Q2 2021 ViacomCBS Inc Earnings Call
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And momentum to continue and the second half of the year.
On today's call I'll cover 3 topics first I'll briefly discuss Viacom CBS and a strong Q2 results.
We reported operating strength and year over year revenue improvement.
Second I will highlight the company's momentum and streaming and the underlying content drivers.
And finally I'll discuss our go forward global streaming expansion.
And then I'll hand, it over to intervene to provide additional financial and operational details before opening it up for Q&A.
Let me start with the company's second quarter results.
And where we achieved another 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, a material improvement and the AD market and strong execution.
Q2, 2021, obviously looks very different than Q2 of 2020 and.
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 and ability to drive a significant volume towards our premium digital video inventory.
The upfront was a perfect platform for Viacom CBS to unlock value from its leadership position.
Position underpinned by premium content and a robust client centric approach to AD solutions.
Combined with offering spanning both linear and IQ our premium digital video advertising platform.
And the results speak for themselves.
And affiliate, which also exclude streaming revenue grew 9% for the quarter and since the close of Q2, we renewed and expanded multiyear distribution deals with both charter communications and Cox Communications.
Our 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 is 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 2.
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 Pluto, TV, where global monthly active users grew to over $52 million and revenue more than doubled year over year for the fourth consecutive quarter.
The growth is remarkable and we know and fast expect Pluto TV to comfortably generate more than $1 billion and revenue this year.
The power of Pluto TV is unquestionable.
More consumers are spending more time with pluto than ever and 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 Pluto TV continues to be the leading free AD supported streaming TV service and the market.
Streaming subscription revenue also accelerated growing 82% year over year, driven by strong subscriber growth fueled by Paramount plus.
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 and the quarter and which was just renewed for season 2.
We also saw continued strength from a range of kids favorite Nickelodeon franchises, including sponge, Bob Rug rats, Paw patrol and more.
In film Infinite starring Mark Wahlberg, and Premier exclusively on Paramount plus and June and was 1 of the top engagement drivers. Additionally.
Additionally, we saw a nice uptick and overall film engagement with users as we added over 1000 movies to our extensive film library.
And sports and news the UEFA Champions League was a top acquisition driver, while news, including CBS and continues to generate meaningful engagement.
And scripted why women kill evil and Ncis drove significant acquisition engagement and consumption this quarter.
Ncis and particular continues to perform well now a top 5 driver of both engagement and consumption on the platform.
And finally unscripted has growing momentum.
We're shows with strong and devoted fan bases like Rupaul and the challenge did very well and 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 as the breadth of content expands the average age on Paramount plus continues to get younger day.
Creasing 2 years since last quarter to 35 and.
In fact, this diverse array of content often appeals to multiple people and the same household and can therefore be a powerful tool to not only drive subscribers, but also reduce churn over time.
In short by putting the full power of Viacom CBS behind Paramount plus we're beginning to see the massive potential and 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 $4.99, 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 our recent upfront experience demonstrated was very compelling.
While it is early days Paramount plus is clearly working.
Which is why we're continuing to invest to deliver on its promise and potential.
To that and looking ahead, we have 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 and 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 and film where streaming a quiet place part to.
This is the first title and our fast follower from theatrical strategy and and is doing very well.
On August 20th Paw patrol, the movie will premiere day, and date and both theaters and on Paramount plus.
We're excited about a day and date strategy for this title and this audience in today's marketplace.
And we're supporting it with a robust marketing campaign, which includes our consumer products presence at retail.
And sports, we're thrilled and a new season of Syria soccer, our first with the franchise will begin in late August.
And we've also recently added new seasons of compelling reality and Doctor 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 at CBS and 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, CSI Vegas and FBI International.
All of which are also streaming on Paramount plus.
And I'm thrilled to announce that we've extended our deal with Trey Parker and Matt Stone through 2027, bringing South park to comedy Central through season 30 and.
In addition, Trey and Matt will be doing 14, South Park original movies exclusively for Paramount plus 2.
2 of which will premiere this year and then 2 more every year through the term of the deal.
And later this year, we have a big new scripted series premiering like Taylor Sheraton's why 18.83, the origin story of the number 1 scripted show on cable Yellowstone.
As well as tailored newest series mayor of Kingstown and more.
From a promotional standpoint, we'll leverage our linear platforms that subscriber acquisition vehicles. For example, why 18.83 and mayor of Kingstown will premiere on the Paramount network behind Yellowstone for 2 episodes, each and 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 its second best quarter ever for streams and hours watched on the service.
<unk>, we're highly engaged driven by hits like the fourth season of the Chi the series finale of Shameless and the Floyd Mayweather versus Logan, Paul boxing events among others.
Looking forward the content lineup for Showtime is strong we have the premier of yellow jackets, a dramatic show that as part psychological Har 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 encompasses streaming where we are leveraging our existing business footprint and relationships to enable rapid expansion of our streaming offerings.
As an example today, we're pleased to announce a new comprehensive and expanded deal with sky covering the U K, Italy, Ireland, Germany, Switzerland, and Austria.
This deal includes carriage renewals for our linear services as well as renewals for our existing AD sales representation deals.
Plus robust launches of our streaming services to their sub base and all of the countries in 2022.
This is a powerful deal.
Not only does it extend important benefits and economics from our legacy business, but it's also a game changer for Paramount plus and these markets by unlocking previously exclusive the sky content for use on Paramount plus and before I, providing paramount plus with a very significant subscriber base at launch.
And these markets from a content perspective, Paramount plus will be the exclusive home for new Showtime series and Paramount plus originals.
B 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 Paw patrol and Spongebob Squarepants.
And it will have a very substantial library offering from across Viacom CBS.
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 and a way that is accretive to ARPA.
Importantly, the deal preserves our ability to pursue D to see opportunities in these markets.
Stepping back to the big picture with our upcoming launch in Australia, and New Zealand and I'm thrilled to report we 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 are continuing to drive kudos international growth.
We recently launched on Clara Android and Brazil, our mobile service with an eligible user base of 32 million users.
And in 2022, we expect Pluto TV to launch and additional markets, including the Nordics, Benelux, Canada, Poland and more.
We're thrilled with our international streaming progress and momentum in 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.
And we're 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 and high growth total addressable market and streaming internationally.
With that I'll hand, it over to Nadeem to dive into our financials.
Dean.
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 their already strong Q1 levels taking.
Taking overall streaming revenue to 92% year on year growth.
Q2 also benefited from strong performance and advertising and affiliate revenue.
I'll unpack 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 streaming subscribers in the quarter, taking us to more than 42 million global streaming subscribers.
So time 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 were 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 Q2 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 and new markets.
Bundles with international partners bring low churn and highly efficient acquisition costs.
Moreover, as Bob pointed out Rfps 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 breadth of our content portfolio continues to expand.
For example for Paramount 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.
And we saw healthy streaming subscription ARPA 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 TV.
As of quarter, and Pluto TV reached more than 52 million global and they use across 25 countries.
<unk> revenue grew 169% and the quarter.
This tremendous expansion of the business has been driven by growth and users engagement and sell through.
Domestic watch time per Mou increased 45% year over year in Q2.
And Pluto TV domestic <unk> more than doubled year over year.
Benefiting from a double digit percentage increase and effective CPM and significant improvement and sell through.
This enhanced monetization reflects both strong demand for Pluto Tv's high quality connected TV inventory.
And efficiency benefits from the Q2 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 and early results are encouraging.
In fact, and Q2, Paramount plus domestic advertising revenue more than doubled versus a year ago.
Benefiting from user growth, along with a high teens percentage increase and streaming advertising <unk> per active sub.
We believe we're just scratching the surface of the Paramount plus advertising opportunity has user and engagement growth alongside product enhancements should add supply for this highly valuable digital video inventory.
When you put it all together this quarter the combination of Pluto TV, Paramount plus and other IQ platforms drove streaming advertising revenue to 502 million, representing 102% year over year growth.
Advertising revenue, which exclude streaming grew 24% and Q2 to $2.1 billion.
Benefiting from both the return of the NC double a men's basketball tournament.
As well as timing shifts of this year's professional golf tournaments.
This quarters strong growth rate was also a function of improvement and demand and record scatter pricing compared with the COVID-19 impacted quarter a year ago.
Affiliate revenue, which excludes streaming.
<unk> grew 9% to $2.1 billion.
While we benefited from distribution deals and renewals that provide incremental carriage and improved economics, which more than offset changes and the number of pay TV subscribers.
Even excluding the impact of incremental distribution deals, we saw modest improvements and subscriber trends in Q2 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 Park deal licensing and other revenue would have been down about 15%, 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 per cent to $1.2 billion and the quarter and.
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 point, South Park impact respectively Q.
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 and streaming.
Adjusted diluted EPS was <unk> 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.
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 and our streaming growth opportunity is our best use of capital and.
And we are starting to execute across the streaming growth factors. We've 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, Sheraton 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 U K, Italy and Germany.
And we continue to reduce the amount of original content, we make 4 and licensed to third party streamers and.
Stead, focusing more of our creative assets and in house streaming services.
Beyond investing and streaming we use excess cash to pay our dividend manage leverage and fund opportunistic M&A, which bolsters our streaming growth ambitions similar to our 2020 investment and Miramax and our pending acquisition of Chi.
Zone, 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.
And 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 and Paramount plus and Australia and the launch of additional distribution partnerships.
And we expect Pluto TV to see continued growth and engagement and further improvement and monetization.
In addition to Mou growth from international market launches.
It continues to March to over a billion and revenue for full year 2021.
Advertising and the back half of the year will continue to benefit from a robust market.
So year on year trends will be compare to the return of demand in Q3, 2020 as we ramp out of Covid and benefited from record political spend.
Advertising growth will improve when new upfront pricing kicks in for Q4.
We expect affiliate revenue growth and the back half of 'twenty, 1 to slow as we lap the benefit of new distribution from Youtube TV.
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 television content for linear distribution.
Yeah.
Looking further out our enthusiasm for streaming continues to growth.
Streaming revenue and subscriber growth are pacing ahead of our expectations.
And streaming will represent close to 15% 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.
And pursuit of this growth we continue to expect streaming content expense will more than double in 2021 relative to our 2020 spend as we deliberately transition linear content expense to streaming content expense.
We are confident the streaming investments, we are making will yield compelling ROI.
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.
Operator, we will take our first question.
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Operator, Brett Feldman do you live.
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Gentlemen, thank you for standing by.
Mr. Feldman from your time, Mr. Hellman flying and your line is open Sir Please go with your question.
Great and you guys hear me okay.
And sorry about that apps outstanding Alright, 2 questions. If you don't mind. The first 1 is for Bob.
The figures, obviously seeing continued M&A and and your company has been cited as a potential merger partner and a lot of these media reports and my 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 and the second question is from Devine now I was hoping you can give us a little bit of insight on the uptake that you've seen and the.
And 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 arm who is trending there would be appreciated. Thank you.
Yeah 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 and Viacom CBS to create value overall, and certainly with respect to streaming.
The Q2 metrics clearly point to this strength.
And and the ongoing potential of our organic approach and 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.
Yeah and.
Regarding the essential plan, we're very excited about being able to launch that this quarter. We think it expands the paramount plus proposition too and 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 tear we want them and the plan that is going to be the stickiest for them because.
And 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.
Are actually not as different as you might think because of the advertising contribution from the essential tier.
And those.
Our foods actually both.
The subscription and the combined advertising and subscription and 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 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 Alan and 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.
There can be a lot of complexity and these agreements.
So any additional thoughts on your timing within 2022, your promotional plans and affiliate AD mix things like that to help us understand the go to market would be great.
And my second question is for Devine.
And looking for maybe a little more detail on the domestic trends at Paramount and 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 and we saw a compelling opportunity to use renewals and the UK, 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.
And Paramount plus in 2020.2 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 and all those markets and 1 with a compelling churn reduction dynamic.
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 and 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 and the right direction.
Great. Thanks, Mike Operator next question please.
Question is from Alexia <unk> with J P. Morgan.
And thank you my question is mainly on Europe.
And some strategy.
Scott.
On behalf of the box.
And the profit driver for Paramount longer term and you still think driver of growth longer term and then.
And your film business I think you've recently made some changes and keep hold Clifford from Lasalle plant, because the telco, Gary and I assume and putting topics all day and date I guess I'm curious if you see the 45 day window eventually for all your major films, a royalty to 5 and sounds like from Batesville, 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 and 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.
<unk> is strong.
1 of the things that we have today is more optionality.
With how we use films, we have more ways to use them and ever which better leverages, our investment and you see that and us putting to the product to use and 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 and 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.
<unk>.
Importantly, as we do all this we do consider the impact on all constituents.
And 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 followed 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 and time and that resulted 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 are strategically important and 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 Youre incrementally bullish internationally does that put any pressure on it or are you feeling like our book continues to sort of grind higher over time, just give us a little sense of the drivers there and how youre thinking about it and then.
And on free cash flow 1.
$1.7 first half of the year I think the expectations out there that it'll be less and that for the full year, just any update on free cash flow expectations.
Yeah, Hey, Brian So I'll start with your question on <unk>, and then touch on free cash flow. So as you pointed out.
Subscription and <unk> and Q2.
And 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>.
And we'll benefit from continued conversion of trial subs and 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 ARPA is on Paramount plus.
On the international side.
And next wave of countries that we're going to be launching which are primarily in Europe, and Australia are higher <unk> markets than where we've been to date, which has been.
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.
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 and subs and continuing to find ways to drive operating leverage out of the business. So the result of all 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, and the first half of this year probably start to dissipate.
Great.
Thanks, Ben Operator, we'll take our next question.
Question is from rich Greenfield with <unk> partners.
Hi, Thanks for taking the questions.
Yes.
And 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 and even the 2 biggest films to date I think have only done day.
Domestically 170, or 175 million sort of 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 and Disney doing sort of a $30 a day and date premium access and you've got Warner brothers sort of throwing them.
And at no extra cost Netflix style and HBO Max we just sort of love your view given that it looks like things are getting worse again, rather than better.
Hmm and attendant and 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 to.
To me <unk> seems like 1 of the most important assets and I think about creation of franchises.
And what it's doing for your streaming service was wondering sort of how you think about the.
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.
Yeah sure rich so look on the film side I will say at this point and time on a macro basis, we think the.
Fast follower from theatrical to 45 day window, 30% to 45 day window that we did our first implementation with a quiet place 2.
And is the sweet spot of the model because it provides a theatrical opportunity for consumers and 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 at a macro level, we like that that said to your point, we continue to be and Covid. That's.
Situation is a bit fluid and so we are looking title by title and and it's part of the reason we looked at and we're doing a day and date with Paw patrol as we said for that audience I E families with young children.
Right now and 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 you will see strong paw patrol the movie marketing available and 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'll make decisions title by title going forward as we continue to be in this COVID-19 influenced market now with respect to Nick and IP, Let me start by saying Big picture, we really are big believers and 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.
And our franchise and we're going to continue to.
Or optimize and drive that franchise machines, you've seen us do that a bit.
Recently, this year, including with Paramount plus.
<unk> plus really launched with the Spongebob franchise taken the Spongebob movie and then having the first episodic spin out and camp Coral, we're very pleased with that in the quarter Icarly and the reboot of Icarly was a total homerun and that's obviously a live action franchise versus and animated franchise.
Does that appeal to a little bit older audience, but theres no question that worked.
And and talking to Brian and working with him he Brian Robbins and runs Nickelodeon we have 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, our 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.
And that by the way stars Faith Hill, and Tim Mcgraw, and Thats going to Premier behind Yellowstone for 2 episodes on Paramount and outperform moving exclusively to Paramount plus.
And a bunch of stuff and unscripted. So the franchise play and 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 and plus as Halo.
That's a big game franchise, we're doing a.
Pretty wild live action episodic out of it and I've seen early pieces of it looks spectacular so franchise that are key yes, Nickelodeon and 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.
Oh. Thank you my question is advertising related I guess, a couple of parts to it.
And given the beans comment about and light.
Upside I'm wondering why don't you push that more can you push that more is there any difference and contribution margin and it just seems like the power.
Apart from that product could be higher than subscription and then more generally on advertising overall and then historically strong upfront that we just saw.
And can you give us like deeper color cross.
All of your assets and national and local and international in terms of where you see advertising going over the next few quarters.
Yes, sure Jessica let's do it in reverse order, let me talk about advertising Big picture and then and then have nuveen and add some color around your question of <unk> et cetera, So to your point.
And our remarks.
Very happy with what we're seeing and the AD market.
And 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 in the mass market and targeted spaces <unk>.
<unk> with young and diverse audiences, we have leadership, both on the linear side and with IQ and the digital video side IQ and 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 <unk>.
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 and 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 and 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 and whichever tier they are going to be the most sticky and and that's how we're operating.
Those services today. Thanks.
Thanks, Jessica operator next question.
Next question is from Vijay Jayant with Evercore.
Good morning so.
Bob you talked about the cash deals.
And so the charter Cox and now with Sky.
And 1 of the field sort of mentioned.
The modern that a deal can you just sort of talk about whats the evolution. There in terms of economics flexibility that has to happen to make this sort of a win win situation and really how key is the legacy mvpds and relationships to grow per month 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 and 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.
And 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 that.
<unk> and provide com business and for Viacom CBS really accelerate the growth of our streaming portfolio. So we're feeling great about and Vijay. Thanks, Vijay Operator next question. Please.
Next question is from John <unk> with Wolfe Research.
Thank you Bob maybe 1 for you and your comments on Paramount plastic 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 percent 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 and the short term and then maybe a quickie.
And with the growth there is still really strong have you seen any changes and 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 book, We believe it's fundamental we made that decision and Viacom legacy and 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 and 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.
This 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 and a world where there is I mean thats compelling on a standalone basis, but also and a world where there is <unk>.
Linear supply constraints, it's really and combination that it has turned out to be extremely powerful overtime.
And the videos the digital video side, we will continue to increase as a percentage of our overall mix.
As we package and in some cases transition advertisers from scarce high priced linear to more available high quality digital but by the way you 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 and the last couple of months, which really helps us with that so very excited about where we are today with the 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 and that is certainly Viacom CBS, but a bunch of that is third party as well and the third parties 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 <unk>.
Why you see us continue to add to the product across a full range of genres.
And so Pluto TV continues to be on and amazing trajectory, obviously, expanding all around the world off of its number 1 fast service and the U S position and that 1 too has a long positive growth road ahead of it.
Thanks, JJ operator, we have time for 1 last question I asked that question is from the line and 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 and whether you think that will impact future sports rights deals going exclusively to 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.
And 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 and clearly points to the value of sports.
And 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.
And ensuring rights for Paramount plus by the way both from 999, and the 499 product 499 product doesn't have the linear feed so.
We had to do some work began FL and 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 <unk> does very shortly and that will be our first season with that and Thats The Italian league.
Golf to makes a difference they all contribute to Paramount plus day, 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.
And it's obviously, a critical extension of CBS sports and the modernization of that and to the streaming world.
So we like that a lot and deploy.
<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 Youre growing really quickly or will viewers just kind of jump around to the different services alright. Thank you.
Look we are privileged to be and our 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.
And our leadership position is exceptionally valuable.
And we are certainly focused on continuing to press the gas pedal, there and and building a leadership position worldwide and I would point out that as you have this scale. It really is a flywheel of tucking, Tom Ryan and he'll talk about the Pluto flywheel and what he means by that and 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 your platforms more attractive which in turn means you get better content. So the good news is that the trajectory pluto's on and.
And again, we couldnt be happier so.
Look.
Thanks, everyone for joining and closing clear.
Clearly I think you can hear it these are very exciting times at Viacom and CBS, we have really strong operating momentum we have amazing content and we have a streaming strategy that is really delivering you see that and 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 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.