Q2 2020 ViacomCBS Inc Earnings Call
Jefferies. Please go ahead.
Yes, thanks, good morning, everybody.
Quick question I guess, Matt can you elaborate a little bit more on.
The 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 continue to see that through the quarter and we saw a little who 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.
Mix, obviously, we had a very strong quarter in see any broadly and are in good quarter in drinkware, 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 a instead I think it sounded like you got really nice demand.
For the products in the in the in the quarter. Despite your turning onto the marketing once you give us a little bit more been elaboration on what you're seeing there it sounds like I guess it the team is awareness the brand is picking up dramatically.
You know maybe give some perspective on where awareness sit today and then as you think about marketing.
Strategy after the back half thier into next year, how should we be thinking about those marketing strategies I think you're going to be more digital and then any changes in your 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 full kind of digital acceleration as we really turned our efforts towards driving digi.
It'll 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, earning 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 or forward looking statement that involve risks and uncertainties.
These risks and uncertainties are discussed in more detail in our filings with the.
Today's remarks, we'll focus on adjusted result, reconciliations 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 to 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 CBS delivered another solid quarter with sequential improvement in key earnings and cash flow metrics and clear operational momentum.
Second we continue to proactively manage through 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 continue to integrate the company and increased our projections for cost savings both in year and overall.
We made significant progress in distribution.
And we rapidly accelerated our streaming business.
Here, we achieved record users than 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 key 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 to 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 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.
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 helped 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 benefits.
Operationally the enduring strength of our brands in 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.
The most watched drama and most watched news program in prime the top five comedies and the number one late night show.
Plus seven of the top eight new theory.
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 11th for the Twentyth consecutive quarter and owned 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.
Viacom CBS the number one media entertainment company in social.
Not only does this reinforce our popularity in the relevance of our brands an IP in the digital space.
But our huge social platform is also an important marketing tool.
Ceccarelli as we gear up for the relaunch of our streaming Super service.
And speaking of streaming we have a continued our momentum and user subscriber and consumption growth across our streaming platform.
As we increasingly lean into this opportunity.
In free Pluto Tv's domestic meus grew 61% to 26, and a half million and we remain confident that Pluto will achieve it's $30 million domestic miu target by year and.
And Pluto T. V is also wrapping up outside the U S.
Something I'll come back to shortly.
And and pay we ended the quarter with 16 2 million subscribers up 74% year on year, reaching are year end goal six months ahead of plan.
Here Cvs all access had a great quarter, and you'll hear more about where that product is going in a minute.
And Showtime OTT at its best quarter ever and subscriber growth.
And and the last six months alone Showtime OTT has grown more than the previous two and a half years combined.
As we rapidly grow and evolve our streaming business, where now increasing our domestic pay screaming subscriber guidance to $18 million by year and.
This growth in addition to the revenue growth I mentioned earlier.
The ports are conviction in the growth potential of our streaming offering.
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.
Are we struck significant carriage agreement.
In April we signed a truly comprehensive multiplatform partnership with Verizon.
Banning pay T V connected T V and mobile.
One, particularly exciting component of this deal is the significant expansion of fluid OTV 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 tube T V.
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 Youtube and late June and we're thrilled to now provide MTV Nickelodeon comedy central bvt and more towards customers.
More recently in July we announced a multiyear renewal with <unk> T V.
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 <unk>.
Recently, signing agreements with Sinclair and Cox.
In addition to Nexstar and Meredith earlier in the year.
This steelmaking anymore is reflective of the fact that Viacom cbs's, a cornerstone content provider to a broad range of distributors.
A combination here is powerful and I'm happy to say, we expect sequential improvement and year over year growth rates for domestic cable networks and total company affiliate revenue in Q3 Q for.
Now turning from performance in the quarter to the second theme, how <unk> been managing through Cove. It.
Here there are a couple of points worth mentioning.
First we continue to fortifier balance sheet enabled enough to navigate the pandemic from a position of continued financial strength.
During the quarter, we issued to that transactions totally for 5 billion.
And use the proceeds to pay down to $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 and Undrawn three 5 billion 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 Spongebob movie sponge on the run and deploy this asset as part of our rebrand and relaunch of Cvs All access early in 2021.
When it will also have a short <unk> window leading into it.
Paramount continues to be an incredible asked for the company and.
And while there weren't any new titles released in the quarter, we were able to capitalize on the strengthened breath of the studios massive library of product as well as from our recently established joint venture with Merrimac.
And we remain excited about our films slate and look forward to opening fantastic films as the market stabilizes.
Broadly speaking everyone knows the Covid has presented material production challenge.
But despite that through alternate models Viacom Cvs continues to present consumers with fresh content and new late night and collected unscripted areas.
And in the quarter, we also resumed sports production with PGA golf on C. D S.
It goes without saying that there is tremendous pent up demand for life sports.
Ratings for the Charles Schwab Challenge, the travelers championship and the rocket mortgage classic have all been very strong.
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 Bellator and Showtime boxing back on air.
Long with you wafer soccer premiering on CBS and CBS all access this week.
And we look forward to the return a football in the fall.
<unk> last week's announcement that the FCC has confirmed it's in conference game scheduled.
And we continue to be optimistic about the NFL too given all the work they're doing.
With respect to entertainment products, we've already started to resume production activity, albeit on a smaller scale.
Our priority is to restart our production safely in in compliance with local health and safety standards.
There are of course, a lot of moving parts to management returning to production.
And we've been collaborating with our industry partners an industry wide recommendation.
We're using a phased approach based on geography show format in studio versus location based production along with other considerations.
But against the backdrop things are ramping up.
As example, Tyler Perry just wrap production on the new season assistance for Bep.
We're in production in close to completing Yellowstone in Utah and are about to start filming season for in Wyoming.
And we recently started shooting alive 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 an error in the fall.
And third through at all we continued to be focused on value creation.
Value creation starts with delivering on the material cost savings opportunity associated with the integration of by a common CBS.
Here, we continue to make quick progress.
In fact, we are increasing are expected 2020 merger related costs synergies from $250 million two $300 million.
And we expect to achieve annualized run right cost synergies of $800 million up from our prior $750 million.
The end of 2022.
And of course, we continue to look for additional opportunity, including based on how <unk> had to rethink our operations since March.
While it's premature to put a number I missed the experienced sets the stage for further transformation and cost savings.
But the combination of Viacom CBS is not only about value creation through cost savings.
It's 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 an 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 come to light.
And this is critical since streaming is probably the most material value creation opportunity and media today.
Building off our momentum and user subscriber and consumption growth across our streaming platforms, we will capitalize on our position 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 sweet of linked streaming offerings.
In short by providing consumers with the broadest video experience.
Spanning news sports entertainment local and live across free and pay we will be a global leader in freemium streaming.
Let me unpacked out a bit.
And free we continue to build on Plude Otv's position is the number one free streaming T V service in the United States.
And the quarter Pluto saw strong growth and numerous product enhancement.
Let's start with content, where we continue to add more and more high quality IP to our market leading service.
In fact, we don't know has over 100000 hours are compelling content available on it.
As part of that we gave you'd nightly South park Airings on comedy Central Plude OTV.
We launched CSI in Star Trek next generation channels, and we plan today do more than 40, others CBS sure chose 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, and both entertainment and sports, including renewals with the NFL and major League soccer.
We also ramped up plude otv's 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 algae, which on a combined basis will shortly bring the food Otv's 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 poodle.
We will also benefit or pay streaming strategy as we progressively build a link ecosystem of free and pay D. T. D. C to services that will fulfill fundamental consumer needs around quality convenient and costs.
Kia Poodle will serve as an important complement to and funnel for our pay services.
And pay we've progressed materially in the past few months.
Including being firmly on track with our Cvs all access transformation.
On our last call I said, we'd preview of transformed service this summer.
Last week, we did just that.
Adding the company's flagship brand Nickelodeon DDT comedy Central MTV, Smithsonian and 3500 episodes from their libraries.
Bringing cbs's, all accesses offering to more than 20000 episodes.
This in addition to the 150 plus Paramount movies, we added roughly two months ago.
Apart from it's vast library, the new service will continue to have compelling live offering spanning Cvs local affiliates tentpole events and a critical mass alive 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 lives sports content at just the right time.
And as we get into 2021 expect to see a significant expansion of first runner original.
Including original from all the branch.
This will be a truly differentiated streaming products and we are 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 Cvs all access.
We have a robust late of exclusive original from which we continue to build.
Almost every dollar we invest in linear content across the company will benefit the survey.
With varying window.
We have established distribution points across all major platforms.
And high user engagement.
And we're not starting from zero <unk>.
Existing customers will benefit from the expanded library service enhancements and product development further reducing church 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.
<unk> entered selected markets in Europe last year and in April entered into 17, Spanish speaking Latin American market.
In fact on a global basis.
Oh T V now has 33 million miu.
Looking ahead, our goal is to expand our channel lineup in Latin America to reach more than 70 channels by the end of the year and to continue expanding our content offering in Germany, Switzerland, Austria and the U K.
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 T V and a number of additional priority market <unk>.
Including Brazil in Spain, this year, and France, and Italy in 2021.
Importantly, these are all market, where viacom Cvs as strong local operation.
Including a large pipeline of local language content in place and ready to go.
The Pluto T V platform is powerful in the world as quickly embracing it.
And and pay we're targeting early 21 for the launch of our international streaming service.
A super sized offering of truly compelling content.
With first run original and library from all Viacom Cvs brands, including Showtime.
We will focus next year's initial rollout on instead 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.
And as you can see it's about value creation on a global scale for.
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 and dedication CBS now Viacom CBS.
Over the past 23 years, she has been a critical financial operator.
And over the past year and she's played an integral role in helping combine and integrate Viacom Cvs.
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 Cvs Board.
Thank you print.
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 CBS and I do believe the best has yet to come for United Company.
One strong performance momentum taking home.
As you can see in a result to the second quarter.
Cove at 19 did have an anticipated negative impacts through our topline revenue performance.
However, and preparing for this downturn in early March it quickly pivoted to more disciplined extent management acute you and 2020 to ensure we maximize our financial performance light at the lower topline Trent.
We delivered salad results in the second quarter of 2020.
Just it away the death, adjusted EPS and adjusted free cash flow I'll improve sequentially for the second quarter in a row.
Evidence viacom's tbs's ability to manage to cope at 19, and demonstrating the power of our United Company.
Today I will first take you through our second quarter results in more detail than I will update you on the actions we had 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 Kobe 19 in our ongoing restructuring plans, we have made several adjustments to a result.
These adjustments include 121 million programming charges associated with the abandoning or incomplete programs.
I think some cozy related production shut down.
And $134 million and restructuring charges related to our synergy initiatives.
In light of the ongoing Covid pandemic, we achieved valid results <unk>.
Total company revenue was $628 billion down 12% you over here.
<unk> was 169 billion up 8% a year and adjusted EPS was $1.25.
Adjusted free cash flow was a strong $892 million in the quarter, which excludes the hundred 78 million restructuring and merger related payment.
Looking more closely at our revenue performance in the quarter affiliate revenue increased 2% benefiting from strong retrans reverse comp and subscription screaming revenue growth.
Which more than offset the declining cable network affiliate revenue.
Cable network affiliate revenue declined 6% Youtube in line with the decline in Q1 2020.
Advertising revenue was down 27% versus a year ago overwhelmingly affected by Cove at 19, which resulted in a significant pullback by advertising.
The comparison to the NCAA Championship and final four games and ear, though period resulted in a four point headwind in the corner.
Domestic screaming in digital video revenue, which includes subscription and digital video advertising revenue was up 25% versus a year ago to $489 million.
Q2 benefited from significant growth and sign up and Scream on C. B S. All access and Showtime OTT ended monthly active users and minutes viewed on <unk>.
And that fixed screaming subscription revenue was at 52% and the second quarter accelerating from the reader growth in the first quarter driven by the continued momentum we are experiencing across all of our screaming products.
Turning to content licensing revenue with comparable with the prior year revenue associated with the licensing is south park with offset by significant licensing activity in the year, though quarter as well as the timing of delivery.
Have been affected by closely related production Delaney.
<unk> revenue was immaterial in the quarter at most theaters remain clubs in the U S and internationally.
For publishing revenue declined 8%.
Strong growth in digital book, an audio sale.
More than offset by declines in princeville.
He titles in the quarter included John Bolton room, where it happened.
And even king if it's Lee.
On the expense front, we are highly focus on strategically reducing our <unk>.
We continue to benefit from merger related costs synergies and the second quarter and are on track realized $300 million savings or the full year 2020.
For consideration of one time classes would keep them up from our previous expectation of $250 million.
In addition, we are benefiting from Covid related Cos statement, which health, which helped offset the impact of revenue decline and drove adjusted OIBDA grown up in the corner.
A portion of these cost savings or timing related and will come back as we returned to laugh. Unfortunately production. However, we expect to realize sustainable cloth savings as we take learning from this crisis and find ways to operate more efficiently over the long term.
In addition, we know definitely keep $800 million, an annualized merger related class synergy by the end of 2020 Q up from our prior $750 million target as we remain highly disciplined and managing or cloth.
Overall, we are very pleased with Viacom cvs's rebuilt second quarter for 2020.
Turning to the balance sheet Viacom Cbs's liquidity.
And the second quarter, we completed two that transaction, killing for 5 billion.
We use the proceeds to pay down to $8 billion of our upcoming maturity, including a 340 million redemption that settled on July 10th.
And we added one $7 billion to our cash balance providing us with additional liquidity.
These transactions significantly strengthen the financial position and the company, enabling us to effectively wedding current economic uncertainty.
We now have no that maturity's until 2022.
And in addition to our cash balance we have our three 5 billion revolving credit facility, which remains undrawn.
As of June 30th 2020, when you take into account the benefit of our full run right merger related costs synergy.
Or that to adjust it'd be the ratio calculates to three three times.
On a net bases taking into consideration or $2.3 billion cash balance as of June 30th of leverage ratio is two nine times unchanged from the end of 2019.
We remain committed to our coupons 75 times leverage target, including the benefit of full run right synergies and plan to use cash on hand proceeds from our non-core asset Salle as well as excess cash flow after dividend payment.
You reduce our that balance in order to keep our leverage target.
I would know like to provide you with some insights on the remainder of the year.
Starting with affiliate revenue as Bob discuss we had an impressive quarter for distribution with several new agreement secure including Verizon Youtube T V fish link T V Sinclair and Cox.
And is Bob mentioned, we know forecast domestic screaming subscribers reached 18 million by year and 2020.
Up from our previous 16 million expectation, which we have achieved ahead of plants.
Well, we expect to be affected by industry pay T V subscriber trends.
Will benefit from a recent affiliate deal increased distribution on Youtube and the strong growth we are experiencing across our security screening platform.
Taken together, we expect a year over year rate of change and domestic cable network affiliate revenue and total company affiliate revenue to improve in Q3 and again in Q4.
Moving to advertising, we believe cute to mark the bottom and the year over year rate of change and total company advertising revenue.
[noise] expect to see sequential improvement and the year over year, right have changed and advertising revenue and Q3 and again in Q4.
A few other things to note for the third Florida, and adjusted free cash flow in the back half of the year.
First on content licensing revenue, we expect Cove. It related production delays will continue to affect constant licensing delivery and the third quarter.
Second on theatrical revenue, we have no movie scheduled to be released from the third quarter as we are saving valuable IP to be released from the theatrical window.
That said, we strategically decided to deploy the Spongebob movie sponge on the run to the Rewatch of our Super service in early 2021.
And third unadjusted free cash flow.
We had strong cute you are free cash flow benefited from disciplined covid related expense management, which will continue to positively impact cash in the balance of the year.
Given the natural lag between expenses and cash.
In addition are free cash flow benefited significantly from the delay on the timing of production.
As we get back to production sand will return impacting free cash flow and the second half of the year.
Looking beyond this year, we are laser focused on optimizing working capital for Viacom, CBS, which will drive improved free cash flow and 2021 and beyond.
And clothing, the first half result of United Viacom CBS have many proof points, a tremendous momentum that will benefit the company over the long term.
Although coven 19 has affected our short term revenue trends.
[noise] remain focused on ensuring that we optimize our cost structure, an investment strategy to maximize revenue growth and financial performance with a long-term.
On a personal no it hasn't been a true honor to be a part of the Viacom C. B S team during the past 23 years.
Sheri, Bob the board of Directors and Levine I wish you much continued success as you've been phenomenal company.
To me the company is really all of our talented people so to the entire Viacom CBS team I wish he was very best for the future.
Last week I would like to commend and thank the amazing finance team of icon T. P. S.
You are second to none and I I'm most proud of all that we have accomplished together.
With that we can open the line for questions.
Thank you 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 time will indicate your <unk> in the question Q.
Do you mean press start to if you'd like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the starkey.
And the interest of time, we ask that you eat to keep two one question and one follow up.
My first question comes from the line Alexia quite Johnny with J P. Morgan. Please proceed with your question.
Hi, Thank you bye.
My first question I remain question is advertising, if you could give us a bit more detail about how it progressed to the second corner.
With respect your platforms really looking from your linear cable networks, all the way to a bot how have different I guess throughout the second quite a on those popcorn and I. Thank you for too much better.
But I'm curious if you have any early thoughts on July if that appointment continued and then my follow up it's just I'm I'm Paramount just really really gardening shortening windows theatrical windows in agreement that we saw between Ain't seen Universal are you looking to reset it to my payments for Paramount.
Sure Alexia nice to hear your voice.
So on advertising, let me reiterate that we believe Q2 at the bottom and we expect to see continued sequential improvement in the right a change in Q3 and again in Q4 with that let me say a couple of things to add some additional color.
First.
[noise] it'll company advertising, obviously down in the quarter and that was as you heard overwhelmingly and not surprisingly due to covid beyond Covid. There is some lack of comparability to prior year and that specifically, it's because we had the NCAA championship and final four game in 2019, but Turner went ahead that this year. So that's where it's about 400 basis points, if youre doing math Sir.
And can really more to your question the quarter turned out better than we thought early and that was because we did see sequential improvement in each month of the quarter and simultaneously because scatter pricing held strong.
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.
<unk> is relatively strong cable seen more relative softness but in the cable side, we did take the opportunity to produce add loads to improve the experience. Local has also been tough, but things are getting better in particular auto is coming back in Q3 is factories have reopened and we continue to look forward to political being.
Significant driver and the second half <unk>.
Digital also was impacted but high quality digital remains super strong in fact glued OTV quickly returned to pre pandemic growth rates and pricing and was very strong in Q too.
So we like what we're seeing in terms of green shoots.
And look to continue to see that momentum on the Paramount third.
Let me start by saying.
While the studio was obviously unable to release films and the quarter due to Covid.
It is an incredible asset to Viacom CBS. It has a powerful collection of IP, which we continue to develop for film T V and streaming purposes, It's got a massive library, which benefits are networks and more recently, our streaming services and it's library is obviously a critical component of our licensing business.
And this Kobe time, which is really a time where theaters of shut down we are focused on protecting asset value and really benefiting from optionality that our company in this environment presents and that's drove enough to do a number of things.
First we do continue to move films later to save them for what we believe will be a healthier environment and 21 and your sauce do that most recently with a quiet place part two and top gun Maverick <unk> also monetize some films, yes, with streamers, which allows us to get a return on our investment now, but importantly, it allows us to avoid putting even more product.
Into a 21, that's starting to look pretty for.
You saw that would love birds as an example, we also decided to use a film franchise strategically and that's deploying Spongebob sponge on the run exclusively in the U S against our Super service relaunch in early 21 after a short keyboard window and then to your questions about P y.
We really are and sort of a covid rules phase of the business right now we're studios, including Paramount are doing some things I wouldn't normally do because theaters are closed.
No we remain committed to theatrical and believe a lot of this reverts once the world normalizes, 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 make be highly confident that despite covid Paramount is incredibly valuable Costco strategically and financially.
Thanks, Alexia next question please.
Thank you. Our next question comes from the 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 costs.
First on streaming streaming to be connected T V advertising clearly a strong secular growth you're investing into it with all access and Pluto, but it's also pretty complicated and fragmented market for advertisers.
Bob I'd love to hear your thoughts on how you see that developing how products like IQ give cvs an advantage Viacom C. B S. An advantage in.
Advertisers are spending with you rather than say a platform like an Amazon fire or a roku T V.
And then second just on cause there's a number of puts and takes as we look forward with the synergies and timing.
But as you go through this transition and invest in this transition to 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 Thanks, So I couldn't be happier that we acquired Toledo T V last year, when we announced that acquisition. The market was confused most people didn't know what it was then Avon are now what people call fast. It's been accepted is a legitimate an important part of the streaming ecosystem and others are followed us but.
We haven't let up not even close like really intense with content and to enhancing the platform into expanding distribution into building the brand and into monetizing it's add inventory and most recently global expansion and as a result, <unk> grow include OTV 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, a high quality content, which we built through a combination of assets, we own and this innovative revenue sure based models that we use with third parties.
On 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 Verizon Tivo and LG not only adds to the expansive basically we're ready building through Amazon Roku, Comcast Vizio anymore.
Sure and many of those have preferred placement <unk> built encouraged and by the way we got more deals coming in the pipeline, which is going to take these numbers up higher <unk>.
Importantly to the AD question, where rapidly monetizing it Pluto T V benefits, both from programmatic flow and from direct Viacom Cvs add relationships.
As a result that business has grown back garone dramatically and as I said is bounce back to pre covid growth levels already.
And now we're building an integrated ecosystem, where pluto's platform will feed our pay offerings now to your question on I too it's worth noting that Pluto T. V is really a cornerstone of I too which for those of you missed it we announced this week I too is a new add platform, which will reach premium viewing or.
<unk> across the Viacom Cvs portfolio and here, we're talking about over $50 million monthly full episodes users so super high quality advertising base and by the way to your question on Wi Fi from US horse. Other people you will only be able to buy that product direct from Viacom CBS. So we're in <unk>.
To being a broader solution provider, which of course, we are in this video space, we've really taken the next step in providing <unk>.
<unk> T access to high quality product to solve advertisers problems and that's just another example of the power of Viacom Cvs in the marketplace.
Costs.
The cost side I think your costs.
<unk>, if not fully related to.
The impact of streaming and scaling.
That service so an investment I guess a couple of points. One is we have very significant amount of content that we've already invested in across the company that we can deploy against the asset new sauce do that.
Some last week and the preview launch <unk>.
Second thing I'd say as we understand the math of content investment on Cvs All access alone we have five years of LTV data, which we used to drive.
Content decision, making what we commission, what we renew et cetera.
And third we're obviously leveraging live events in sports.
Which we already have that are real driver of subscribers unusual type of service and our experienced now as the original slate grows over time.
And get comprehensive across the full sweet a blend brands there will be some increase in cash content investment. However, we do intend to fund that as a mixture from lower growth areas and remember we're also going to be benefited from a larger subscriber base, which will generate even more revenue and help funded.
Lastly, I'd say, we are going to market. This in 2021 as part of our relaunch, but again here will significantly benefit from the power of our existing media assets Alea appeal of our IP, including in social.
So again this is it's going to be ultimately additive to our financials and we'll track through.
Hi, Mike It's Kris the other thing I'll add about the cost management is were two quarters into the combined Viacom CBS, which is a powerhouse to management all the cost across the company. So were highly focused on strategically managing them all and we will continue to prioritize investment in streaming in studio production and.
And given that we're now combined and we have a lot more experience understanding what's under every rock of cost.
Cost savings will continue and we will find more thanks, Mike next question. Please.
Thank you. Our next question comes from the line I've been Swinburne with Morgan Stanley. Please proceed with your question.
Thanks, Good morning.
Following 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 any help I'm thinking about what it's going to mean sort of resumed production as the covid restrictions leave.
Hopefully [laughter] and things returned back to normal heading into next year I'm just sending you can do to help us think about cash content spend none of this year and into next year and then I wanted to ask you as you think about the Super service and evolving all access.
Sports is obviously something that is a huge driver of consumption in pricing power. Thank you guys have a unique opportunity already and how you use sports and all access, but that's something you certainly leaning into can you just talk about your sports strategy on all access and how you think about <unk>.
Leveraging sports content on streaming versus linear instead 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 get to a cash basis.
You saw are very strong cash flow delivery in Q too close to $900 million on and adjusted basis, certainly that number benefited from.
Working capital implications of.
Are sort of production.
I'd say radical decline it is not totally shut down but certainly radically declined.
And you should expect that as we move forward in Q3, but more likely to four at scale that that working cat benefit begins to go the other way a bit and just to give you a little more color on the returned to production because I think if the topic everyone's interested in.
We are currently executing multifaceted returned to production obviously, we're focused on health and safety of all involved in front of an behind the screen.
And we have a real commitment to evolving approaches locations, even storylines 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 expensively. We've learned a lot through this covid phase from the productions that are on and we're rolling that through whether it's entertainment or sports.
And what role in that through we are dealing with all this through essentially managed process. So we can ensure application of best practices mitigate risk and we have the whole portfolio going through it.
That has has led us to having a whole bunch of fresh content on her coming to air shortly.
Unscripted like Big brother, which is on here now we're shooting Love Island in a hotel in Vegas with a cast and crew are actually quarantine together that'll air later this month.
Daytime soaps are back in production in late night Cola Colbert and Gordon 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 scripted side, we have a whole set of things in motion. We do have scripts on all theories. We are putting shows through the restart process I mentioned or third party production Studios are also beginning to move forward.
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 is we work to serve.
Consumers and customers.
To the cash flow point in particular, I think you should expect Q3, there's more production spending Q4 build there.
And then.
Transition into 2021.
I would also to add to that that conceptually, we do still believe for now and the long term. The key drivers are free cash flow improvement are cost optimization working capital efficiency and our continued focus on further revenue monetization.
Great. Thanks, a lot bad next question. Please.
Thank you. Our next question comes from the line of bread salad minute 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 enhanced all access product spanning all of your key brands I was hoping you can just elaborate give us a little more insight into what that output is going to look like over maybe the next 12 of 24 months, particularly as your ability to resume.
Full production comes back and then just on the same content side of things when we look at your T V librarian, all access the stacks up incredibly well versus other screaming products do you tend to be a little more focused with your film portfolio. So I was hoping you can maybe just discuss the importance of movies to the enhanced our product and whether there's an opportunity.
<unk> more differentiated they're particularly like the fact that you own a movie studio. Thank you.
Yeah. Thanks bread, let me take that from the angle of the overall, where we're going with the overall Super service and I'll deal with each year our questions within that so our guiding objected first super services stab abroad differentiated products at a compelling price point and to get a real sense of that take a good look at the preview lawn.
We did last week, where we materially broadened CBS all access the entertainment offering is now far wider we added 3500 episodes from 70 series from our flagship brands.
It unquestionably widened the demographic appeal, because we know a real offering for kids young adults millennials and more and look at the sports offering now including UEFA.
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 abroad.
Streaming service, we obviously have events like the Grammys, Tony the Superbowl, there's news, which something people need these days.
Or maybe not I don't know.
And then there are original to your other part of your question today. All access has a baseline of compelling original shows like Star Trek. The car discovery and now lower desks, which is animated the good fight Twilight zone and the stand starting in 21 that slate will greatly expand.
And to include all flagship brands and as an indicator really a taste, we announced last week the camp Coral, which is a spongebob spinoff will join the Super service as the first Nickelodeon original and that'll be on the back of the exclusive availability of the latest Spongebob film sponge on the.
So that's the kind of way we're using franchises we have an original plan that goes through 22 <unk>.
[noise] quarterly and we're Super excited about it and you're going to hear more about that at another time.
But that gives you sent the original is 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.
Our next question comes from the line average Greenfield with like Ted Partners. Please proceed with your question.
Hi, Thanks for taking the question.
Sorry, I thought I was on mute.
Oh I originally.
Sorry, yeah. 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 I think sort of everyone has talked about not just on your call, but I'm multiple calls sorta the importance of the NFL specifically.
The AAV of the contract moves from sort of around 1 billion upwards towards $2 billion a year.
Your subscribers and and this is not a viacom issue. This is an industry issue subscribers will have dropped from mid nineties 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 Cvs all access or the new Super service fit into the equation.
Yeah, 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 in that relationship has been a mutually beneficial one.
And is Viacom, CBS, where even better position to drive value for the league and for ourselves.
And to that and it's important that you understand is 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 add supported streaming and.
And potentially 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 we have time for one last question.
Thank you. Our final question. This morning comes from the line of Michael Nathan thing with Moffat Nathan. Please proceed with your question.
Thanks.
Keep it easy Bob.
Alright, I asked you about international the pay services coming in 2021.
Can you talk a little bit about.
Are you thinking about maybe the price and points, whether or not albeit Avon asphalt hybrid like all access.
And will there be any like foregone content licensing to launch this business and these markets. So just give us a I know, it's early but any kind of taste. Your cat about how are you thinking about the structure of these these new services.
Yeah sure Michael.
So screaming is clearly global opportunity.
And for Viacom Cvs, we believe obviously as part of that there is 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 in relationships, we really see that as a powerful go to market.
Vantage and feel where well positioned to succeed you look at where we are today on the free side, we're ready in Europe in Latin America, Spanish speaking Latin America with Kudo <unk> seem very strong growth today to date, particularly in Latin America, which we've only been there a couple of months.
We do have almost $7 million international meus $33 million global.
And we got we're just getting go in there we got plans to enhance our product expanding our channel lineup, we're adding a bunch of distribution partners, we will enter Brazil in Spain later, this year, France, and Italy in early 21.
So there's real growth ahead, and obviously, we're thinking about other things <unk> 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 have an announcer will vary by individual markets, but broadly speaking the new service will feature.
Exclusive first run Premier So we're going to get those from the slate were using with Cvs all access in the U S.
From Showtime and from Viacom International Studios.
Long side that will use Paramount movies, Boxsets from CBF and Viacom media networks. If you wanted to just compare it at a high level to what we're doing in the U S.
It will be a much more entertainment focus product it doesn't really have a sports of 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 it in multiple markets next year, including Australia, Latin America, and the Nordics, you'll probably see some press about that but we're really excited about the opportunity and again. This is another place where the power of Viacom Cbs's 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 us.
So look thanks, everyone for making time and this is cove, a day coming coming to us probably from your home.
It's coming up to say despite the Cove at 19 headwinds, we did deliver another solid quarter reaffirming the strength and Optionality of our combined operations, we're executing against key objective and pushing Viacom CBF to emerge stronger.
As you see the key earnings in cash flow metrics improve sequentially as we continued to make progress on our integration and we are now nicely ahead of our run right and 2020 merger related cost synergies that we committed to our dealmaking an execution is underscoring the benefit of our increased scale, obviously you see in the <unk>.
Significant distribution agreements, we struck with Verizon Youtube and others and importantly, we're ahead of schedule and building our streaming business Pluto T V is really cracking and progressively moving towards the relaunch of our diversified Super service early next year and by the way. We just debuted our latest original star Trek low.
<unk> on Cvs all access it's a great piece of adult animation I Hope you I'll go and check it out.
And lastly to the employees of Viacom CBS I want to thank you for your amazing passion dedication and tenacity at this challenging point in time, you are 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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