current environment.
And that's both our broadcast linear C.B.S. that is our our cable assets, including like Nick Junior and Nickelodeon B.E.T.V. comedy Central you know travers, killing et cetera. So yeah. We're we're very pleased what we're seeing and by the way I said, our streaming services, which we also increasingly.
Call it package into our relationship with our distributors are performing very well. So yeah does that tilt in our favorite at the moment, yeah, probably we by the way also look forward to bringing life sports back and we're going to be one of the first with golf the nature of golf, probably makes that a little bit simpler than some of the other sports by the way we set up a.
Soundstage in Radford, the C.B.S. lot to a film both boxing and Bella tour events, which we're going to use that sound stage to sequentially alternately produce those albeit with no audience for the moment. So we're going to do some sports stuff from the edges, but yeah look I like our position I think the power folio.
Very powerful you see that starting to come to life, what the deal if I've already talked about and I feel good about our trajectory going forward with respect to movies. Yeah. We moved them later, we thought that was the right thing to do to preserve asset value. We obviously look at the market and look at what it will be at a point in time and.
We'll make a decision if there's some fishing critical mass screen, if you will theaters too well more at opening a film our first film on the schedule a sponge Bob at the at the beginning of August something it's August 7th it's too far out to call. If that's definitely going to be released or to definitely not going to be released we hope.
It will release, but we will continue to look at and make the right decision in terms of the return on those assets because we've got great films, I mean, whether it's quiet place part to which we premiered in New York two weeks before the crisis and we pulled at the last minute. Thank God, we did because the film is incredible and we.
In ways that we saved it likewise on top gun Maverick is off the charts. So what we're going to open them when it makes sense to open them Rich lastly on AD sales.
Well, we're not going to I'm going to give you a domestic number I can tell you. It's it's not as bad as what Fox of saying that's for sure, but it's not pretty either you know, but it's dark specific number no I'm not going to do that.
And then just to follow up on the film point, you said that yield the bayes decision on whether theaters are open how does the actual consumer behavior play into it I mean theaters could be opened up but if people don't want to go to movie theaters are you going to still open movies.
Which we're going to assess it based on economic considerations. So where are you take all that into account again, we the cash flow nature of the studio business on new release versus production means that we can be patient and wait. So we're not gonna like these negatives on fire, we're gonna wait till we can really.
Somebody them, because they're great products like that that's what I was hoping you were going to say.
<unk> question. Please.
Thinking I next question comes in line.
Just with research, especially with your question.
Morning, Bob a couple of for me first.
Can you give us an update on what you're seeing a cross key geography is on the international cable network business and then separately given the delayed schedule prescription sports how are you thinking about a timeline for both the return to production and bring in content. The air what do you think the fall season looks like for C.B.S. than are there any creative solutions to Maine.
Paying as much of your core audience as possible swimming originals don't hit the schedule until the winter.
Yeah sure John So international on I'd say over all the dynamics are similar to the U.S. and what I mean by that is escalated content consumption, both linear and stream soft AD market and an honest focusing on cost management.
In terms of advertising you know two one was really a story of U.K. market under pressure, Spain also Australia was actually up to two is pretty soft across the board and I would say that international is softer than domestic and and probably way to think about as we talk about this 2% growth number into one the domestic member.
Is better than that the international number was ahead when for it importantly, an international we are we now have to offices open Beijing and Hong Kong. So things are moving forward and and that is both a a light at the end of the tunnel, but also a a great way for us to get experience with facility reopening, which we have a big you know.
Working group on that so we're prep for it and on the international side Importantly, we continue to say new opportunities coming out of the merger when we think big picture might take us a little longer to realize but they're definitely there things like bringing operating expertise from channel five and tell afraid to network and things like bringing C.B.
Massive television library in production, so Viacom International media networks distribution across M.V.P.D.'s, O.T.T. mobile partners and as we move forward on streaming again, we see a real international opportunity, which leverage is the combined company asset base and it's more more than seeing it we have plans to go after it.
Sending multiple markets over the next 12 months.
Spectra production, we have a multifaceted plan in place for restarting production, which we believe will leave us well positioned with fresh product in the fall in both T.V. and film.
And we also have a range of Continuances, we can deploy to your question on C.B.S.C.B.S. has a very strong and stable schedule.
Renewal over 80% of that twice yesterday, that's got a bunch of benefits, including the fact that in this virtual upfront time whenever the moves advertisers will know what they're buying from us and some of the other networks are not in that place in terms of our return the production a couple things I'd highlight one is because there was.
Possibility of a writers' strike, we insured we had a backlog of shows ready to go. So that's an asset we can drawn. In addition, if you start segmenting different kinds of production Soundstage base productions things like sitcoms that some more controllable environment. So we feel good about that dramas again, if you look at it there will likely be.
Limitations, we can probably frontload production the the components that are on sound stages and leave location to later, that's how we're thinking about it if need be on the <unk> unscripted side. We can also modify productions to include more controllable environments.
In terms of sports.
We believe lie sports will return I talked about golf, you know and the NFL probably in a modified form, but we believe they'll be there and so we're optimistic that are fall fall schedule won't be materially disrupted again, assuming we can get back in production sometime this summer no that in the interim we continue to operate in a modified model that includes.
Virtual productions, you've seen a bunch of those on air to keep news late night and other shows going to the extent, we see gaps in production volume, we do have broad and deep libraries, including the recent edition of Miramax, which we can deploy in our platforms. Current example of this is the use of Paramount titles for a new C.B.S. Sunday night at the movie.
Which started in may that's filling in for a shortened season M.C.I.S. derivatives back to the 18 episodes versus 22 on the Paramount side, we've completed principal photography on eight films right before the crisis. Those include without remorse snake eyes, Clifford coming to America top gun infinitum.
Well this spell so those are all being worked on remotely in post production. So we will be in good shape when things open up like why Showtime is currently set and solid through two three so you know it's a bit of a fluid situation, but we spent a lot of time looking at not only return the facilities, but returned a production and.
We're confident that we'll have a compelling content on in the fall.
Thanks, John Operator, we have time for one last question.
Thank you I find a question. This morning comes in line of Michael need something with Moffettnathanson. Please proceed with your question.
Thanks, Bye I'll have to if you the first is.
I think about Showtime.
It's pretty competitive market, it's not global no advertising capabilities like your other businesses I Wonder is it a long term care asset when the movie made or do I come sunk epics right away. So so how does showtime fit into your long term vision.
And secondly, you look at your competitors and streaming they all hold back some big titles Peacock office friends H. go Max I Wonder, you'll you'll pull back some of the Big Library cotton it sits on that flicks or in a perfect world <unk> would've you pulled back.
South Park from licensing now so just give me a sense enough loss. Thanks.
Yeah I'm sure might go so on Showtime I think two things to note. One is it for sure fits in the strategic paradigm that I outlined up studios networks and streaming in fact, it's all three and the second thing I'd say on Showtime is you know we talked about some issues with Showtime circa 19, but our <unk>.
20 plan, it's all about turning around the performance with respect to earnings in cash flow and we feel good about our trajectory there and it's important note that it has real momentum on subscribers, particularly over the top Showtime at its best quarter ever and sign ups and consumption into one and we've seen acceleration and sign ups time watching.
Total streams in April and the conversion of free to pay as its accelerated I eat more trials, we're seeing the same or better conversion rates. So that's all good and we do have a lot of momentum on the programming side with respect to streaming you know I talked about our strategy a bit.
<unk> prepared remarks.
<unk> and from from content perspective, again, we're very excited about where we're taking this if you look at at Pluto, It's a massive free gateway to our streaming ecosystem. We are going to continue to build that out that has both owned and operated and third party content on it the content offering and ours is definitely.
Weighted towards third party our content on it is definitely library and that's working well in respect to our our pay product, which is more where your question would show up where in the middle transforming C.B.S. all access into this much more compelling product that includes news lives sports and on demand energy.
Payment. So your question would really apply largely to on demand Entertainment again, we put over 100 Paramount films. There. This week you will see a major move this summer where we'll introduce a fundamentally new U.I.N. add substantial content outfits as we do that we are prioritizing.
Franchises and importantly, critical mass of programming engine rose, whether it's animation and kids are it's crime et cetera, four Oh, no. We will continue to selectively license outside of that so we may put a little kids somewhere on one platform little bit on another one in terms of critical mass in terms of big.
<unk>, we're gonna increasingly lean into that for our owned and operated platforms. We think that's a a strategy that will get a very compelling streaming product and sorta trajectory for that elements that portion of our business as well as allow us to continue to participate in a licensing market, where there continues to be.
A lot on demand.
Thank you Bob.
Look guys I I really want to thank you for your questions and and taking time with us in this in this strange time, we're all living in I want to close by saying Viacom C.B.S. is a resilient company, we are well positioned to navigate the crisis and we're really just beginning to tap the potential of our combined assets.
That and you look at two one you look at the time. Since then remember we only closes stealing December but they're already multiple proof points to the power. The Viacom C.B.S. combination that includes recent affiliate deals we talked about today are crossed company you. Some content, we talked about today and and very material costs synergies, which will probably increase as we.
Move forward leveraging our experience encoded again, the first quarter and the end the weeks following demonstrated that our content is in demand in all kinds of format. We did take aggressive step to reduce costs improve financial flexibility and frankly strengthen our ability to capitalize on emerging opportunities.
Growing scale audience reach and earnings power will become more apparent as this market rebounds, and we put the full power of our portfolio behind the company, including behind our streaming strategy. So look thanks, everyone for your continue to support stay well and we look forward to seeing you a in person hopefully sometime soon.
Operator, and thanks, everyone that concludes our earnings call have a great day.
Thank you this country seems kind of Funky me disconnect your lines at the time. Thank you for your participation.
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