Q1 2020 Earnings Call
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Hello.
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When you wish.
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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.
This time I'd like to turn the call over to executive Vice President of Investor Relations Mr. Anthony Diclemente. Please go ahead Sir.
All t. audience demos.
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 key 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 sees no the N.F.L. on C.B.S. deliberate its largest audience in three years.
We also maintain our leadership as a number one raided 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 Mark is 12 straight quarter of year over your share of driven by the number one late night talk show us the levels.
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 on track 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.
Been 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 50% 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 watched 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% versus a year ago.
And the appeal of our streaming and digital offerings has been made even more clear over the last six weeks, where we've seen a strong acceleration in momentum across both free and pay audiences follows stay at home guidelines.
We also demonstrated the strength of the Viacom C.B.S. portfolio by striking new agreements with our partners in the quarter and in the weeks since.
For example, C.B.S. reached a deal with the N.F.L. to broadcast one additional wildcard gaming 2021 as part of the Nfls playoff expansion with alive same on C.B.S., all access and a 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 when he struck significant carriage agreements.
Earlier this year, we announce the Comcast would become the first M.D.V.D. to launch C.B.S. all access.
I'm pleased to share that we actually began rolling out on their X. 50 platform today.
And in March we reached multi year C.B.S. renewals with two of our largest affiliates nexstar in Maryland.
In April we closed our first true combine company affiliate deal with rising.
This 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 to T.V.
This deal not only were new C.B.S. on Showtime early but will shortly bring viacom's cable networks to the high growth you to T.V. platform.
The 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's scored a bonafide hit with Sonic the Hedgehog.
Which means we have a new franchise to build on <unk>.
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 revenue 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 metrics.
Including operating income adjusted EBITDA recorded then adjusted diluted earnings per share and adjusted free cash flow, which is back to a material positive of almost half a billion dollars.
Again, indicating the promise we made 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 covert spread to the U.S., we quickly moved to ensure we had the financial flexibility and balance sheet strength, whether a sustained crisis.
Do that and we issued two and a half billion dollars of bonds 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 taken a series of significant cost reduction measures to mitigate coded 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 Hi Midsummer.
In the AD sales, we've seen advertisers in significantly affected categories temporarily pulled back spend.
What 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 in 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 lover to Netflix, where we saw an attractive monetization opportunity in the early Kobe environment.
And while our film business will of course be dependent on theaters reopening a major market.
From a task perspective, the delay in revenues is substantially offset by the Kobe driven production shut down.
Finally, I want to highlight to 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 in his worked incredibly well.
Which is very limited exceptions for critical operations and facility staff, who continue to work on site under strict safety protocol.
We've also committed $100 million for relief for non stop employees and freelancers livelihoods had been especially affected by the pause in our production.
And I'm proud of how Viacom C.B.S. has come together to deploy our platforms for coated 19, consumer education and relief from our enormously successful P.S.A. companies like hash tag alone together to the specials, we've air to help raise money for the cause.
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 get him on the other side of this crisis.
But through it all we're 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 related cost reduction as I mentioned earlier, we remain on track with our committed annualized run rates energy 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 costs location.
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 what Viacom C.B.S. 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 ads 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.
Thing with the return of golf has a P.G.A. tour plans to resuming schedule in June.
And it Paramount, we will be ready with a set of amazing films, including a quiet place part too.
Orange, Bob sponge on the run and top gun Maverick.
That will be big heads once they're released.
Finally, there's no question the crisis has proven the power upstream it.
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.
Building off our momentum in user subscriber and consumption growth across our platforms, we will capitalize on our position across freeing pay adding substantial content assets and user experience enhancements supported by marketing to serve consumers with a robot differentiated sweet a link.
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We will continue to build on Pluto T.V.'s number one position in free streaming.
We don't T.V. is a great platform for consumers, who won a free high quality T.V. experiment.
Whether on a smart T.V. or a mobile device.
In March we rolled out poodles, most significant product upgrade ever.
Glittering, new features and design changes that further enhance the platforms ease of use.
And with the continued edition of new content partners.
Offers consumers are superior experience relative to the other free services and or entering the market place.
And we were expanding pluto's reach both in the U.S. and internationally, including through important deals with not only varieties and but also it's 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 Pluto's 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, Spain, 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 keyed or integrated streaming strategy.
Where it will serve as an important compliment to and final 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.D.S. all assets.
As time goes on this integration will continue to evolve as we create UN owned and operated streaming ecosystem with a massive free point of entry combined with up sell pay option.
And speaking of pay we are accelerating our plans for an expanded subscription service.
Building off our C.B.S. all access platform with major changes coming this summer as we track towards the rebrand and re Lawrence 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.
And it differentiated compliment to what some other consumers already have.
On the entertainment side, we start with what all access has today.
B.S. 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 Smithsonian M.T.V.B.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.
And we will build on this incredible base of content.
Catalog multiple times larger than many of the new <unk> my expanding our original slate across the portfolio.
This will raise first window content from each of our brands 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 comedy 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.
In 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 were working from an already developed <unk> platform in C.B.S. all accent.
We are not building from scratch.
Second almost every dollar we invest in linear 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 grow 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 a pain free products, we already have distribution deals with the likes of Comcast 18, T. <unk> as well as with Amazon row coup another tech players.
And we are ongoing discussions with a broad range of partners to expand our streaming footprint in the coming month.
And fifth and finally, we will leverage our ability to cross promoted scale.
Where we will benefit from our number one T.V. sharing 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 abroad pay streaming product in multiple markets over the next 12 months.
This service will harder to 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 are full speed ahead on streaming being 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 of Viacom C.B.S.
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 and good morning, everyone I would first like to say that are hard to go out to everyone who has been impacted by this <unk>.
I went to acknowledge and thanking please bike on P.B.S. and extreme careful wellbeing.
Billion 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 bike on C.B.S.
You're faced with a much different financial environment, earning and just a quarter, though when we close here in 20 Hmm.
He gave me like solid, resulting you 120 20, our first quarter of the United Company.
Then at the end of the corridor me pivoted managed to the restaurant coping 19, while continuing to focus on unlocking the value of Viacom's P.B.S.
Today, I will first taking three d. action taken to strengthen our liquidity and financial flexibility.
Then I will walk you through our first quarter 2020 result, which demonstrate early evidence for the power of bike huh.
And finally I will provide you with some insight into what we are seeing today and income Cogut 19 effect.
And the actions we are taking can mitigate them.
We are proactively managing three this crisis with the security of increase liquidity, well aggressively controlling our costs and preserving catch.
At the same time, we accelerating them all nice and we are seeing in our streaming businesses.
Them back on C.B.S., well for the future.
Let's start with black on C.D.F. is liquidity imbalanced.
Leon we prioritize taking the necessary to ensure we have sufficient liquidity and financial flexibility to manage can be just type it.
On April 1st we accept credit market in its you two and a half million dollars a debt.
Using the proceeds from this bond issuance on May 4th we redeemed all of our $300 million.
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 crazy from the bond issuance posters are liquidity in order to help us whether the impact of Coke at 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 can March 31st 2020, when you take into account for $750 million a full run late merging related costs energies.
Yep.
Ratio calculate 3.1 time.
We are named committed to maintaining our investment grade reading, reaching our target leverage to a 0.75 times, including the benefit of <unk> energy.
Clancy's excess cash flow actor given payment.
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 a now Taylor Blackrock, 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 because at the assets ready for divestiture when the market stabilized.
We are encouraged by the significant interest waiting for both of these assets and look forward to proceeding as market conditions allow.
Now turning to our financial performance.
Let's keep salad results for our first full quarter as United Company.
Total company revenue was $6.67 billion, adjusted maybe that was $1.6 million and adjusted deleted earnings per share was $1.13.
The comparison to last year for all three metric was affected by the broadcasters the Super Bowl and the N.C. double Lehman Basketball tournament, you 120 19.
Adjusted free cash flow, a $478 million, which excludes $173 million if restructuring emerging related payment.
Material improvement since you for 2019, and a strong start for the year.
Looking more closely at our revenue performance in the corridor.
Total 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 Super Bowl and the Cogan related cancellation of the N.C. double A. tournament.
We're in a year ago period.
Advertising breast was also in packs by a 100 basis point headwind from <unk>.
He AD market was robot fill out the majority of the first quarter.
Drinking prime time news political on cable as well the benefit of historically high scatter pricing.
We also saw continued string and digital advertising costs are add based screening platform.
That's the only at revenue increase 1% benefiting from strong Retranslate <unk> descriptions gaming revenue, what's more than offset declines in cable network affiliate revenue and a 100 basis points headwind from effect.
Importantly, a year over year changing cable network affiliate revenue in Q1 improve sequentially from Q. for but the domestic cable network affiliate rate of decline improving 270 basis points.
Domestic screening in digital video revenue, which includes subscription revenue and digital video advertising was up an impressive 51% versus the year, though the $471 million.
Reached new record into one sign of two streams on P.B.S.L. access and Showtime, a T.T. and in monthly active user gross and minutes you don't yeah.
Turning to contact licensing revenue grew nine per cent driven by growth in original studio production for third party.
<unk> television studio P.B.S. television studios and cable network studio all benefited from strong deliveries during the quarter.
Yeah trickle revenue was down 3% that's strong results from Sonic the Hedgehog were 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 sale.
Titles in the corridor included even kings, if it bleeds any outsider <unk>.
Cassandra Claire's chain of gold.
On your best friend, we benefited from merger relate across energies in the first quarter and are 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 back from C.B.S. is result.
Quarters 2020.
I would now like give you some insights to the impact who've been 19 is having on our business.
I will update you on what we are currently thing and each of our revenue stream and explained the cost actions, we have taken to partly offset the revenue pedaling.
Based on our current assessment of the near term impacted slogan 1900 businesses.
And assuming you actually kind of any begins to be open early in the second half of 2020, we anticipate the second quarter. It will be the most significantly affected.
Starting with advertising well, we are seeing material increases in ratings engagement across all of our platform.
Linear and digital like.
19 shut down it's currently resulting in significantly lower add demand Q2 2020.
The reduction in demand in the marketplace being driven by macro uncertainty in temporary business closures as well as the postponing cancellation sporting event.
Importantly, we continue to expect benefit from political advertising later 2020.
Moving to affiliate revenue.
So we have had a productive.
New distribution deal fine.
Sex some acceleration linear subscriber declines in the near term you will benefit from our me kind of killing field and from the materially higher sign up engagement, we are experiencing across all of our screening platform.
Expect domestic screening subscribers to reach at least 16 million.
I think monthly active users on you know to reach at least 30 million by the end of 2020.
In two two content licensing revenue in the cable thing that will benefit from our South Park eel.
However, the planning a delivery and significant activity in the year they'll quarter T.V. Entertainment segment will be a substantial offset.
In regard to theatrical revenue we had one significant film that was scheduled to be released at the end of you 120, 20, a quiet place part.
Which is now scheduled for September 4th.
A cue larger stones that were schedules releasing the second quarter have also been reschedule.
A sponge Bob movie find on the run has been moved on May 22nd August seven.
Top then Maverick I've been from June 25th December 23rd.
We do not expect maybe any movies in the second quarter right. So theaters reopened broadly well adjusted C.V. eight 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 costs preserving cash.
Cost reduction fall into three area.
First pining related expense reduction from the lack of distribution or event.
For example.
Where's the axis of sports right I'm recognition for sports that have been cancel.
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 annualized runrate cost energies, we identified as a result of our merger.
Including $250 million, which will be realizing 2020.
And third we are taking additional costs, putting action and implementing initiative to reduce discretionary expensive.
We are learning from this crisis and finding ways that we can't operate even more efficiently.
You see significant opportunities to realize anable financial benefits over the long term.
In summary, we believe just stepped we're taking both during our liquidity strengthening our commercial partnership screening scale, Oh, well aggressively managing our costs base.
Naval or 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 a question. Please press are one on your telephone keypad.
Information total indicate you're nine is into question can you mean from start to if you'd like to remove your question from the queue for participant using speaker equipment. It may be necessary to pick up your handset before pressing to start.
I first question comes from the line elected Quadrani with J.P. Morgan. Please proceed my question.
Hi, Thank you very nice and I hope everybody on the comments taping Wow I wanted to just attach huh advertising first and then have a hockey cues first on the advertising market keep provide any more color on how it turned in April and are you see any signs of sort of some strengthening like maybe outside the return of golf.
And then on on that you keep her now congratulations it sounds like I agree I know there by counting added I guess any more kind of you can give us in terms of <unk> any incremental color on you know please incremental happy with my account that let's see how to 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 choose food to to specifically on a relative basis broadcast the strongest then cable then digital.
Locals week as interestingly, though the weakness is dominated by five categories and the categories. You would expect auto restaurants retail travel movies, because they're all significantly impacted or by Cove. It now as we've seen some decline and demand. We also have been using coming out.
Tory for the benefit our own products, including promoting as far digital books and cross groaning our schedules.
I haven't gone to waste. We've also in some cases reduce load to improve your environment and to maintain a strong pricing.
Positive note one of our largest quiet 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.
Active in the market Pharmaceuticals, C.B.G. financial services pack and as we look to Q3 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 and golf and as you know the N.F.L. is releasing there's.
Casual 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 counter parties have either furloughed overdue staffing Ah. So we feel good 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. Two 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 more quickly beginning to unlock you know big picture wishing very strong consumption that underscores consumer demand for our products Cross platform.
Arms 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.
Talked about that on my prepared remarks, real positive trends and sign up and actually conversions on all accessing Showtime <unk>. So the portfolio is very strong in terms of deals Comcast first M.B.P.D. to add all access were actually launching that today on <unk> <unk> or <unk>.
True Cross company Cross portfolio M.V.P.D. deal very happy with the economics and that Poodle component is very significant in terms of rising wireless distribution and now you to multi year deal includes an extension for C.B.S. and Showtime and the addition of Viacom median networks very soon 14 networks.
I feel the 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 to their platform and as they look at the next leg of their sub growth that will benefit them.
So very happy with all that.
Yeah for it or take our next question. Please.
Thank you are not crashing comes on line as Michael Moore isn't high partners. Please proceed with your question.
Oh. Thank you for morning, guys two questions first on the content inside on the the completion of the merger you guys spoke about 13 billion.
<unk> level of cash content spend I'm wondering if you have any updated spot on that level of expanded in any updates on how you're thinking of sort of the evolution of how you allocate that you have a day the breast 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 dispose each of your digital metrics were up no 50% plus in the corridor, if I sorta parse that a little bit you talked about how to go with these things on a relative basis and whether you've seen any whether it's held up better maybe than a little softer and just sort of Soviet driven disruption.
<unk>.
Yeah, I'm sure Michael I'm. 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.
Past is a very material number relative to that number we expect Kobe 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. So C.B.S. Prime you know a lot.
Of those 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 factors with respect to streaming our biggest franchises will be key to that strike.
Energy as well as our broad programming drank really a crush on was John was being cave animations crime, Procedurals 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 the franchise 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.
We have 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 in the I.P. does revert back. So that's how we're thinking about it like in terms of Pluto you know I referenced the digital was weaker but digital as an aggregation of a lot of different things. We 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 Pluto in the last month with our Benicia upgrade.
The product is fantastic the presentation is improved and by the AD guts behind it are also upgraded so we continue to 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 I caught Mike operator, let's take our next question. Please.
Thank you are next question comes from online I've been Swinburn with Morgan Stanley He's pretty when your question.
Thanks for morning.
Two questions you guys talked about your plan for the 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 to help think about the puts and takes for free cash flow further I know, it's hard to give guidance given disability.
Thinking 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 I appreciate the question so relative to our balance sheet. The way, we think about our cash flow with an encore asset sales.
Set in my comments Blackrock, we will resume the toward sail process when the building reopened and we do anticipate that that sail completing 2020 for Simon and Schuster. We're currently preparing to make available for sale when the market conditions allow.
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 the asset sales, we will look to pay down our debt to achieve the 2.75 times leverage ratio.
And then just to follow up with the second party question Ben 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 fit or 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 combination so cold it hasn't changed our view on strategic aspect composition in anything if anything it's reinforced that we believe the combination of studios networks and streaming makes enormous center just.
Accents together.
I.
Sick or an X. question. Please.
Thinking our next question comes from line efforts Greenfield with light shed partners. Please proceed with your question.
[laughter] rich you might be on you.
Right.
Oh prayer, let's let's go to the next question, we can bring ridgeback.
Thank you know our next question comes from the line of Jessica <unk> 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 pitcher their environment.
<unk>, Sharon linear, but as we all know the universe is shrinking that's kind of an alarming rate.
You know what gives you that competence to outperform and as you because it's a streaming can you talk a little more given her 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 court three areas. So.
You know that that just any color you can give her some where you see that profitability going and then one massive on advertising Q3 cancellations were to what are you staying there where are you seeing parsed demand does it.
Sports 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 well more than offset that when it kicks in this 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 2122 might 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 bills 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 hook on streaming ER profitability again, we're not giving guidance I'm certainly not a into 2020 coded environment I can tell you.
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 towards 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.
This thing 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 for streaming 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 scattered.
Fatter 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 kind of more open states.
If you will and locations. So we feel good about that we have a very specific production plan for those which we believe mitigates risk and we'd 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.
<unk> 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, let's take our next question. Please.
Thank you are next question comes from line of French Greenfield with light shed partner.
<unk>.
If I could just figure out how to use my headset all would be good but a couple of quick questions.
Remote work is interesting you know Viacom dishes up this month I think there's a lot of investors on this call is 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., just the leverage with distributor sort of shift still a little bit at least until sports come back it would.
Seemed like a you buy it comes a pretty large portion of the 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.
Really planned to put out movies, if they can't generate hundreds of millions of dollars a box office like how're you going to make the decision whether to really put things out in August September versus delay until August September of 21, and just because everyone is literally asking me to ask Bob you just be very specific Fox said AD sales are down 50 per cent <unk>.
See down 30, 'cause you just give us actual specificity on the numbers are bad declining cute too. Thanks.
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 caveat. 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 at 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 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.
Sound stage in Radford to 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 with the deals 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 looked at what it will be at a point in time.
And we'll make a decision if there's some fish and critical mass screen if you will.
There's too well wore it 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 rich.
Turn on those assets because we've got great films, I mean, whether it's quite 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 didn't waste it we saved it likewise top gun Maverick is off the charts, so, but we're going to open them. When it makes sense to open them rich lafley on AD sales look we're not going to I'm not gonna 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.
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 behaviour play into it I mean theaters could be open it 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 weird take all that into account again we.
Cash flow nature of the studio business on new release versus production means that we can be patient and wait so we're not going to like these negatives on fire. We're gonna wait till we can really maximize them because they're great products like that's what I was hoping you were going to say.
<unk> question. Please.
Thank you I next question comes in line <unk> 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 assuming originals don't hit the schedule until the winter.
Yeah sure John So international on I'd say overall, the dynamics are similar to the U.S. and what I mean by that is escalated content consumption, both linear and streamed soft AD market and an honest focusing on cost management in terms of advertising you know two one was really a story of you.
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 members 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 kind of working group on that so we're prep for it.
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 tele fade to network 10 things like bringing C.B.S. is masses television library in production survive come 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 as I said in multiple markets over the next 12 months.
With respect to 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 continued seems weaken deployed to your question on C.B.S.C.B.S. has a very strong and stable schedule, we announced or renewal over 80% of that's like 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.
The other networks are not in that place.
Terms of our return the production a couple things I'd highlight one is because there was a 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 based productions things like sitcoms, that's a more controls.
So we feel good about that dramas again, if you look at it there will likely be limitations, we can probably frontload production. The other components that are on Soundstages and leave location to later, that's how we're thinking about it if need be on this 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 there'll be there and so we're optimistic that our fault 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.
Modified model that includes using 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 title.
For a new C.B.S. Sunday night at the movies, 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 costs.
Work top gun Infinite Tomorrow World is still 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 if it.
He's bought return to production and we're confident that we'll have a compelling content on in the fall.
John Operator, we have time for one last question.
Thank you I find a question. This morning comes to mind, if Michael need something with Moffettnathanson, especially with your question.
Right. 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 along from core 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.
<unk> office friends H. go Max I wondered you'll you'll pull back some of the Big library content. It sits on death flicks or in a perfect World <unk> would've you pulled back.
South Park from licensing now so just give me a sense enough watch thanks.
Yeah I'm sure Am I 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 20.
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 to note that it has real momentum on subscribers, particularly over the top Showtime had its best quarter ever and sign up and consumption into one and we've seen acceleration in sign ups time watching.
Total streams in April and the conversion of free to pay as its accelerated I, even 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.
Oh, and and and I'm from from content perspective, again, we're very excited about where we're taking this if you look at at <unk>. 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 an hour's it's definitely.
<unk> towards third party our content on it is definitely library and that's working well in respect to our our paid product which is more aware. Your question would show up we're in the middle of transforming yes, all access into this much more compelling product that includes news lives sports an 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. and add substantial content assets as we do that we are prioritizing franchises and importantly critical mass of programming engine rose whether it's animate.
<unk> 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 franchises, we're gonna increasingly lean into that for our owned and operated Ah platforms.
We think that's a a strategy that will get a very compelling ah 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 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.
And you look at two one you look at the time since then remember we only closes the on 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 cross company use of content, we talked about today and and very material costs energies, which will probably increase as we.
Move forward leveraging our experience encoded again in the first quarter and the and the weeks following demonstrated that our content is in demand in all kinds of formats. 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 I have a great that.
Thank you just can Crusades conference Jimmy disconnect your lines at the time. Thank you for your participation.
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