Q2 2020 ViacomCBS Inc Earnings Call
<unk> from Jefferies. Please go ahead.
Yeah. Thanks, good morning, everybody.
Quick question I guess, Matt can you elaborate a little bit more on a perspective, you gave on a in the direct to consumer channel you versus existing customer.
Growth in any differences in buying behavior.
By product category within those two buckets of Ah Ah customer set in the quarter. Thanks, guys.
Good morning, Randy you know as we mentioned on the call.
We really like the strength that we saw both from new and existing customers through our DTC channel and continued to see that through a contingency that through the quarter. It we saw a little food strength from our existing customers coming back and buying more in our new innovation, but I would call it marginally different between new and existing.
So both were really tracking really tracking well and driving a driving that elevated growth, which continues a trend that we've been seeing quarter over quarter, you know from a mix perspective.
Our mix, obviously, we had a very strong quarter in see any broadly and are in good quarter, and drink, where albeit a little slower as we said held back a bit by the corporate sales disruption in the wholesale disruption, but in our DTC channel, we feel very good about the strength of performance across both see any and drinkware.
And then how about in terms of thinking through he said I think it sounded like you got really nice demand.
For the products in the in that in the quarter. Despite your turning onto the marketing once you give us a little bit more of an elaboration on what you're seeing there. It sounds like I guess it. The team is awareness. The brand is picking up dramatically maybe give some perspective on where awareness sits today and then as you think about marketing.
Our strategy after the back half thier into next year, how should we be thinking about those marketing strategy I think you're going to be more digital and then any changes in Europe product launch patterns that we should be thinking out for the next.
Six quarters, thanks, guys.
A couple things on on that one of the things we mentioned on our last call and continued through the quarter was our marketing strategy with the disruption and the work from home and really the fall kind of digital acceleration as we really turned our efforts towards driving digit.
Engagement, both from a product marketing perspective, and also from a brand marketing perspective and early in the quarter that was leveraging a lot of assets that we had it was being thoughtful about.
Our our Opex and how we spent in.
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Good day, everyone and welcome to the Viacom Tvs second 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.
Good morning, everyone. Thank you for taking the time join us for a second quarter 2020 earnings call. Joining me for today's discussion or Bob Bakish, Our president CEO and Chris paid our CFO.
Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website. We also have a slide presentation for you to follow along with our remarks.
I want to refer you to the second slide of the free they tend to remind you that certain statements made on this call are forward looking statement that involve risks and uncertainties.
These risks and uncertainties are discussed in more detail in our filings with the S. <unk>.
Today's remarks, we'll focus on adjusted result.
Conciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website.
With that I will turn the call over Bob.
Good morning, everyone and thank you for joining us today.
I'm pleased to report the Viacom CBF for second quarter delivered a continuation of and in many respects an acceleration of the three key themes, we outlined on our Q1 call.
First despite headwinds from cobot 19, Viacom CBF delivered another solid quarter.
Sequential improvement in key earnings and cash flow metrics and clear operational momentum.
Second we continue to proactively managed to the pandemic.
Taking significant steps to strengthen our business preserve the value of our assets increase our financial flexibility and further reduce costs.
And third we continue to focus on and deliver on value creation.
Unlocking the power of Viacom CBS, and specifically are synergistic combination of studios networks and streaming.
In the quarter, we continued to integrate the company and increased our projection for cost savings both in year and overall.
We made significant progress in distribution.
And we rapidly accelerated our streaming business.
Sure, we achieved record users and revenue in free and pay.
All while simultaneously, making material progress towards the relaunch of our diversified Super service.
So there's a lot to talk about.
Let me start with an overview of the financials at some t. operating highlights from the quarter.
Financially Viacom CBS posted the combined company second consecutive quarter of sequential improvement in operating income adjusted OIBDA adjusted diluted earnings per share and adjusted free cash flow.
This on both an absolute dollar and rate of change basis.
Well advertising revenue declined 27% in the quarter overwhelmingly due to co bid. We continue to expect Q2 would be the bottom in terms of year over year decline.
To that end, we've seen sequential improvement month over month since April.
June was strong and we're encouraged by the what we're seeing so far in Q3.
We believe this reflects not only economic optimism for a gradual recovery, but also the power of our portfolio and the significant value we bring to advertisers.
[noise] affiliate revenue grew 2% in the quarter.
With growth in pricing retrans reverse comp and streaming revenues more than offsetting pay TV subscriber decline.
We anticipate this momentum to continue in the second half of the year.
In addition, we increased domestic streaming and digital video revenue, which includes streaming subscription and digital video advertising revenue by 25%.
Reflecting record user growth in our streaming products, including 52% growth in subscription revenue.
Moving to earnings.
Cost cutting initiatives and proactive task management help offset cove, it and timing related revenue impact.
Here the company reported 8% adjusted OIBDA growth in the quarter and generated $892 million of adjusted free cash flow, bringing year to date adjusted free cash flow to nearly $1.4 billion.
Up 19% year on year.
Keep in mind that the second quarter free cash flow includes a significant working capital benefit from Kobin related programming shifts and production delays.
As film and TV production built in the second half, we do anticipate some reversal of the working capital benefit.
Operationally the enduring strength of our brands, an IP is enabling us to successfully navigate this landscape.
During the quarter, our domestic media networks held the highest share of TV viewing in all key audience demos.
In broadcast CBS finished the season as America's most watched network for the 12 straight year.
CBS was number one in all key day parts for the third season.
With the most watched drama and most watched news program in prime the top five comedies and the number one late night show.
Seven of the top eight new series.
We also maintained our leadership as the number one cable portfolio in share of TV viewing across all key demos.
With more top 30 cable networks than any other media family.
Nickelodeon with number one with kids two to 11 for the Twentyth consecutive quarter and those all of the top 10 original series.
MTV had its best second quarter ratings performance in two years.
And comedy Central marked its 13th straight quarter of year over year share growth.
And Showtime had the top show on premium cable for two consecutive quarters and the top three premium scripted series so far this year.
Internationally, we continue to build on a global footprint that includes 190 million broadcast homes. The biggest in the world and 2.7 billion human of TV home.
Our international linear sure viewing across countries increased 11% year over year.
And I'm very proud to announce that for the first time in June tubular labs rank Viacom CBS. The number one media Entertainment company in social.
Not only does this reinforce our popularity and the relevance of our brands an IP in the digital space.
But our huge social platform is also an important marketing tool, particularly as we gear up for the relaunch of our streaming Super service.
And speaking of streaming we've continued our momentum in user subscriber and consumption growth across our streaming platform.
As we increasingly lean into this opportunity.
In free Pluto TV domestic I may use grew 61% to 26 and a half million.
We remain confident that Pluto will achieve its 30 million domestic I may you target by year end.
And Pluto TV is also ramping up outside the U.S.
Something I'll come back to shortly.
And then pay we ended the quarter with 16.2 million subscribers.
74% year on year, reaching our year end goal six month ahead of plan.
Here CBS, all access had a great quarter, and you'll hear more about where that product is going in a minute and Showtime OTT. He had its best quarter ever in subscriber growth.
And then the last six month alone Showtime OTI T has grown more than the previous two and a half years combined.
As we rapidly grow in evolve our streaming business, we're now increasing our domestic pay streaming subscriber guidance to 18 million by year end.
This growth in addition to the revenue growth I mentioned earlier.
Supports our conviction in the growth potential of our streaming offerings.
And we're just getting started.
The combined strength of our networks and streaming offerings also enabled us to make important strides in domestic distribution, where we struck significant carriage agreements.
In April we signed a truly comprehensive multi platform partnership with horizon.
Spanning pay TV connected TV and mobile.
One, particularly exciting component of this deal is the significant expansion of Pluto TV footprint that it enabled.
One which is rolling out on Verizon wireless as we speak.
Then in May we announced a new deal with you to TV.
This deal renewed CBS and Showtime early and importantly brought viacom's cable networks to the fast growing service.
Viacom's brands went live on you tube in late June and we're thrilled to now provide MTV Nickelodeon comedy central BT and more with customers.
More recently in July we announced a multiyear renewal with dish sling TV.
This was our third cross company renewal further demonstrating the power of our brands and content.
And we continue to benefit from strong reverse comp.
Recently, signing agreements with Sinclair and Cox.
In addition to Nexstar and Meredith earlier in the year.
This deal making them more is reflective of the fact that Viacom CBS is a cornerstone content provider to a broad range of distributor.
The combination here, it's powerful and I'm happy to say, we expect sequential improvement in year over year growth waits for domestic cable networks in total company affiliate revenue in Q3 and Q4.
Now turning from performance in the quarter to the second theme, how we've been managing through Covance.
Here there are a couple points worth mentioning.
First we continue to fortify our balance sheet, enabling us to navigate depend dynamic from a position of continued financial strength.
During the quarter, we issued to debt transactions totaling four and a half billion dollar.
And use the proceeds to pay down 2.8 billion of upcoming maturities, including a $340 million redemption that settled in July.
As a result, we don't have any maturities due until 2022.
And we also have access to a committed an undrawn three and a half a billion dollar revolver.
Simultaneously, we have taken action to preserve and maximize the value of our assets, particularly in the film space.
This starts with moving Marty film releases to 2021, when we believe the theatrical market will be stronger.
In addition, we decided to take the sponge Bob movie sponge on the run and deploy this asset as part of our rebrand and relaunch of CBS all access early in 2021.
When it will also have a short p. vod window leading into it.
Paramount continues to be an incredible asset for the company.
And while there weren't any new titles released in the quarter, we were able to capitalize on the strength and breadth of the studios massive library of product as well as from our recently established joint venture with Miramax.
And we remain excited about our film slate and look forward to opening fantastic films as the market stabilizes.
Broadly speaking everyone knows the co bid has presented material production challenge.
But despite that through alternate models Viacom CBS continues to present consumers with fresh content in new late night and selected unscripted areas.
And in the quarter, we also resume sports production with P.J. golf on CBS.
It goes without saying that there is tremendous pent up demand for live sports.
Ratings for the Charles Schwab Challenge, the travelers championship and the rocket mortgage classic have all been very strong in.
In fact, since returning to live golf CBS sports overall viewership is up 25% from comparable events last year.
And building on that we're excited to have Belo tour and Showtime boxing back on air along with you wafer soccer premiering on CBS and CBS all access this week.
And we look forward to the return of football in the fall, including last weeks announcement that the FCC has confirmed its in conference games schedule.
And we continued to be optimistic about the NFL too given all the work they're doing.
With respect to entertainment products, we have already started to resume production out tivity, albeit on a smaller scale.
Our priority is to restart our production safely and in compliance with local health and safety standards.
There are of course, a lot of moving parts to manage with returning to production.
We've been collaborating with our industry partners on industrywide recommendation.
We are using a phased approach based on geography show format in studio versus location based production along with other considerations.
But against this backdrop things are ramping up.
As example, Tyler Perry just wrapped production on the new season of systems for BT.
We're in production and close to completing Yellowstone in Utah and are about to start filming season for in Wyoming.
And we recently started shooting a live action show for Nickelodeon in Canada.
Add to that we have a series of unscripted productions underway, including Big brother, which debuted this week and we're excited about love Island, which will be broadcasting seven days a week once it debuts in late summer.
Looking forward, we have a pipeline of productions moving towards starting and we're optimistic that volume will grow ensuring we have fresh product on air in the fall.
And third through it all we continue to be focused on value creation.
Value creation starts with delivering on the material cost savings opportunity associated with the integration of Viacom and CBS.
Here, we continue to make quick progress.
In fact, we're increasing our expected 2020 merger related cost synergies from $250 million to 300 million dollar.
And we expect to achieve annualized run rate cost synergies.
$800 million up from our prior $750 million by the end of 2022.
And of course, we continue to look for additional opportunity, including based on how we've had to rethink our operations since March.
Well, it's premature to put a number on this the experience sets the stage for further transformation and cost savings.
But the combination of Viacom CBS is not only about value creation through cost savings.
Even more about value creation through revenue generation.
I already spoke about the very material progress we've made on the distribution side.
And how that will lead to further sequential improvement in affiliate revenue this year.
Here the merger thesis is clearly coming to life.
Streaming is another area, where the power of the Viacom CBS combination is beginning to come to life.
And this is critical since streaming is probably the most material value creation opportunity in media today.
Building off our momentum in user subscriber and consumption growth across our streaming platforms, we will capitalize on our positions across free and pay.
This includes adding substantial content assets and user experience enhancements broadening distribution and leaning into marketing to serve consumers with a robust differentiated suite of linked streaming offerings.
In short by providing consumers with the broadest video experience.
Spanning news sports entertainment local in life across free and pay we will be a global leader in freemium streaming.
Let me unpack that a bit.
In free we continue to build on Pluto TV its position as the number one free streaming TV service in the United States.
During the quarter Pluto saw strong growth and numerous product enhancement.
This starts with content, where we continue to add more and more high quality IP to our market leading service.
In fact, we know now has over 100000 hours of compelling content available on it.
As part of that we debuted nightly South park Airings on comedy Central Pluto TV.
We launched the ESI and Startrak next generation channel and we plan to debut more than 40, other CBS shoe show, including Survivor Amazing race, Jag America's top model Macgyver and more.
And of course, we continue to add a broad range of compelling third party content in both entertainment and sports, including renewals with the NFL and major League soccer.
We also ramped up Pluto TV is distribution across multiple devices and services.
I mentioned Verizon first of its kind deal earlier, but we also had major distribution expansions with Tivo and LG, which on a combined basis will shortly bring the food or TV service to well over 80 million new devices.
Setting the stage for the next leg of material growth.
And this growth is not just about Pluto.
We will also benefit our pay streaming strategy as we progress lovely build a linked ecosystem of free and paid D to PCT services.
It will fulfill fundamental consumer need around quality convenience and costs.
Here Pluto will serve as an important complement to and funnel for our pay services.
In pay we've progressed materially in the past few months.
Including being firmly on track with our CBS all access transformation.
On our last call I said, we'd preview a transformed service this summer.
Last week, we did just that.
Adding the company's flagship brand Nickelodeon de T comedy Central MTV, Smithsonian and 3500 episodes from their libraries.
Bringing CBS all access is offering to more than 20000 episodes.
Yes. In addition to the 150 plus Paramount movies, we added roughly two months ago.
[noise] apart from its vast library, the new service will continue to have compelling live offering.
Banning CBS local affiliates tent pole events and a critical mass of lives sport.
From golf to football basketball, plus exclusive streaming rights for major sports properties, including some of the world's biggest and most popular soccer League.
Adding a massive volume of compelling live sports content at just the right time.
And as we get into 2021.
Expect to see a significant expansion of first one original.
Including originals from all the brands.
This will be a truly differentiated streaming product and we're very excited about the opportunity.
And I want to reiterate that we're doing all this in a targeted capital efficient way.
We already have developed and scaled technology in the form of CBS all access.
We have a robust slate of exclusive originals from which we continue to build.
Almost every dollar we invest in linear content across the company will benefit the service with varying window.
We have established distribution points across all major platforms.
And high user engagement.
And we're not starting from zero.
Existing customers will benefit from the expanded library service enhancements and product development further reducing churn and driving greater value.
Outside the U.S., we also see a tremendous runway for growth in both free and pay streaming.
And we're moving quickly.
Pluto entered selected markets in Europe last year and in April entered into 17, Spanish speaking Latin American markets.
In fact on a global basis.
TV now has 33 million M&A you.
Looking ahead, our goal is to expand our channel lineup in Latin America to each more than 70 channels by the end of year and to continue expanding our content offering in Germany, Switzerland, Austria and the UK.
We'll also add more distribution platforms to accelerate the expansion.
And our geographic expansion with will continue.
With plans underway to launch new local versions of Pluto TV in a number of additional priority market.
Including Brazil, and Spain, this year, and France, and Italy in 2021.
Importantly, these are all markets, where Viacom CBS has strong local operations.
Including a large pipeline of local language content in place and ready to go.
The Pluto TV platform is powerful and the world is quickly embracing it.
And in pay we're targeting early 21 for the launch of our international streaming service.
A super sized offering of truly compelling content.
Let's first run originals and library from all Viacom CBS brands, including Showtime.
We will focus next year's initial rollout on a set of high value territories, where we see an opportunity to become a market leader.
These territories include Australia, Latin America, and the Nordic.
Our streaming strategy is working and it's really just getting going.
As you can see it's about value creation on a global scale.
For the short and long term.
And I look forward to updating you as we passed key milestones in the coming quarter.
Now before I turn it over I want to thank Chris for her relentless hard work dedication to CBS now Viacom CBS.
Over the past 23 years, she's been a critical financial operator.
And over the past year, she's played an integral role in helping combine and integrate Viacom CBS.
On a personal level I'm, so grateful for her dedication.
Contributions and I really look forward to watching her future endeavors.
From all of management and from the Viacom CBS Board.
Thank you Chris.
With that I'll hand, it over to provide additional financial detail on the quarter.
Thank you Bob and good morning, everyone.
It has been an amazing journey to be with Viacom TBS and I do believe the best is yet to come for United Company.
On strong performance momentum taking home.
As you can see in our results for the second quarter.
Oh, good 19 did have an anticipated negative impact to our topline revenue performance.
However in preparing for this downturn in early March we quickly pivoted to more disciplined expense management, you feel and 2020 to ensure we maximize our financial performance and light at the lower top line trends.
We delivered solid results <unk> second quarter 21.
Adjusted EBITDA adjusted EPS, and adjusted free cash flow all improved sequentially for the second quarter in around.
Evidence of Viacom's TBS his ability to manage to cope with 19 and demonstrating the power of our United Company.
Okay I will first take you through our second quarter results in more detail then I will update you on the actions weve taken to strengthen our liquidity and financial flexibility.
And finally, I will provide you with some insights on the remainder of the year.
Let's start with our financial performance in the quarter.
As a result of cobot 19, and our ongoing restructuring plan, we have made several adjustments where we don't.
These adjustments include $121 million in programming charges associated with the abandonment of incomplete program.
Thanks from Covidien related production shutdowns.
And $134 million in restructuring charges related to our synergy initiatives.
In light of the ongoing calls attendance, we achieved solid results and 20 point.
Total company revenue was $6.28 billion down 12% year over year, adjusted EBITDA was $1.69 billion up 8% year over year and adjusted <unk> was $1.25.
Adjusted free cash flow was a strong $892 million in the quarter, which excludes the $178 million a restructuring merger related.
Looking more closely at our revenue performance in the quarter affiliate revenue increased 2% benefiting from strong retrans reverse comp and description screening revenue growth.
Which more than offset the decline in cable network affiliate revenue.
Cable network affiliate revenue declined 6%.
Inline with the decline in Q1 2020.
Advertising revenue was down 27% versus a year ago overwhelmingly affected by cobot 19, which resulted in significant pullback by advocate.
The comparison to the end T W Championship and file for game in here, though period resulted in a four point headwind in the quarter.
Domestic screaming and digital video revenue, which includes subscription and digital video advertising revenue was up 25% person here, though the $489 million.
Q2 benefited from significant growth in sign up and screen on CBS, all access and Showtime or Tiki ended monthly active users and minute you'd and played out.
And that's six screaming subscription revenue was up 52% in the second quarter accelerating from the rate of growth in the first quarter driven by the continued momentum we're hearing thing across all of our screening fraud.
Turning to content licensing revenue with comparable with the prior year revenue associated with the licensing of South Park was offset by significant licensing activity in the year they'll quarter as well as the timing of delivery, which had been affected by closing related production delays.
He optical revenue was immaterial in the quarter at most theaters remain closed in the U.S. and internationally.
For publishing revenue declined 8%.
Strong growth in digital book and audio sales was more than offset by declines in principle.
He titles in the quarter included John Bolton rumored happen.
And even king if it fleet.
On the expense front, we are highly focused on strategically reducing our costs.
We continue to benefit from merger related cost synergies in the second quarter and are on track realised 300 million doesn't even for the full year plenty plenty before consideration of onetime class would keep them up from our previous expectation of $250 million.
In addition, we are benefiting from Kobe related cost savings, which health, which helped offset the impact that revenue decline and drove adjusted OIBDA growth in the quarter.
A portion of these cost savings or timing related and we'll come back as we returned to a lot worse in production.
However, we expect to realize meaningful cost savings as we take learnings from this crisis and find ways to operate more efficiently.
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In addition, we now expect we keep $800 million an annualized merger related cost synergies by the end of 2020 queue up from our prior $750 million target as we remain highly disciplined in managing our costs.
Overall, we're very pleased with Viacom CBS is rebuilt <unk> second quarter for quite funny.
Turning to the balance sheet Viacom's CBS is liquidity.
In the second quarter, we completed two debt transactions totaling $4.5 billion.
We used the proceeds to pay down $2.8 billion about upcoming maturities, including a $340 million redemption that settled on July 10.
And we added $1.7 billion to our cash balance providing us with additional liquidity.
These transactions significantly strengthened the financial position of the company, enabling us to effectively whether the current economic uncertainty.
We now have no debt maturities until 2022.
And in addition to our cash balance you have like 3.5 billion dollar revolving credit facility, which remains undrawn.
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As of June Thirtyth 2020, when you take into account the benefit of our full run rate merger related cost synergies.
Our debt to adjusted EBITDA ratio calculates to 3.3 times.
On a net basis, taking into consideration our 2.3 billion dollar cash balance at June Thirtyth.
Our leverage ratio is 2.9 times unchanged from the end of 29 team.
We remain committed to our 2.75 times leverage target, including the benefit of full run rate synergies and plan to use cash on hand proceeds from our noncore asset sales as well as excess cash well after dividend payment.
Reduce our debt balance in order to we keep our leverage target.
I would now like to provide you with some insights on the remainder of the year.
Starting with affiliate revenue as Bob that we had an impressive quarter for distribution with several new agreements secure including Verizon you TV dish Sling TV Sinclair and Cox.
And as Bob mentioned, we now forecast domestic premium subscribers reached 8 million by year end 2020.
From our previous 16 million expectation, which we have achieved ahead of plan.
Well, we expect to be affected by industry pay TV subscriber trends, we will benefit from our recent affiliate deal increased distribution on you.
And the strong growth we are experiencing across our.
Screening platform.
Taken together, we expect the year over year rate of change in domestic cable network affiliate revenue and total company affiliate revenue improved in Q3 and again in Q4.
Moving to advertising, we believe Q2, mark the bottom in the year over year rate of change total company advertising revenue.
And expect to see sequential improvement in the year over year rate of change in advertising revenue in Q3 and again in Q4.
A few other thing no <unk> third quarter and adjusted free cash flow in the back half the year.
First on content licensing revenue.
Expect kobin related production delays will continue to affect content licensing deliveries <unk> third quarter.
Second on theatrical revenues, we have no movie scheduled to be released in the third quarter as we are saving valuable IP to be really theatrical window.
That said, we strategically decided to deploy the sponge Bob movie lunch on their run to the relaunch of our Super service in early 2021.
And third on adjusted free cash flow.
We had strong Q2.
Our free cash flow benefited from discipline Kobin related expense management, which will continue to positively impact cash balances the year.
Given the natural lag between expenses in cash.
In addition, our free cash flow benefited significantly from the delay on the timing of production.
As we get back production, then we'll return impacting free cash flow in the second half of the year.
Looking beyond this year, we're laser focused on optimizing working capital for Viacom, CBS, which will drive improved free cash flow and 2021 and beyond.
In closing the first half results of United Viacom CBS has many proof points of tremendous momentum that will benefit the company over the long term.
Although kogan 19 has affected our short term revenue trends, we remain focused on ensuring that we optimize our cost structure and investment strategy to maximize revenue growth and financial performance to the long term.
On a personal note it wasn't a true honored to be a part of the Viacom, yes teams during the past 23 years.
As Sheri Bob the board of Directors ended being I wish you much continued success as you beat this phenomenal company.
To me the company is really all of our talented people so to the entire viacom's TBS team I wish you the very best for the future.
Lastly, I would like to commend and thank the amazing finance team of Viacom's Tdm.
You are second to none and I'm most proud of all that we have accomplished again.
With that we can open the line for questions.
Thinking at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation tumble indicate your line is in the question can you.
You mean prestart too if he'd like to remove your question from the Q for participants you think speaker equipment. It may be necessary to pick up your handset before pressing the starkey.
In the interest of time, we ask that you each keep to one question and one follow up.
Our first question comes from the line of Alexia Quadrani with JP Morgan. Please proceed with your question.
Hi, Thank you Donna.
My first question on my main question is on advertising, if you could give us a bit more detail about how it for fresh new this second quarter I've met with respect your platforms really looking from your linear cable networks. All they bought how have different I guess throughout the second quarter on its popcorn study such seems much better.
But I'm curious if youve any early thoughts on July that equipment continued and then my follow up is just one on Paramount I'm, just really really gardening shortening went down in South Africa Windows and agreement that we saw between 18 Universal are you looking to reach.
Payments for Pam.
Sure a alexia nice to hear your voice.
So on advertising, let me reiterate that we believe Q2 with the bottom and we expect to see continued sequential improvement in the rate of change in Q3 and again in Q4 with that let me say couple of things to add some additional color first our total company advertising, obviously down in the quarter and that was.
As you heard overwhelmingly and not surprisingly due to coded bianco. There. There is some lack of comparability to prior year and that specifically, it's because we had the n. see double a championship and final four game in 2019, but Turner would have had that this year. So that's worth about 400 basis points of you're doing math second can you really more to your question the quarter turned.
<unk> better than we thought early and that was because we did see sequential improvement each month of the quarter and simultaneously because scatter pricing held strong you know, 25% really greater than that versus the upfront. The softness. We did see is very concentrated in terms of categories, but at the same time we.
Saw some early signs of strength from some others, notably pharma insurance and financial and to the other specific question you asked segments have been impacted differently. So broadcast.
In the mix is relatively strong table seem more relative softness but in the table side, we did take the opportunity to produce AD loads to improve you experience. Local has also been tough, but things are getting better in particular auto is coming back in Q3 as factories have reopened and we continue to look forward to political being.
A significant driver in the second half.
Digital also was impacted by high quality digital remain Super strong in fact, Pluto TV quickly returned to pre pandemic growth rate and pricing I was very strong in Q2. So we like what we're seeing in terms of green shoots.
And you know look to continue to see that momentum on the Paramount side.
Let me start by saying the wireless studio was obviously unable to release films in the quarter due to cold. It Oh, there's an incredible asset to Viacom CBS. It has a powerful collection of IP, which we continue to develop for film TV and streaming purposes got a massive library, which benefits our network.
Works and more recently, our streaming services and its library is obviously, a critical component of our licensing business.
You know in this Kobe time, which is really a time where theaters or shut down we are focused on protecting asset value and really benefiting from optionality that our company and this environment presents and that's driven us to do a number of things first you know we do continue to move films later to save them for what we believe will be uchealth.
21, you saw us do that most recently with acquired placed part two and talk on Maverick. We've also monetize some films, yes, with streamers, which allows us to get a return on investment now, but importantly, it allows us to avoid putting even more product into a 21, that's starting to look pretty full you saw that would love.
Birds eye as an example, we also decided to use a film franchise strategically and that's deploying sponge Bob sponge on the run exclusively in the U.S. against our Super Service re launch in early 21. After a short P. Bod window, and then to your questions about P. wide.
No.
We really are in sort of a coded rules phase of the business right now where studios, including Paramount are doing some things they wouldn't normally do because theaters are closed.
No we remain committed to theatrical and believe a lot of this reverts once the world normalize it but we do believe theatrical windows will probably shorten and some of these new monetization path, including both strategic ones and others, probably will become more confident but as I look at the whole thing it continues to me.
I would be highly confident that despite coded paramount is incredibly valuable to us both strategically and financially.
Thanks, Alexia next question please.
Thank you. Our next question comes from line of Michael Morris with Guggenheim Securities. Please proceed with your question.
Thank you good morning, I have one on streaming and then one on margins and cost first on streaming streaming to be connected TV advertising currently have strong secular growth you're investing into it with all access and Pluto, but it's also pretty complicated and fragmented market for advertisers.
So Bob I'd Love to hear your thoughts on how you see that developing house products like I can you give CBS an advantage five come see us an advantage and you know why advertisers are spending with you rather than say a platform like an Amazon fire wire rope TB.
And then second just on costs you know, there's a number of puts and takes a as we look forward with the synergies and timing.
But as you go through this transition and invest in this transition a streaming can you talk about how we should think about margins for the business maybe into the sort of like launch period, and then over the longer term. If this is.
Margin expanding initiative. Thank you.
Yeah sure Michael Thank so look I couldn't be happier that we acquired Pluto TV last year, when we announced that acquisition. The market was confused most people didn't know what it was then Avon or now what people call fast it's been accepted as a legitimate an important part of the streaming ecosystem and others have followed us but.
We haven't let up not even close like we went into with content, it's enhancing the platform into expanding distribution into building the brand and its a monetizing its AD inventory and most recently global expansion and as a result, we've grown Pluto TV dramatically and arguably extended our leadership position.
The reality is no other U.S. fast asset can touch the combination of pluto's hundred thousand plus hours of high quality content, which we built through a combination of assets, we own and this innovative revenue share based models that we use with third parties, it's gone over 30 devices and platforms.
You name it if it's significant pluto's there we're rapidly expanding the distribution we talked about this 80 million devices that are coming through new partnership from Horizon Tivo, one LG not only adds to the expansive base, we've already building through Amazon Road, COO, Comcast Vizio and more and many of those have preferred placement and.
Door built encouraged by the way, we got more deals coming in the pipeline, which is going to take these numbers up a higher importantly were to the AD question, we're rapidly monetizing it Pluto TV benefits, both from programmatic flow and from direct Viacom CBS add relationships as a result that business has grown back grown dramatically and.
As I said has bounced back to pre cobot growth levels already.
And now we're building a integrator ecosystem, where pluto's platform will feed our pay offerings now to your question on I too it's worth noting that Pluto TV is really a cornerstone of I too which for those of you are that missed that we announced this week I too is a new AD platform, which will reach premium fueling.
Audiences across the Biocomm CBS portfolio and here, we're talking about over 50 million monthly full episode users So super high quality advertising base and by the way to your question on why buy from US where other people you will only be able to buy that product direct from Viacom CBS. So we're in.
Addition to being a broader solution provider, which of course, we are in this video space. We have really taken the next step in providing turnkey access to high quality product to solve advertisers problems and that's just another example of the power of Viacom CBR from YOD marketplace.
Cost on the cost side I think your cost were largely if not fully related to the impact of streaming and scaling.
That service so on investment I guess, a couple of points. One is we have very significant amounts of content that we've already invested and across the company that we can deploy against the asset and you saw us do that some last week and the preview watch on secondly, I'd say as we understand the math of comp.
Then investment on CBS, all access alone we have five years of LTV data, which we used to drive a content decision, making what we commissioned what we were new et cetera, and third we're obviously leveraging live events and sports.
Which we already have that are real driver of subscribers and uses a service in our experience now as the original slate grows over time and gets comprehensive across the full suite of black brands. There will be some increase in cash content investment. However, we do intend to fund that as a mix shift from lower growth.
Yes, and remember we're also going we benefited from a larger subscriber base, which will generate even more revenue and help fund it.
Lastly, I'd say, we are going to market. This in 2021 as part of a we launch but again here will significantly benefit from the power of our existing media assets and the appeal of our IP, including in social. So so again. This is it's going to be ultimately additive to our financials and we'll track through.
Mike It's Chris the other thing I'll add about the cost management as were two quarters into the combined Viacom CBS, which is a powerhouse to manage it all the cost across the company. So we're highly focused on strategically managing them all and we will continue to prioritize investment in streaming in studio production and.
Given that we're now combined and we have a lot more experience understanding whats under every rock of cost.
<unk> cost savings will continue and we will find more thanks, Mike Our next question. Please.
Thank you. Our next question comes from the line Offend Swinburn with Morgan Stanley. Please proceed your question.
Thanks, Good morning, bottling, Chris I know, it's too early to sort of hone in on 2021 free cash flow, but I'm wondering if you could just help us think about cash content spend this year and and then he helped in thinking about what it's going to mean sort of resumed production as you know the cold restrictions to leave Uh huh.
Hopefully [laughter] and things were turned back to normal heading into next year I'm. Just wondering you can do to help us think about cash content spend on and this year and into next year and then I wanted to ask you as you think about the super serve as an evolving all access you know sports is obviously something that is a huge driver of consumption and pricing power tick you guys have a unique.
He opportunity already even then how you use sports and all access but definitely you're certainly leaning into can you just talk about your sport strategy on on all access and how you think about.
Leveraging sports content on streaming versus linear and sort of the trade offs of that strategic decision. Thanks a lot.
Yeah sure. So you're right. It's too early provide 2021 guidance and we're not going to do that but I will say with respect to your question on returned to production, which obviously is critical particularly when you got to a cash basis. You know you saw our very strong cash flow delivery into too close to $900 million.
On an adjusted basis, certainly that number benefited from.
Working capital implications of are sort of production.
I'd say radical decline, it's not totally shut down, but certainly radically decline and you should expect that as we move forward in Q3, but more likely Q4 at scale a that that working cap benefit begins to go the other way a bit and just to give you a little more color on the retailers.
One because I think it's a topic everyone's interested in.
You know we are currently executing a multifaceted returned to production obviously, we're focused on health and safety of all involved in front of them behind the screen.
And we have a real commitment to evolving approaches locations, even story lines to deliver that fresh product the customer and ultimately consumer needs on a timely basis.
And as we do that by the way we are finding some ways that we can operate less expensive way we've learned a lot through this kogan phase from the productions that are on and we're rolling out through the in whether its entertainment or sports.
We are rolling that through we are dealing with all this through essentially match process. So we can ensure application of best practices mitigate risk and we have the whole portfolio going through it.
That has lot has let us having a whole bunch of fresh content honor coming to air shortly.
Unscripted like Big brother, which is on here now we're shooting Love Island in a hotel in Vegas, where the cast and crew are actually quarantine together that'll air later this month daytime soaps or Bakken production in late night Cowen <unk> Co. bear and coordinate are scheduled to return to their buildings next week, albeit without audiences.
Animation production continues to move forward and by the way I don't know how many of you saw it but we made a series of announcements that were picked up last week about our path an adult animation.
And that's really a building area of activity for us and I'm Super excited about.
On the script inside we have a whole set of things in motion. We do have scripts on all series, we are putting a shows through the restart process I mentioned, our third party production studios are also beginning to move forward and.
Yeah, we got a range of contingency plans in place which include additional unscripted library movies and some other things so a lot of options here as we work to serve.
Consumers and customers to the cash flow point particular, I think you should expect you know Q3 theres more production spend in Q4. It builds there and then you know what will transition into 2021.
I would also add to that that conceptually, we do still believe for now and the long term. The key drivers of free cash flow improvement are caught cost optimization working capital efficiency and our continued focus on further revenue monetization.
Great. Thanks, a lot then next question please.
Thank you. Our next question comes from the line at Brett Feldman with Goldman Sachs. Please proceed with your question.
Yeah. Thanks for taking the question. So during your prepared remarks, you talked about plans to release originals on the new all access enhance all access product spanning all of your key brands I was hoping you just elaborate give us a little more insight into what that output is going to look like over maybe the next 12 or 24 months, particularly as your ability to resume.
Question comes back and then just on the same content side of things when we look at your TV Library, and all access it stacks up incredibly well versus other streaming products do you tend to be a little more focused with your a film portfolio. So I was hoping you can maybe just discussed importance of movies TV enhanced product and whether there's an opportunity to be.
A little more differentiated there, particularly in light of the fact that you own a movie studio. Thank you.
Yeah. Thanks, Fred let me take that from the angle of the overall, where we go with the overall Super service and I'll I'll deal with each year questions within that so our guiding objective first super service establish abroad differentiated product at a compelling price point and to get a wheel sensor that take a good luck at the preview launch.
We did last week, where we materially broaden CBS all access the entertainment offering is now far wider we added 3500 episodes from 70 series from our flagship brands.
It unquestionably widens the demographic appeal, because we now a real offering for kids young adults millennials and more and look at the sports offering now including away from.
In fact, if you look at the collection of football basketball golf soccer and more on the platform. We really are the first that have taken sports over the top in a meaningful way and we believe there's real appear real appeal here as part of a broad.
Streaming service, we obviously have events like the Grammys the Tony the Super Bowl, There's news, which is something people need these days.
Or maybe not I don't know and then there are originals to your other party question today, all access has a baseline of compelling originals shows like Star Trek the card discovery and now lower deaths, which was animated the good fight Twilight zone and the Stan starting in 21.
That slate will greatly expand to include all frac flagship brands and as an indicator really a taste, we announced last week that camp coral, which is a sponge Bob spin off will join the Super service as the first Nickelodeon original and that'll be on the back of the exclusive availability of the latest.
Sponge, Bob film sponge on the run so that's the kind of way we're using franchises. We have an original plan that goes through 22 quarterly and I'm Super excited about it and you're going to hear more about that at another time.
But but that gives you sent the originals are going to be important and they're going to be defining as well as the sports great. Thanks, a lot Brett operator next question. Please.
Thank you. Our next question comes from the line every screen Count with limited partners. Please proceed with your question.
Hi, Thanks for taking the question.
Oh, sorry, I thought it was on mute.
We originally were.
Sorry. Thanks.
Remote work.
When you was reported that the other day that you and the team from CBS sports were up in New England meeting with the NFL to talk about the next round of media rights.
Think you know sort of everyone has talked about not just on your call, but I'm, a little color sort of the importance of the NFL, specifically and if the a the of the contract moves from sort of around 1 billion upwards towards 2 billion a year.
Your subscribers and this is not a viacom issue. This is an industry issue subscribers will have dropped from mid ninetys into somewhere probably in the sixties by the time you get to the next contract. How do you think about the return on investment of the NFL like how does anyone essentially stay in the NFL business as subs are falling.
With the cost of the content going up so much like just how do you frame it or how do you think about it maybe how to CBS, all access where the new Super service fit into the equation.
Yeah, rich sure so I'm not going into commenting specifically on press speculation, but what I will say is we value the NFL and the partnership where longstanding partners and that relationship has been a mutually beneficial one.
And it's Viacom CBS, we're even better positioned to drive value for the league and for ourselves.
And to that end you know it's important that you you understand its viacom CBS, we have many monetization vectors for the NFL rights.
Obviously affiliate revenue advertising to your point streaming and that's both subscription streaming and AD supported streaming and potentially interrupt international revenue.
So there's a lot of ways. We can go here and I am very confident that the partnership will continue to deliver value for both sides as it has for decades.
Thanks, Operator, we are we have time for one last question.
Thank you I final question. This morning comes from the line of Michael Nathanson with Moffettnathanson. Please proceed with your question.
Yeah. Thanks, Oh, Okay, basically Bob Oh, I asked you about international to pay service is coming 2021.
You talked a little bit about how you're thinking about maybe the pricing points or whether or not albeit a lot as far as hybrid like all access.
And it will there be any like for going content licensing to launch this business in these markets. So just give us. So I know, it's early but any kind of pace your cat about how you're thinking about the structure. These these new new services.
Yeah sure Michael.
Agreements clearly global opportunity.
And for Viacom CBS, we believe obviously as part of that there's substantial international opportunity. We believe that's true both in free and pay you look at our global operating footprint, which includes our linear reach the content, we own including local content on the ground resources and relationships, we really see that is a powerful go to market. It.
Advantage and feel we're well positioned to succeed you look at where we are today on the free side, we're ready in Europe, and Latin America, Spanish speaking Latin America with Koodo, we've seen very strong growth today today, particularly in Latin America, which we've always been there a couple months, we do have almost 7 million.
Funnel and they use 33 million global and we got we're just getting going there we got plans to enhance our product expanding our channel line up we're adding a bunch of distribution partners, we will enter Brazil in Spain later, this year, France and Italy in early 2001 on so there's real growth ahead, and obviously were.
Thinking about other thing for Koodo as well.
On the pay side, we're targeting early 21 for the launch of our international streaming service the exact product details and pricing, which we haven't announced will vary by individual markets, but broadly speaking the new service will feature exclusive first run premiers and we're going to get those from this.
Slate, we're using with CBS all access in the U.S. from Showtime and from Viacom International Studios and alongside that will use Paramount movies Boxsets from CBS and Viacom media networks. If you want to just compared at a high level to what we're doing in the U.S.
It will be a much more entertainment focused product it doesn't really have a sports a material sports lane to it and it will have an output deal from Showtime because we don't operate Showtime networks outside the United States, we will be rolling in multiple markets next year, including Australia, Latin American the Nordics, you'll probably.
I see some press about that but we're really excited about the opportunity. It again. This is another place where the power of Viacom CBS is really going to show through the power of the combination of content. The power of the international footprint, we have that's really differentiated from others.
So look thanks, everyone for making time in this is Cobra day common come until that's probably from your home.
You know I've summing up and say despite the cobot 19 headwinds we did deliver another solid quarter reaffirming the strength and Optionality of our combined operations were executing against key objective and pushing Viacom CBS to emerge stronger.
As you see the key earnings and cash flow metrics improved sequentially as we continue to make progress on our integration and we are now nicely ahead of our run rate and 2020 merger related cost synergies that we committed to our dealmaking an execution is underscoring the benefits of our increased scale and that obviously you see in a sick.
Nipigon distribution agreements, we struck with horizon, you tube and others and importantly, we're ahead of schedule in building our streaming business Pluto TV is really cranking and we're cool progressively moving towards the relaunch of our diversified Super service early next year and by the way. We just debuted our latest original startrak lowered.
Next on CBS all access it's a great piece of adult animation I Hope you all go in check it out.
Lastly, three employees the Viacom CBS I want to thank you for your amazing passion dedication and tenacity at this challenging point in time, you're all making a difference helping drive our company forward. So thanks again for your time today and stay well.
Thanks, everyone for joining us have a great day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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