Q2 2021 ViacomCBS Inc Earnings Call
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Good day, everyone welcome to the Viacom Conference call today's call is being recorded.
Cause our streaming strategy across pay premium and free is working.
And we expect this momentum to continue in the second half of the year.
On today's call all covered 3 topics first briefly discuss Viacom Cbs's strong Q2 results were we reported operating strength and year over year revenue improvement.
I'll highlight the company's momentum and streaming and the underlying content drivers.
And finally, I will discuss our go forward global streaming expansion.
Then I'll hand, it over to intervene to provide additional financial on operational details before opening it up for Q&A.
Let me start with the companies second quarter results were we achieved in other quarter of solid performance as total company revenue grew 8% year over year to $6.6 billion here I want to highlight a few important items from an operating standpoint.
And advertising, which remember excludes streaming revenue grew 24%.
Benefiting from the return of a range of sports programming Ah material improvement in the AD market and strong execution.
Q2, 2021, obviously looked very different in Q2 of 2020.
And we were happy with our ability to convert this into strong revenue performance.
Speaking of advertising I'm pleased to say, we saw very strong demand and the upfront, which led to historic levels of linear price increases plus on the ability to drive a significant volume towards our premium digital video inventory.
The upfront was a perfect platform for Viacom Cvs to unlock value from its leadership position.
Position underpinned by premium content in a robust client centric approach to add solutions combined with offerings spanning both linear and IQ our premium digital video advertising platform and.
And the results speak for themselves.
An affiliate, which also excludes streaming revenue grew 9% for the quarter and since the close of Q2, we've renewed and expanded multiyear distribution deals with both charter communications and Cox Communications.
A recent agreements demonstrate how these affiliate relationships have evolved to become more modernized and include streaming elements as well.
These recent deals along with others, Viacom cbs's executed, including dish, Verizon Youtube TV and Hulu further demonstrate the demand for our content and brands and the strength of our company.
And and theatrical revenue reached $134 million, thanks to theaters reopening and the success of a quiet place part too.
Which is also now streaming on Paramount plus.
Speaking of streaming we saw impressive global growth with revenue almost doubling year over year to nearly $1 billion with strong performance across all metrics.
Streaming advertising revenue more than doubled year over year, reaching $502 million in the second quarter.
This growth was led by Plude, OTB, where global monthly active users grew to over $52 million in revenue more than doubled year over year for the fourth consecutive quarter.
The growth is remarkable and we know in fact expect clued OTV to comfortably generate more than $1 billion in revenue this year.
The power of Clued OTV is unquestionable.
More consumers are spending more time with pluto than ever enjoying the now over 200000 hours of content available on the platform in the U S, which has doubled in the past year.
And its integration into our advertising portfolio is compelling to our clients and the agencies that represent them.
So it's no surprise clued OTV continues to be the leading free AD supported streaming television service in the market.
Streaming subscription revenue also accelerated growing 82% year over year, driven by strong subscriber growth fuelled by Paramount plus in.
In the quarter, we added 6 and a half million global streaming subscribers, our largest number yet, bringing our total global streaming subscribers to over 42 million.
These results further demonstrate the strength of our diverse content portfolio and the universal appeal of Paramount plus.
It's clear Paramount pluses resonating with consumers both in the U S and internationally.
And that's because it's a differentiated product with real competitive advantages. It has something for everyone and we saw strong subscriber acquisition and engagement across a variety of different genres.
For kids and young adults, we saw tremendous viewership for the new Icarly series, which was a leading acquisition driver in the quarter and which was just renewed for season 2.
We also saw continued strength from a range of Kid favorite Nickelodeon franchises, including Spongebob rug rats poor patrol and more.
In film Infinite starring Mark Wahlberg Premier exclusively on Paramount plus in June and was 1 of the top engagement drivers Ado.
Additionally, we saw on nice uptick in overall film engagement with users as we added over a thousand movies to our extensive film library.
And sports news the UEFA Champions League was a top acquisition driver, while news, including CBS and continues to generate meaningful engagement.
In scripted why women kill evil and Ncis drove significant acquisition engagement and consumption this quarter.
Mcis in particular continues to perform well now on top 5 driver of both engagement and consumption on the platform.
And finally unscripted has growing momentum.
<unk> shows with strong and devoted fan basis like Rupaul on the challenge did very well in driving new subscribers and consumption respectively.
Added up and you see our strategy of building a multi genre broad content offering is clearly working.
And is the breadth of content expands the average age on Paramount plus continues to get younger decreasing 2 years since last quarter to 35 and.
In fact, this diverse array of content often appeals to multiple people on the same household and can therefore be a powerful tool to not only drive subscribers, but also reduce churn overtime.
In short by putting the full power of Viacom Cvs behind Paramount plus we're beginning to see the massive potential this service has.
Also in June we launched the AD supported Paramount plus essential plan.
This version of Paramount plus has a lower price point of 499, a month appealing to more cost conscious consumers and thereby increasing the size of Paramount pluses total addressable market.
In addition, it provides advertisers with a new option to reach valuable consumers and a high quality environment.
Something on a recent upfront experienced demonstrated was very compelling.
While it's early days Paramount pluses clearly working.
Which is why we're continuing to invest to deliver on its promise on potential.
To that end looking ahead, we are amazing content coming to the service and we will continue to scale volume across the range of genres that together differentiate Paramount plus kids sports unscripted scripted in film.
To give you a sense here are some examples of what's coming to the service between now and the end of the year.
Right now in film where streaming acquired plays part to.
This is the first title in our fast follow up from theatrical strategy and and is doing very well.
On August 20th poor patrol the movie will premiere day and date in both theaters and on Paramount plus.
We're excited about a day and date strategy for this title in this audience in today's marketplace.
And we're supporting it with a robust marketing campaign, which includes our consumer products presence at retail.
In sports were thrilled that a new season of serious soccer, our first with the franchise will begin in late August.
And we've also recently added new seasons of compelling reality and dark you series to the service, including Big brother Love Island, and just last week the return of the iconic behind the music series.
Of course in September we have the return of the NFL and the folks that Cvs on Paramount plus are gearing up for some amazing collaboration.
Additionally, we have a great fall lineup on CBS, including the expansion of some key franchises like Ncis Hawaii.
Sigh Vegas and FBI international on.
All of which are also streaming on Paramount plus.
And I'm thrilled to announce that we have extended our deal with tray Parker and Matt Stone through 2027, bringing South park to comedy Central through season 30.
In addition, tray and that will be doing 14, South Park original movies exclusively for Paramount plus.
2 of which will premiere this year and then 2 more every year through the terms of the deal.
And later this year, we have big new scripted series premiering like Taylor Sheraton's why 18.83, the origin story of a number 1 scripted show on cable Yellowstone.
As well as Taylor's newest series mayor of Kingstown and more.
From a promotional standpoint will leverage our linear platforms at subscriber acquisition vehicles. For example, why 18.83 and mayor of Kingstown will premiere on the Paramount network behind Yellowstone for 2 episodes. Each then move over exclusively to Paramount plus.
We will use the same strategy on CBS with seal team.
Turning to premium streaming Showtime OTT had another strong quarter delivering 1 of the best quarters for sign ups, while generating it's second best quarter ever for streams and hours watched on the service.
Viewers were highly engaged driven by hits like the fourth season of the shy the series finale of Shameless and the Floyd Mayweather vs. Logan Paul boxing event among others.
Looking forward the content lineup for Showtime is strong we have the premier of yellow jackets, a dramatic show that is part psychological horror part survival story.
We also have the return of Dexter and billions, both of which will have some creative product and marketing campaigns associated with these next seasons.
In fact billions promotional campaign will include availability on Paramount plus where we will have the first 3 seasons.
In addition, we will offer a bundle of Showtime and Paramount plus at a discounted price to expand the reach of both services.
That brings me to my third topic global expansion.
Viacom CBS has long been active outside of the United States with operations on the ground all around the world.
That global orientation, now incompetent streaming where we're leveraging our existing business footprint and relationships to enable rapid expansion of our streaming offerings.
As an example today, we're pleased to announce on new comprehensive and expanded deal with sky covering the UK, Italy, Ireland, Germany, Switzerland and Austria.
This deal includes carriage renewals for linear services as well as renewals for our existing AD sales representation deals.
Robust launches of our streaming services to their sub base and all the countries in 2022.
This is a powerful deal.
Not only does it extend important benefits on economics from our legacy business, but it's also a game changer for Paramount plus in these markets by unlocking previously exclusive Skye content for use on Paramount plus and provide providing paramount plus with a very significant subscriber base at launch.
In these markets from a content perspective, Paramount plus will be the exclusive home for new Showtime series and Paramount plus originals.
It will be the co exclusive with Sky home with Paramount pay 1 movies.
The service will also be the exclusive streaming home of our most popular Kid franchises, Paul patrol and sponge Bob Square pants.
And it will have a very substantial library offerings from across Viacom Cvs.
What excites me is our ability to work with a key partner supporting both the traditional ecosystem and and transitioning consumers from linear to streaming in a way that is accretive to ARPA.
Importantly, the deal preserves our ability to pursue DDC opportunities in these markets.
Stepping back to the big picture with our upcoming launch in Australia, and New Zealand I am thrilled to report we've reached our goal of expanding Paramount plus to 25 markets in 2021, and we're well on our way to 45 markets by the end of 2022.
Simultaneously, we're continuing to drive Pluto's international growth we.
We recently launched on Clara Android in Brazil on mobile service with an eligible user base of 32 million users.
And in 2022, we expect Plude OTV to launch an additional markets, including the Nordics, Benelux, Canada, Poland and more.
We're thrilled with our international streaming progress and momentum and Q2.
And we continue to see a massive opportunity to capitalize on our global content capabilities and infrastructure to further capture the global streaming opportunity.
I know from my decade, running our international business that every market is different and often requires different strategies and partnerships to succeed.
We are executing with that in mind and for sure you will see us continue to lean in and allocate capital to what is a very large in high growth total addressable market in streaming internationally.
With that I'll hand, it over to intervene to dive into our financials Levine.
Thank you Bob and good morning, everyone.
As Bob mentioned, our second quarter results were highlighted by robust growth and streaming where we had another quarter of record subscriber additions.
Growth rates for both streaming subscription and streaming advertising revenue accelerated from there already strong Q1 levels taking.
Taking overall streaming revenue to 92% year on year growth.
Q too also benefited from strong performance and advertising and affiliate revenue.
All on tack, our streaming results by sharing additional color on audience growth engagement and monetization starting with our subscription businesses and then moving to our AD supported services.
We added 6.5 million global screaming subscribers in the quarter, taking us to more than 42 million global streaming subscribers.
Showtime OTT enjoyed 1 of its best quarters ever in terms of new sign ups, but like last quarter. The significant majority of our new subscribers or from Paramount plus including a mix of both domestic and international subscribers.
In fact, we are increasingly bullish about the international market opportunity for Paramount plus as evidenced by our queue to results and our newly announced partnership with Sky.
Financially speaking this type of deal provides a capital efficient way for us to quickly build scale and awareness in new markets.
Bundles with international partners bring low churn and highly efficient acquisition costs.
Moreover, as Bob pointed out Rpgs are meaningfully accretive to the linear affiliate revenue we are replacing.
In addition to strong subscriber growth. We also saw continued improvement and customer engagement and retention as the breath of our content portfolio continues to expand.
For example, prepare amount plus domestic trial to pay conversion monthly hours per active and monthly churn all improved measurably and Q2 on both a sequential basis and year over year.
In terms of monetization when he saw healthy streaming subscription <unk> growth of 4% in Q2 versus the Q1 level.
The combination of strong subscriber growth and increased engagement powered year over year streaming subscription revenue growth of 82% to $481 million.
Moving on to streaming advertising here our growth was led by Pluto television.
As a quarter and play on television reached more than 52 million global meus across 25 countries.
Pluto's revenue grew 169% in the quarter.
This tremendous expansion of the business has been driven by growth in users engagement and shelter.
Domestic watch time per Miu increased 45 per cent year over year in queue too.
And Pluto television domestic <unk> more than doubled year over year.
Benefiting from a double digit percentage increase in effective cpm's and significant improvement in sell through.
This enhanced monetization reflects both strong demand for Pluto Tvs high quality connected television inventory.
And efficiency benefits from the queue to launch of open header bidding.
While Pluto remains the largest component of our IQ digital advertising platform.
We are optimistic about the growth potential for advertising on Paramount plus an early results are encouraging.
In fact in queue to Paramount plus domestic advertising revenue more than doubled versus a year ago.
Benefiting from user growth along with a high teens percentage increase in streaming advertising <unk> per active sub.
We believe we're just scratching the surface of the Paramount plus advertising opportunity as user and engagement growth alongside product enhancements should add supply for this highly valuable digital video inventories.
When you put it all together this quarter the combination of Pluto television Paramount plus and other IQ platforms drove streaming advertising revenue to $502 million, representing 102 per cent year over year growth.
Advertising revenue, which excludes dreaming grew 24% in Q2 to 2.1 billion.
Benefiting from both the return of the N C double a men's basketball tournament.
As well as timing shifts of this year's professional golf tournaments.
This quarter strong growth rate was also a function of improvement in demand and record scattered pricing compared with the COVID-19 impacted quarter a year ago.
[noise] affiliate revenue, which excludes streaming through.
Drew 9% to 2.1 billion where.
Where we benefited from distribution deals and renewals that provide incremental carriage and improved economics, which more than offset changes in the number of pay television subscribers.
Even excluding the impact of incremental distribution deals we saw modest improvements in subscriber trends in queue too as we did in Q1.
Licensing and other revenue fell 36% to 1.2 billion as.
As the year ago period included a significant licensing deal for South Park.
Adjusting for the 21 percentage point impact of the South part deal licensing and other revenue would've been down about 15 per cent, which reflects COVID-19 impacted content availability.
And our ongoing efforts to limit licensing to third party streaming services.
Total company revenue grew 8% year over year to $6.6 billion.
Adjusted OIBDA fell 25% to $1.2 billion in the quarter.
Again year over year growth rates for revenue and adjusted OIBDA were impacted by the comparison to the year ago period, which included a significant contribution from the licensing of South Park.
Excluding the 9 and 30 percentage points South Park impact respectively.
Q2 revenue growth would have been 17% year over year.
And adjusted OIBDA growth would've been 5 per cent year over year as revenue growth and ongoing cost management more than offset increased investment in streaming.
Adjusted diluted EPS was 97 cents in the quarter and Q2 adjusted free cash flow was 75 million.
Moving to the balance sheet. We finished the quarter was 5.4 billion of cash on hand.
And total long term debt of 17.7 billion.
This translates to a 2.4 times net leverage ratio as of June 30th.
We have significant financial flexibility, which will increase with net proceeds of $2 billion from the sale of Simon and Schuster, which is on track to close in 2021 subject to regulatory approval.
We continue to believe investing in our streaming growth opportunity is our best use of capital.
And we are starting to execute across the streaming growth factors. We previously described.
As Bob highlighted we are investing even more in original content for Paramount plus.
Our long term multi format deals with Alex Kurtzman, Taylor Sheridan and the creators of South Park exemplify compelling opportunities to bring heavyweight franchise IP with global appeal exclusively to Paramount plus.
We are accelerating international expansion as evidenced by our plan to launch Paramount plus and 45 markets by the end of 2022 and.
And aided by strategic partnerships like the 1 we announced with Sky today, which will accelerate our growth plans in the UK, Italy and Germany.
And we continue to reduce the amount of original content, we make for an license to third party streamers, instead, focusing more of our creative assets on in house streaming services.
Beyond investing in streaming we use excess cash to pay a dividend manage leverage and fund opportunistic M&A, which bolsters our streaming growth ambitions similar to our 2020 investment and Miramax and are pending acquisition with chili busy on which we anticipate closing.
In Q3.
Looking ahead to the third quarter, we expect to see continued strong year over year streaming growth in both the subscription and advertising parts of the business.
Q3, Paramount plus will benefit from the strong content lineup Bob described.
As well as the rollout of our Showtime Paramount plus bundle.
International growth will be aided by our launch with Paramount plus in Australia, and the launch of additional distribution partnerships.
And we expect glued on T V to see continued growth and engagement and further improvement in monetization.
In addition to M. A U growth from international market launches.
If it continues them March to over a billion dollars in revenue for full year 2021.
Rising in the back half of the year will continue to benefit from a robust market. So.
Though year on year trends will be compared to the return of demand in Q3.2020, as we rent out of Covid and benefited from record political spent.
Advertising growth will improve when new upfront price and kicks in for Q4.
We expect affiliate revenue growth in the back half of 21 to slow as we lap the benefit of new distribution from Youtube television.
And the timing of other affiliate renewals, which started in Q2 of 2020.
We expect to return to growth and content licensing revenue.
Largely driven by increased licensing of T V content for linear distribution.
Looking further out our enthusiasm for streaming continues to grow.
Streaming revenue and subscriber growth are pacing ahead of our expectations and.
And streaming will represent close to 15 per cent of total company revenue in 2021 and will become an even bigger share of revenue next year.
This momentum tells us that our investment thesis is solid and can unlock significant incremental growth.
In pursuit of this growth we continue to expect streaming content expense will more than double in 2021 relative to our 2020 spent as we deliberately transition linear content expense to streaming content expense.
We are confident the streaming investments, we are making will yield compelling Roy.
You can see some of the early proof points and this quarter's results.
And we are bullish about where we can go from here.
Moreover, we are excited about the long term shareholder value we can create.
With that let's open the call for questions.
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Gentlemen, thank you for standing by.
Mr. Feldman Megatrend, Mr. Hellman find your line is open Sir please share with your question.
Great can you guys hear me okay.
Yes, we can sorry about that apps outstanding Alright, 2 questions. If you don't mind. The first 1 is for Bob.
Figures, obviously seeing continued M&A and your company has been cited as a potential merger partner in a lot of these media reports on the first question for you is do you need more scale and how do you think about the merits of gaining it via M&A or partnerships and then the second question is for Levine.
Was hoping you can give us a little bit of insight on the uptake that you've seen in the new AD light tier Paramount plus what was it meaningful to the net adds you had in the quarter and any insight you can give on where the arc who is trending there would be appreciated. Thank you.
Yes, sure Brett let me take the first part so look we continue to be extremely excited about the momentum and go forward potential of our organic strategy as we leverage the assets of Viacom CBS to create value overall, and certainly with respect to streaming.
The Q2 metrics clearly point to this strength.
And the ongoing potential of our organic approach now on the fact is the merger of Viacom and CBS was a transformative transaction and we continue to successfully create value from it.
We believe organic execution continues to be the right path for Viacom CBS and our shareholders, but of course, we will always evaluate any opportunities through our shareholder value creation lens.
Yes.
Regarding the essential plan, we're very excited about being able to launch that this quarter. We think it expands the paramount plus proposition to an even greater set of different customers.
And from our perspective, we're actually.
Very happy for people to sign up for either our premium or essential tier we want them in the plan that's going to be the stickiest for them because.
In the long run we know that we maximize lifetime value based on the expected life of our customers.
It's also important to recognize that the rfps between each of those tiers.
We're actually not as different as you might think because of the advertising contribution from the essential tier.
And those.
Our food is actually both the.
The subscription and the combined advertising and subscription in the essential tier are growing both domestically and internationally and we think that they have material future upside potential both through evolution of pricing and also significant upside in the AD monetization.
So we like how essentials is progressing and we think it's going to be very additive to our strategy.
Thanks, a lot Brad operator, let's go to the next analyst as the next analyst is Michael Morris with Guggenheim. Please go ahead Sir.
Thank you good morning, guys I have 2 questions as well my first maybe for Bob as it is.
If you could share some more detail on the Sky partnership that was announced.
I know there can be a lot of complexity in these agreements.
So any additional thoughts on your timing within 2022, your promotional plans affiliate AD mix things like that to help us understand the go to market would be great.
And my second question is for Devine.
Looking for maybe a little more detail on the domestic trends at Paramount plus curious how churn has trended engagement, maybe compared to all access just to give us some some historical precedent or anything else you can share there and how youre thinking about the cadence of the drivers for the balance of the year. Thanks.
Yeah sure Michael So just to frame. It you know our streaming strategy overall is to access the largest total addressable market and do so by leveraging the full power of Viacom CBS that obviously means global so international is a key component, including critical scale markets like the UK, Germany and Italy.
The good news is we have a long mutually productive value, creating history with sky.
And to that end, we saw a compelling opportunity to use renewals in the U K, Italy, and Germany to both elongate and continue to transform our business and specifically accelerate our streaming strategy on streaming you'll see us launch.
Paramount plus in 2022 to the subscriber base on the Sky cinema Tier and then it'll be Ala carte on top of that in all of those markets, which will be a very meaningful sub catalyst in 2022.
And as I said in my prepared remarks part of this deal was unlocking some previous exclusive the sky content. So in addition to the distribution boost it really makes our product even more compelling.
All that said and I'm not going to comment on real contract specifics I will tell you. We're happy with the economics, we see this deal as a meaningful predictable Paramount plus subscriber accelerant in all those markets and 1 with a compelling churn reduction dynamic.
Engagement and things with large libraries.
Well known titles think something like a survivor can be a top consumption driver.
So we're going to continue to press on all of those dimensions, you got to nail acquisition engagement and consumption to have a healthy subscription business and we think we're in a very strong position to be able to continue doing that and the metrics from Q2 proved we're moving in the right direction.
Great. Thanks, Mike Operator next question please.
Question is from Alexia <unk> with J P. Morgan.
Hi, Thank you my question Julie.
Some strategy.
Scott.
On behalf of the box on Paul.
On the profit driver for Paramount longer term do you still think.
A big driver of growth longer term on them.
Hang on your film business I think you recently made some changes I think you pulled Clifford on lithium plant because that's also very nice to ice dam and putting profit trial day in day I guess I'm curious if you see the 45 day window eventually for all your major films relative to say that fell by some faithful I guess I'm trying to get a sense that this is no COVID-19 related changes.
Or are you kind of go back and forth longer term, depending on what your thoughts on the outlook, yes sure Alexia. So the film business is strategically important to Viacom CBS movies work well on multiple platforms, including of course streaming where early experience with Paramount plus and you heard some remarks on that already.
Eddie is strong.
1 other things that we have today is more optionality.
With how we use films, we have more ways to use them than ever which better leverages, our investment and you see that in us putting to the product to use in a multifaceted way some product like a quiet place 2.
With its 45 day window as a fast follow on Paramount plus we like that some product as per is Paramount plus exclusive like what we did with infinite and in a lower budget way like what we'll do with the upcoming paranormal activity film.
Some will be day and date with streaming and theatrical like the upcoming Paw patrol movie and it's really this mix of approaches that's intended to optimize the use of our product, including driving both subscribers and box office and provide learnings, which we can use to continue to shape our future mix.
Orderly as we do all this we do consider the impact on all constituents.
As we look at individual to titles.
On your Covid question look, we obviously track the market very carefully.
And the situation is a bit fluid as a general principle, we do like the 45 day fast follow theatrical to pay 1 and.
And that is the overall direction, we'd like to go over time, but we got to look at each title in this pandemic and figure out what is the right strategy.
At this point in time and that results in us delaying some titles move.
Moving forward or the traditional theatrical release doing something exclusively on streaming or doing it day to day and again Theres, obviously, a lot of considerations on that but we like films. They are strategically important we see tremendous value and we have more levers to pull than ever.
Thanks, Alexia operator next question.
Next question comes from Ben Swinburne with Morgan Stanley.
Hey, good morning, guys 2 questions.
<unk> on streaming was quite strong as you guys highlighted it was up nicely Q on Q and year on year.
Can you talk about the outlook there as you move more international and it sounded like you're incrementally bullish internationally does that put any pressure on it or are you feeling like our who continue to sort of grind higher over time, just to give us a little sense of the drivers there on how youre thinking about it and then naveen.
Moving on free cash flow.
7 and first half of the year I think the expectations out there that it will be less than that for the full year, just any update on free cash flow expectations.
Yeah, Hey, Ben so on.
I'll start with your question on <unk>, and then touch on free cash flow. So as you pointed out.
<unk> in Q2 saw some very nice sequential improvement and I point out that that improvement.
Happened both.
With respect to domestic <unk> and international <unk> and.
And I think going forward, it's important to think about those 2 things somewhat independently because the drivers are a little different domestic <unk>.
We will benefit from continued conversion of trial subs in the pace up.
And it will also be influenced by the mix of subs between our essential and premium tiers, but as I said earlier, it's important to remember that the real <unk> coming out of our essential tier includes both subscription and advertising revenue. So in the long term.
We think that the essential tier can actually be accretive to overall <unk> on Paramount plus on.
The international side.
The next wave of countries that we're going to be launching which are primarily in Europe and Australia are higher <unk> markets then.
Where we've been to date, which has been <unk>.
Primarily Latin America, so that should be accretive to <unk> and in fact, the deal we announced with Sky today is a great example of that.
With that deal we will quickly add millions of subscribers in the U K when it launches.
And those subs would be accretive to both our current international streaming <unk> and the <unk> that we generate.
On the linear affiliate side today.
In terms of free cash flow I'd say, a couple of things number 1.
As we've said before we are increasing investment streaming investment.
For content.
<unk> heard me mentioned before that we expect that investment to more than double this year relative to 2020 again not all of it is incremental on a total company basis, because theres a lot of remixing between linear and streaming and we've got content that does double duty.
But we're also.
Doing well in terms of being ahead of our plan on revenue on subs and continuing to find ways to drive operating leverage out of the business. So the result of all of that I think in terms of free cash flow.
Obviously.
That will mean that there is some working capital needs going forward both to scale that production on the streaming side and also just generally.
As we transition out of Covid some of the tailwind that we've had from a cash flow perspective in 2020 in the first half of this year probably start to dissipate.
Great.
Thanks, Ben operator, let's take our next question.
Our next question is from rich Greenfield with <unk> partners.
Hi, Thanks for taking the questions.
Yes.
I just wanted to follow up on <unk> question, just as you think about sort of things like snake eyes, which obviously you're struggling at the box office just given the health of U S box office I mean, even the 2 biggest films to date I think I've only done.
Domestically 170, or 175 million it looks like the peak and so it just doesn't seem like box office dollars are there the way they used to and I guess, Bob you sort of alluded to other strategies, but I'm just wondering you've got 2 other companies 1 in Disney doing sort of a $30 day in date premium access and you've got Warner brothers sort of throwing them.
And at no extra cost Netflix style on HBO, Max we just sort of love your view given that it looks like things are getting worse again, rather than better.
From an attendance standpoint is there 1 of those that you prefer or 1 of those that you think makes more sense for Paramount and then just.
I guess for Bob specifically.
Nick seems like 1 of the most important assets when I think about creation of franchises.
And what it's doing for your streaming service was wondering sort of how you think about the IP creation, new IP creation at Nickelodeon over the past year and what you see coming over the course of the next year that we should keep our eye on.
Yes, sure rich so look on the film side I will say at this point in time on a macro basis, we think the <unk>.
Fast follow from theatrical a 45 day window 30 to 45 day window that we did our first implementation with a quiet place 2.
Is the sweet spot of the model because it provides a theatrical opportunity for consumers. It lets us benefit from that market and then it quickly moves the product.
To streaming in this case Paramount plus.
To drive subscribers, there and again, we only have 1 film we've done it with and it Hasnt gone through Labor day title, yet, but we like what we're seeing so I'd say on a macro level, we like that that said to your point, we continue to be in Covid.
That situation is a bit fluid and so we are looking title by title and it's part of the reason we looked at we're doing a day and date with Paw patrol as we said for that audience I E families with young children.
Right now in the middle of Covid or at least partially still in Covid.
We wanted to provide both choices for consumers because that we think gets into the largest.
Potential consumer base, which is not only good for that movie, but also good for the for the consumer products business that wraps around it and by the way if you've been inside of Walmart or target or what have you youll see strong paw patrol the movie marketing available in theaters or Paramount plus our and Paramount plus as part of that signage.
And so we really like that strategy for that title.
And we will make decisions title by title going forward as we continue to be in this COVID-19.
Influenced market now with respect to Nick and <unk>.
Let me start by saying Big picture, we really are big believers in franchises and their associated value.
They have broad consumer appeal and awareness you can do all kinds of things with them creatively. They obviously have commercial potential including extensibility to things like consumer products and they tend to play globally. So we like franchises. Nickelodeon is a great example of franchise and we're going to keep.
<unk> 2 on.
Optimize and drive that franchise machines, you've seen us do that a bit.
Recently, this year, including with Paramount plus Paramount plus really launched with the Spongebob franchise taken the Spongebob movie and then having the first episodic spin out in camp Coral, we're very pleased with that in the quarter Icarly. The reboot of Icarly was a total homerun that's on.
Obviously, a live action franchise versus an animated franchise that appeals to a little bit older audience, but theres no question that worked.
And in talking to Brian and working with him he Brian Robinson ones Nickelodeon We've got a very significant franchise plan ahead of US..1 example of that is we've now set up Avatar studios that has tremendous potential as an umbrella franchise with all kind of sub franchises inside of it.
Obviously paw patrol the movie, which I referenced in the film side of it. That's another example of franchise growth.
So there's a lot to do there, but I would also say rich its not just about Nickelodeon look what we're doing more broadly including on Paramount plus whether that.
<unk> thousand 883, which is the Yellowstone prequel.
That by the way stars Faith Hill, and Tim Mcgraw, and Thats going to Premier behind Yellowstone for 2 episodes on Paramount network before moving exclusively to Paramount plus.
We're doing a bunch of stuff in unscripted. So the franchise play as broad certainly Nickelodeon is the visible and powerful piece, but it goes much beyond that.
And by the 1 thing I'm actually really excited about for next year on apparel plus is halo.
That's a big game franchise, we're doing a.
Pretty wild live action episodic out of it I've seen on early pieces of it looks spectacular. So franchises are key yes, Nickelodeon to the core but it's bigger than that.
Thanks Rich operator next question. Please the.
The next question is from Jessica Reif Ehrlich with Bank of America.
Thank you my question is advertising related I guess couple of parts to it.
Given the Dean's comment about AD light.
Upside I'm wondering why don't you push that more or can you push that more is there any difference in contribution margin I mean, it just seems like the.
<unk> net product could be higher than subscription and then on more generally on advertising overall and then historically strong upfront that we just saw.
Can you give us a deeper color across.
All of your assets National and local and international in terms of where you see advertising going over the next few quarters.
Yes, sure Jessica let let's do it in reverse order, let me talk about advertising Big picture and then and then have navin.
Add some color around your question on <unk> et cetera, so to your point.
In our remarks.
Very happy with what we're seeing in the AD market.
We're clearly.
Benefiting from our leadership position there in the upfront as expected was particularly strong. This year part of that of course was a function of supply and demand at the market level supply, particularly on linear being tight and demand is strong given the ongoing ramp out of COVID-19.
That obviously set the stage for very strong and arguably historic linear prices increases.
And those increases were what we delivered and those will largely kick in in Q4, but it's not just market. There are also real Viacom CBS elements in play here, we obviously benefit from our portfolio, which includes premium content both on the mass market in targeted spaces <unk>.
<unk> with young and diverse audiences, we have leadership, both on the linear side and with IQ on the digital video side IQ in particular on a long term basis and in this upfront is really important because it provides a large volume of high quality impressions, which more than.
Set the linear supply dynamics and drive overall advertising revenue.
And critical to all of that is are executing as a single sales organization that allows clients on their agencies really turnkey access to the portfolio through a single point of contact.
So very pleased with what we're seeing in the AD market.
Very pleased with the upfront really a case study of the strength of Viacom CBS and our ability to differentiate ourselves and grow on an ongoing basis Levine, yes, so as it relates to the.
Interplay between the essentials tier on the premium tier and sort of steering customers to 1 or the other.
I would reiterate that.
We are focused on maximizing the lifetime value of each of our subscribers and given what I noted earlier about.
The fact that the <unk> and the contribution margin of each of those tiers is not that different and likely will converge over time.
Ultimately what matters in that lifetime value equation is the expected life of our customers. So we want the customer in whichever tier they are going to be the most sticky in and that's how we're operating.
Those services today. Thanks.
Thanks, Jessica operator next question.
Question is from Vijay Jayant with Evercore.
Good morning so.
Bob you talked about the candidates.
On the charter Cox and now with Sky.
And on 1 of them.
Good day.
The modern era deal can you just sort of talk about whats the evolution. There in terms of economics, the flexibility of that has to happen to make this kind of a win win situation and really how key is the legacy mvpds relationships to grow per months lots going forward. Thanks.
Yes, sure Vijay So let me start by saying, we're extremely pleased with where we are from an affiliate perspective.
And see this multi quarter track record that we've put on the boards of <unk>.
Renewal after affiliate renewal as overwhelming evidence of the strength of Viacom CBS.
<unk> CBS really is a cornerstone provider to the distribution community and yes that started way back win with the provision of linear feeds.
Probably 5 or 6 years ago that expanded to include advanced advertising partnerships, which were mutually beneficial and now it's incorporating streaming as a fundamental element.
And so we are working with Mvpds.
To advance our streaming benefit for both of ours benefit and we're doing that across free and pay.
We're doing that across set top box and broadband only.
And the recent examples of that are charter and Cox, where streaming was certainly additive and mutually beneficial and then today's announcement Sky same thing. So it really is a modernization of broadening of making these partnerships even stronger as we together transformed the <unk>.
Benefit and provide com business and provide com Cvs really accelerate the growth of our streaming portfolio. So we're feeling great about Vijay. Thanks, Vijay Operator next question. Please.
Next question is from John <unk> with Wolfe Research.
Thank you Bob maybe 1 for you with your comments on on Paramount plus coming out of the upfront.
Can you give us more of an update on your digital advertising strategy I don't know if you separate the dollars between Paramount plus CTV and Pluto, but maybe even directionally. What are you targeting for digital as a percentage of the total and do the CPM increases at CBS provide some form of a tailwind or upside for price increases or do you go for volume in the short term and then maybe a quickie on.
On <unk> with the growth there is still really strong have you seen any changes in either the economics of the business or content availability.
Yes, sure so John so on the AD side and in particular, the role of digital but we believe its fundamental we made that decision at Viacom legacy a number of years ago. Among other things that drove us to do the <unk> acquisition, which by the way has turned out to be a total homerun I would point out that when we.
We acquired <unk> at the beginning of 19 it came off of 2018 revenue base of $70 million.
In this third year of owning it will do over $1 billion that sounds like a very robust growth to me. So we're thrilled we have at Pluto is part of what we call IQ, which is our overall.
Digital video advertising portfolio.
It is proven to be a great source of high quality impressions and high quality environments in a world where there is I mean, that's compelling on a standalone basis, but also in a world where there is <unk>.
Linear supply constraints, it's really in combination that it has turned out to be extremely powerful overtime.
On the video of the digital video side will continue to increase as a percentage of our overall mix.
As we package and in some cases transition advertisers from scarce high price linear to more available high quality digital but by the way to do it in a way, where we're very careful and delivering the right mix of.
Reach and frequency and among other things we went through a unified AD server in the last couple of months, which really helps us with that so very excited about where we are today with digital video advertising as a component of Viacom CBS.
And believe it has long legs for growth going forward.
On the <unk> side, let me just briefly say.
Again, the overall trajectory of Pluto is amazing.
Have is as I mentioned continued to add quality high quality content to Pluto in the last year in the U S. We've doubled the number of hours from 100000 hours to 200000 hours a chunk of that is certainly Viacom CBS, but a bunch of that is third party as well and the third part.
<unk> are really seeing the power of the Pluto platform too because it is a very effective reach and importantly monetization because they ultimately people are in it to make money monetization vehicle for them, which is why you see us continue to add to the product across a full range of genres.
Pluto TV continues to be on an amazing trajectory, obviously, expanding all around the world off of its number 1 fast service in the U S position and that 1 too has a long positive growth road ahead of it.
Thanks, JJ operating we have time for 1 last question I asked that question is from the line of Robert Fishman with Moffett Nathanson.
Thank you and good morning can you expand on how sports at Paramount plus has driven subscriber additions and engagement on whether you think that will impact future sports rights deals going exclusively the streaming and then just as a quick follow up on <unk> do you see this as a winner take all type of market or will viewers just jump around to the different serve.
This is.
Define the different original and exclusive content. Thank you.
Yeah. So.
In that order so sports are fundamental to Paramount plus again, we think are Paramount for us as live sports breaking news and a mountain of entertainment.
If you look at our experience in Q1 and Q2, it clearly points to the value of sports.
There is no question the NFL makes a difference and part of our long term renewal with the NFL. Some months ago was of course.
Ensuring rights for Paramount plus by the way both on 999, and the 499 product 499 product doesn't have the linear feed so.
We had to do some work with the NFL and we did a soccer is making a difference and you see us growing our collection there I'm really looking forward to see what Syria does very shortly that will be our first season with that Thats The Italian league.
Golf to makes a difference they all contribute to Paramount plus they all broaden its appeal to specific market sectors, but I think also importantly, they work and what we would call a con joint way with entertainment.
There are sports fans out there and they also love entertainment and so as we.
Ensure that the product is sticky as we optimize monetization, having a strong entertainment offering to go with the sports offering is very important and again, while early days, we're seeing really value clear.
Clear value there on.
And it's obviously a critical extension of CBS sports on the modernization of that into the streaming world.
So we like that a lot.
<unk> question, sorry can you just restate your Pluto question Rob.
Of course do you see this as a winner take all type of market as long as you're growing really quickly or will viewers just kind of jump around to the different services alright. Thank you.
Look we are privileged to be in a leadership position with Pluto, that's partially because we saw the opportunity early and then added first Viacom and now Viacom CBS assets and capabilities to it in the form of content in the form of distribution in the form of advertising sales.
I don't think its a winner take all market, but clearly.
Having a leadership position is exceptionally valuable.
And we are certainly focused on continuing to press the gas pedal there and building a leadership position worldwide and I would point out that as you have this scale. It really is a flywheel of Tucker, Tom Ryan and he'll talk about the Pluto flywheel on what he means by that is the scale is self reinforcing because as the.
Our platform gets bigger as you have more I may use your monetization increases to the example of $70 million per $1 billion. This year.
That means that the people who have content on the platform make more money, which in turn means youre platforms more attractive which in turn means you get better content. So the good news is that the trajectory pluto's on and again, we couldnt be happier so.
Look.
Thanks, everyone for joining in closing.
Clearly I think you can hear it these are very exciting times at Viacom CBS, we have really strong operating momentum we have amazing content and we have a streaming strategy that is really delivering you see that in our second quarter and were feeling great about the outlook for the year ahead. So.
Thank you for your time and support we look forward to delivering for all of you on the Viacom CBS growth opportunity and finally I'd like to thank all of the Viacom CBS employees for all they do every day to drive the company forward stay well, everyone and we'll talk to you soon.
This concludes today's conference you may disconnect. Your lines. Thank you for your participation.