Q3 2019 Earnings Call
Greetings and welcome to the Viacom fiscal third quarter 2014 earnings Conference call.
At this time all participants are in a listen only mode.
A question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr. jump on DC.
Good morning, everyone. Thank you for taking the time to join us for our June quarter earnings call.
Joining me for today's discussion are Bob Bakish, our president and CEO and Wade Davis, our Chief Financial Officer.
Please note in addition to our press release, we are trending schedules containing supplemental information available on our website.
We also have an accompanying slide presentation that you can follow along with our remarks.
I want to refer you to the second slide in the presentation and remind you that certain statements made on this call are forward looking statements that involve risks and uncertainties.
These risks and uncertainties are discussed in more detail in our filings with the SEC.
Today's remarks will focus on adjusted results.
Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website.
Before we begin I want to note that the purpose of today's call is to discuss our third quarter results and performance and we will not be responding to questions or comments regarding potential M&A.
Now I'll turn the call over to Bob.
Thanks, Jim and good morning, everyone. Thank you again for joining us during the quarter Viacom delivered strong execution and made progress on our evolution as investments helped drive our transformation and topline growth.
We have a lot to be proud of this quarter I'm, particularly pleased with the return to growth we reported in domestic AD sales as well as our strong upfront results, which set us up well for next year.
We also continue to see great traction from the rapid integration and scaling of Pluto TV and we're pleased to see international media networks returned to growth on a constant currency basis.
I'll update you on these areas in detail in a moment, but first a brief overview of the financials and some key operating highlights from the quarter.
From a financial perspective, the main point here is that we have been promising a return to growth for Viacom and this quarter, we have accomplished just that.
On a constant currency basis total revenue grew 6% domestic AD revenue grew 6% total international media networks revenue grew 7% and while adjusted or why was flat adjusted diluted EPS grew 3%, marking the sixth consecutive quarter of growth.
And year to date free cash flow of $984 million is up 10% compared to prior year period.
Moving to operating highlights I want to start with Paramount.
We're thrilled with what's going on at Paramount, which just delivered its 10th straight quarter of year over year, adjusted or improvement and is on track for full year profitability in 2019.
At the box office, Elton John's musical biopic rocket man was a global success generating over $185 million and counting.
Currently in theaters is cruel summer thrower that received great reviews, and it'll be a profitable film for the studio, creating a very substantial return on its 16 million dollar cost.
And tomorrow, Dora and a lot of Citi. Your goal for many years, which is a live action film from Nickelodeons Dora the explorer franchise.
This cobranded films is a great example of how we're using our iconic IP to rekindle interest and beloved franchises and drive engagement at the theater the network and at retail through consumer products.
Looking ahead, we're very excited about Paramount's 2020 slate.
We have a wild news I thought action film starring will Smith called Gemini Man coming in October .
Then we have the first of three Terminator movies coming with Leno at Hamilton and Arnold Schwarzenegger back in action.
Next summer, we have a toxin sequels that looks incredible.
One that audiences are clearly excited about when the trailer dropped in July it nearly 10 million views on Youtube within the first 24 hours and these are just three of the 16 films. We have scheduled so the fiscal 20 slate is a big step forward and one we are extremely excited about.
On the TV side Paramount also continues to fire on all cylinders.
Paramount television picked up seven Emmy nominations and continues to deliver hits like catch 22, which premiered on who live in the quarter and 13 reasons, why which comes out with its third season on Netflix later this year.
In all Paramount TV now has 26 shows ordered to or in production, including the sequel series to PMT is dealing with the adaptation of the international bestseller shopped around for Apple and two series for Warner Medias upcoming streaming service among others.
And production continues to ramp up at our other studios to.
For example, awesome, that's had a busy quarter with the releases of the perfect date and trinkets on Netflix and the season to date view of who is light as a founder in July .
We also announced that Viacom International Studios and Paramount television are developing an adaptation of the tell if they get series 100 days to fall in love for Showtime.
This is another great example of how we're leveraging our IP and illustrates telltale growing global influence in making Viacom and even larger production for us.
So there's a ton of great stuff happening on the studio side and we're excited for more to come.
Continuing in international against a challenging macroeconomic environment I'm proud to say that on a constant currency basis, we delivered strong quarterly results and return to growth.
Rating share a telephone and channel five were up nicely as were comedy Central and Paramount Network International.
And we continue to launch new premium international products during the quarter, we watch seven premium Vod offerings, including Paramount plus wouldn't that Brazil and to knock and launches in Latin America, bringing to life total to 46, so we're getting some scale there.
And in mobile we closed six deals including to nod in deals bring us to a total of 32 international mobile subscription partnerships.
Turning to domestic audience performance in the quarter, what I call maintained the number one share of U.S. basic cable viewing among key demos, including kids teens 18 to 34.2 to 49 and African Americans and we had more top 20 original cable series and any other cable family.
Overall, our portfolio of networks grew share 1% year over year with strong results at comedy Central and Paramount network in particular.
In fact comedy central notched its ninth consecutive quarter of share growth, while Paramount network enjoyed its third straight quarter of growth.
Our networks are performing because even in an increasingly crowded content landscape, we're producing hits.
It's like Yellowstone, whose season to debut on Paramount network makes it the most watched series on cable this summer.
It's like the hills on MTV, which is the number one new reality series for persons 18 to 49 and has already been renewed for a second season and hits like Ryan's mystery played on Nickelodeon, which after three months on air is already the number one show on TV for preschoolers.
Importantly, Nickelodeon continues to execute on its turnaround we're encouraged by the performance of New series like are you smarter than a fifth grader and all that.
These shows are attracting new audiences and helping drive share gains it Nick for the first few weeks in the fourth quarter.
In addition, we saw enormous success with sponge, Bob Twentyth birthday blow out special in July .
Income fall loved the largest slate of new content ever across the Nickelodeon portfolio.
Also this week, we announced plans to acquire Garfield, which marks another step in reinforcing Nickelodeon status as kids first stop for the best content and characters.
We're incredibly happy to have Garfield join our growing roster of globally loved franchises and look forward to the unique content consumer products and experiences our teams will create.
Which brings me to domestic distribution domestic affiliate revenue declined 1% for the quarter.
Note that the quarter had some timing impacts, which Wayne will discuss in a moment.
Importantly, as we announced last week Viacom signed a new carriage distribution deal with NCTC, which represents more than 750 member companies with that this management team has now renewed or extended almost all of viacom's traditional sub base.
In short our partnership first strategy continues to resonate with the distributors as evidenced by our deals over the past three years, we have secured meaningful distribution when broad industry relationships through collaborative partnerships and extended the reach of our services.
Another key component of our distribution strategy has been the launch of targeted niche products, where we think we have a unique competitive advantage in the marketplace.
That's why we're so excited to announce the launch of BT plus a joint venture with Tyler Perry, which will be a premier subscription video on demand surface focused on the African American audience. When it launches later this fall.
B T plus will feature more than 1000 hours of premium content, including exclusive new original programming and fan favorite series movies and specials from Tyler Perry and a host of other leading African American content creators like well Packer Tracy ahlberg anymore.
It's shaping up to be a fantastic product.
No to domestic AD sales and area I want to spend a bit more time on and highlight how the transformation of Viacom is clearly evident in the delivery of compelling financial performance.
As I mentioned at the outset of the call. The biggest headline of the quarter is that domestic AD sales returned to growth for the first time in 20 quarters as revenue grew 6% year over year.
This represents a significant milestone for Viacom.
In fact, this quarterly performance allowed us to reiterate our guidance for full year growth and ushers in a new era of advertising growth at Viacom.
I think it's fair to say that there was some skepticism in the market. When we said we'd return to AD sales growth.
But we were committed to it.
Putting in place a differentiated strategy and working hard on execution and we are now beginning to see that pay off.
Two years ago, we recognize that across the industry. When your inventory was declining necessitating a meaningful shift in strategy to return on assets sales to sustainable growth.
This required of entirely new approach in both what solution, we offered marketers and how we partnered with them.
That's why we built a sophisticated set of advanced marketing solutions for our advertising partners to reach the demographics that are most valuable to them in new and compelling ways.
Organically, we launched vantage one of the most sophisticated AD targeting platforms in the industry.
At the same time, we pursued key advanced marketing partnerships with M. BBD providers and helped launch open a P for better industry collaboration.
Along the way, we also made several strategic acquisitions, including Awesomenesstv, who say and Pluto TV.
As a result, our Ams offerings now engage customers across linear and digital video Influencer and shopper marketing branded content and now Pluto TV advance sales capabilities and they are powerful solutions for today's marketplace.
Underscoring the efficacy of this strategy, our HMS revenue increased 84% year over year, and it's now a business contributing hundreds of millions of dollars.
The HMS business will nearly double in fiscal 19, representing nearly 20% of domestic AD revenue as we continue to bring new and more advanced inventory online across our growing portfolio, especially from Pluto TV.
Related to this we're very excited about our upfront results and how they said bottom up for continued AD sales momentum.
In the upfront, we drove strong pricing with high single to double digit growth across all our cable networks, reflecting the improved strength of our brands and demand for the HMS portfolio, including Pluto TV.
We went in with a carefully crafted strategy to take full advantage of both the market dynamics and our unique assets, which resulted in our ability to drive price increases and capture meaningful overall volume while preserving significant when your inventory to continue to capitalize on an extremely strong scatter market.
Pluto TV was a big contributor to AD sales growth in the quarter and the upfront discussions in part because its leadership in free streaming TV continues to grow.
When we announced the acquisition of Pluto TV in late January and at 12 million monthly active users.
As of the end of July 18 million monthly active users up 50% increase.
We expect user growth to continue as we further expand the content offering and broaden distribution, which will also further benefit AD sales and our partners.
In fact during the quarter, we increased Pluto TV content offering by adding 28, new channels to the service.
We also launched Pluto TV Latino a suite of 11 free linear channels stock with 2000, plus hours of TV programming in Spanish and Portuguese.
And we are delivering on our vision of using Pluto TV as a platform to work with distributors to create incremental value in broadband mobile and video sub base is both through advertising and by Upselling additional video products, including video bundles and targeted asphalt products.
In fact, Pluto TV is now integrated on Comcast Flex service and X one set top boxes and gain new distribution on Cox communications contour video and broadband platforms.
These distribution relationships will also be a valuable asset when we launch B T plus this fall.
And with that I'll turn it over to Wade.
Thanks.
As Bob just discussed several quarters ago, we described the path for returning Viacom to long term sustainable growth.
The third quarter results delivered on that promise with growth across all of our businesses on a constant currency basis, and we expect this momentum to continue in the September quarter.
Looking forward I want to reiterate our prior guidance the domestic AD sales and domestic affiliate revenue will grow for the full year and Paramount will deliver solid full year profitability for the first time in four years.
We are also reaffirming our adjusted all wide guidance of low to mid single digit decline on a total company basis.
The investments, we are making an M.S. and Pluto and Noggin, and then B T plus as well as in our studio production business are driving the evolution of the company.
These initiatives are achieving scale and are offsetting headwinds in the linear business returning viacom to overall topline growth for the full year.
On slide eight of our web deck, we have a summary of our consolidated financial performance.
For the June quarter on a constant currency basis total revenue grew 6% and adjusted diluted EPS grew 3%, marking our sixth consecutive quarter of adjusted diluted EPS growth.
In addition to the P. and L. strength year to date free cash flow of $984 million is up 10% versus a year ago.
Moving onto the segment results on slide nine I'll start with filmed entertainment.
Paramount continues to deliver on its turnaround was start strong top and bottom line growth.
Fiscal third quarter revenue grew double digits and adjusted ROI of $85 million was almost double that of the prior year.
Total revenue for Paramount increased 14% driven by strong double digit growth in licensing and home entertainment revenue, partially offset by a modest decline in theatrical revenue.
Licensing revenue was up 29% in the quarter driven by monetization of our library and growth in TV production home Entertainment revenue increased 35% benefiting from carryover revenue associated with Bumble Bee.
Theatrical revenues reflected the strong performance of rocket man and Pet cemetery, which was more than offset by comparisons to the release of a quiet place in the prior year quarter.
The improvement in filmed entertainment profitability was largely driven by increased monetization of the library and disciplined cost management.
With the strong adjusted O I performance in the quarter Paramount is now profitable through the first nine months of the fiscal year.
Turning to media networks, which is on slide 10 comments on media networks will be in constant currency terms for detail on a reported results. Please see our earnings release.
Worldwide media networks revenue returned to growth in the quarter up 3% year over year, driven by 7% worldwide advertising growth and 8% International affiliate growth. This was partially offset by a decrease in CP rack and why revenue.
Adjusted operating income was down 5% in the quarter largely due to an increase in marketing for current and upcoming original programming launches as well as our investments in Pluto other D to C products and the scaling of our M.S. infrastructure.
Moving to domestic AD sales. This was an impressive quarter with growth of 6%, representing 800 basis points of sequential improvement versus our second quarter.
This performance was driven by a combination of sequential improvement in the linear business and accelerating growth in M.S., which increased 84% in the quarter.
The sequential improvement in the linear business was driven by strong scatter market improved pricing in key categories and contribution from a number of tent pole events, including the BT Awards, the MTV movie Awards and the CMT Music Awards.
We also benefited from the timing of Easter by about 100 basis points.
And our M.S. business, we continue to add addressable advertising capacity lighting up incremental inventory on both Directv now and 18 to watch in the quarter.
Given the scale and accelerating growth of M.S., we expect it will continue to more than offset linear headwinds driving full year domestic AD sales growth.
I want to take a moment to add some more context around Bob's earlier comments on the upfront as you noted we had a very successful upfront, which sets us up well for continued domestic advertising growth going forward.
We went into the upfront with a differentiated strategy built around the combined power of our linear brands and our rapidly growing amss portfolio and the strategy worked we achieved the highest price increases across all of our cable networks in over a decade, while simultaneously capturing meaningful volume.
Our strategy positions the breadth of our solution set including targeted TV digital video Pluto TV Influencer marketing branded content experiences and shopper marketing to complement our powerful linear brands, which reached elusive younger demos.
By leveraging the rapidly growing inventory in our M.S. business, we're able to reduce the amount of linear inventory, we sold focus on price and absorb overall volume and demand dynamics, where we're not inventory constrained.
Having done this we preserved significant linear inventory, which will allow us to take full advantage of a historically strong scatter market as the year unfolds.
Now moving to domestic affiliate revenue.
Revenue declined 1% in the quarter.
Quarterly performance was impacted by subscriber declines, including Comping against the return to full distribution on charter.
Partially offset by higher contractual rate increases OTI tea.
And studio production revenues.
From a timing perspective, certain anticipated content licensing revenue shifted out of Q3 and into Q4, which will benefit our September quarter.
On slide 11 of the deck, we have an overview of international media networks, where revenue returned to strong top line growth up 7% in the quarter.
International AD sales grew 9% driven by viewership gains in our major markets in Argentina. We also benefited from the political advertising cycle in the UK. Our growth was further supported by contractual AD sales partnerships that are not marketplace depend.
Looking at ratings channel five achieved its fourth consecutive quarter growth in viewership share.
Intel lets say remained the number one network in ratings for 19 straight months.
International markets outside of Argentina, and the UK also saw AD growth in the quarter.
International affiliate revenue increased 8% in the quarter benefiting from growth in the linear business as well as from S. Vod No GT deliveries.
Now turning back to the consolidated results and looking at items below the line.
Net interest expense was lower by $19 million due to our deleveraging actions.
Our adjusted effective tax rate in the quarter was 23.1%.
For the full year, we now expect an adjusted effective tax rate of 24%.
On slide 12 in summary of our cash flow and debt.
We continue to deliver extremely strong free cash flow was up 10% year to date and $984 million.
The growth in free cash flow was due to an improvement in working capital management, partially offset by an increase in cash taxes.
Moving to the balance sheet.
At quarter end, we have $9 billion of gross debt outstanding reduction of 11% versus the prior year.
Our adjusted gross debt, reflecting the equity credit we received from S&P and Fitch on our hybrid securities was $8.3 billion.
We plan to pay down the $220 million maturity that comes due in September as we continue to de lever.
Looking at the outlook for the remainder of the year.
The benefits from our strategic initiatives will continue to deliver results. We're reaffirming our outlook for full year total company revenue growth in the low to mid single digits on a constant currency basis with growth at media networks and filmed entertainment.
We will deliver meaningful domestic AD sales growth in the fourth quarter and consequently see full year growth.
For fiscal 2019.
Hey, M.S. will represent nearly 20% of our domestic AD sales business.
The scale of RMS business now compares to do advanced advertising businesses are the market leaders, who and Roki, which are doing incredibly well, we're proud to say that we're right there with them.
In terms of domestic affiliate revenue, we continue to expect full year growth in the low single digits as we benefit from rate escalators virtual Andy beauty growth content licensing and the scaling of our subscription products.
For International Media networks, we expect continued momentum in the September quarter with growth in total revenue benefiting from continued strength in Argentina, as well as significant as far as I know two deliveries.
Lastly, we are also reaffirming our adjusted guidance of down low to mid single digits, which is driven by the incremental investments, we're making in our growth initiatives.
Filmed entertainment will return to profitability for the full year for the first time since 2015, cementing the turnaround we promised.
In wrapping up we continue to be focused and relentless and the execution of our strategies to deliver growth.
The third quarter is a great example of the progress we've made.
We're excited about the opportunity going forward. These growth initiatives continue to deliver at a scale that is created an inflection point in viacom's growth.
And now I'd like to open it up for questions.
At this time, we'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad due to an issue with the Q before please re queue to make sure that you are in the queue to ask a question.
Hey, confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Our first question comes from Alexia Quadrani of Jpmorgan. Please proceed with your question.
Hi, Thank you very much I just had one on Paramount I want on media networks. Please first on Paramount we've seen some really impressive improvement at Paramount It sounds like the films that were green line or the new leadership that really just started in earnest about a year ago.
I guess I would assume also most of the restructuring and cost cutting is now behind you. So I guess given all that I guess, where are we in terms of the stages of Paramounts turnaround just trying to get a sense of you know how we can sort of faster growth prospects ahead, and then my second question just on the network side, how disruptive if at all do you think the launch of Disney posture is your Nickelodeon platform. You know it makes kids content, maybe a bit more ubiquitous does it further in the competition for you if you look at that.
Sure. Thanks, Alexia so on Paramount there's no question that the turnaround phase is behind us and we're entering into a new phase of growth and vitality and you really only need to look at the 2020 films slate, including titles like Gemini Man Terminator Dark say why it plays to the Spongebob movie the long awaited sequel to talk on among others.
As well as the TV slate with 26 shows ordered to we're in production, including 13 reasons why Jack Ryan ought to give hills house too and more to see that very clearly.
Paramount has incredible value to Viacom and really to the market at large it's a home for talent. It's a global premium content producer. It's a massive library owner, it's a marketing and distribution machine and it's really a platform for the creation and growth of franchises, which makes it an irreplaceable partner to the creative community the theater circuits to networks and really all forms of distribution platforms.
And that of course makes it a material asset to Viacom. So look these are exciting days at Paramount and really provide comment we're feeling great about it.
On your second question on Dupi, plus certainly a lot of discussion on this and their pricing does look very competitive our view continues to be that the consumer market is segmenting by price point from big basic to skinny bundles to S. Vod to free and there will be movement across those segments, both up and down and there will be bundling benefits in some of those segments, particularly with broadband and video bundles now within that segment. We think there will be choice and competition will be intense and certainly Stephanie will be a factor in that spot segment.
Our strategy is to play in all the segments from big bundled to free and our evolving product lines long to do that to do just that and look Nickelodeon has incredible traction in the marketplace is very important to distributors.
They love, what they're seeing in terms of where it's going.
So we feel good about that in the shifting landscape.
Hi, Thank you very much.
Our next question comes from Jessica Reif Elrich of Bank of America. Please proceed with your question.
Thanks, maybe one other one on.
And then advertising.
There have been any impact or any expected impacts from the stuff that's going on with China.
And then on the advertising you know you've made such progress with your digital initiatives is any of the scalable into the international markets.
And I guess on the upfront you grade and giving US a pricing increase in June but you said volumes up can you give a sense of how much it's off thank you.
[laughter].
Yes, Jessica thanks, so on Paramount in China, certainly no impact to date.
We don't have any big title until well into the fall.
So clearly some time for this to get sorted out.
And so we'll just have to wait and see ultimately this is a high stakes game. These two countries are playing.
There's lots of reasons to believe it'll get sorted out, but again for now no impact.
Yes.
In terms of.
Being able to take the things that we built in the U.S. round amas.
And in particular Pluto as part of the M.S. internationally, it's absolutely a huge opportunity.
We're just getting started with respect to that Pluto integration internationally just started the touch the places that.
It was.
Work was operating in before we acquired it was Germany, Austria, Switzerland, UK, we did begin integrating Pluto into the my five Avon in the UK were already seeing significant consumption of food oak content on the monetize platform.
And we have very ambitious set of international rollout plans going forward.
We're investing in the infrastructure necessary for kind of a smooth.
Aggressive rollout into additional territories in 20, you will see us rollout across all of Latin America and between 20 and 23, we're going to be rolling out.
In 19 territories around the world.
So big opportunity for us internationally only money upfront.
In terms of volume and the upfront sorry.
So volume in the upfront we were able to capture significant volume in the upfront as we as we said.
A key part of the strategy was to pull back the amount of linear inventory.
That we sold in the upfront having the breadth of the HMS portfolio that we had was really what enabled us to absorb.
The demand while still holding out.
Linear volume so in terms of in terms of what that actually was.
We were not it's not really something that we're going to disclose because it's not helpful to us from a competitive standpoint, but we did hold back significant linear inventory, that's going to benefit us really well as we as we head into a market a scatter market unfolding.
Going forward that we think is probably stronger than anything we've seen a long time.
We'll take our next question. Our next question comes from Marci Ryvicker of Wolfe Research. Please proceed with your question.
Thanks, I have two questions I guess the first one Bob did you see that all traditional distributors have been renewed at this point.
Yeah, Marci, we said virtually all.
There is a little bit to go in 20, but the vast vast vast majority of the sub base is complete and we're feeling really good about that it's clear evidence that our strategy, which we embarked on in 2017, where we we look to partner and broaden the set of activities, we are doing with folks including advanced advertising.
Co productions in some case and now broadband and mobile with Twitter TV, It's clearly working.
And.
That's really taking a big risk off the stocks, we feel great about it.
Okay, and then is there anything you can tell us about the pseudo users and her demographic, what they're watching how they're watching where they're coming from how you're getting them et cetera.
So we're super proud of the progress, we're making on Ludo as we said in our prepared remarks, but at the end of July we had 18 million monthly average uniques significant growth over what we announced in the in the previous quarter. This growth is coming from all the right places. These are 18 million U.S. uniques.
They are overwhelmingly consuming content on connected TV, we've seen the connected TV cohort grow over 400% on a year over year basis.
In terms of what they're watching.
They are yes.
The biggest.
Categories and genres in terms of the consumption.
Movies News Entertainment and now that we have Viacom content on their kids is one of the fastest growing.
Categories, we have drama.
And we're also incredibly excited about the launch of pseudo last you know this is a very important rapidly growing demographic. That's underserved from an FCC standpoint in the offering that we put up on Pluto. We think is an incredibly compelling offering and we're very excited about what that's going to deliver us.
You know in the coming quarters.
Thanks.
Our next question comes from Doug Mitchelson of Credit Suisse. Please proceed with your question.
Joe Bob you got a clear focus on investing for growth and margins being down a bit. This year reflects that I believe in and we look forward is there a point at which you would suggest margins you know flatten out or grow and I guess sort of backing into how much more you know growth investment is there to do it and when do the returns on that actually start to sort of offsetting investment and then Wade if you could help us on affiliate revenue with any contribution this quarter promote D.T.S. pod and and the studio production revenue sort of what was the impact of of that category revenue. Thanks.
Yes, what we actually flip it you want me to take the margins and you take affiliate sure. Okay. So in terms of in terms of the ongoing growth investments.
It's fairly modest and its important to note that we are actually stepping on the gas, where we're seeing a deliberate where we're seeing the ability to deliver results right. So.
As we've seen Koodo traction I begin to take hold we've started incrementally investing to support and help accelerate that growth.
You know we are starting to invest incrementally in our niche D to C products as Bob described and obviously, we're investing and supporting the Amat infrastructure. When you take all of that together. These are very modest incremental investments in the in the scheme of Viacom.
We are going to continue to invest in things like Pluto, obviously, it's in a hyper growth mode going to require investment in order to continue to support that but one of the great things about Pluto is that the majority of its cost structure is variable. So unlike a lot of the a lot of other people's forays into this area. We don't have to invest significantly ahead of the curve in terms of big fixed cost licenses and content distribution.
So we're able to grow the cost structure as the business as the business grows in terms of overall margins.
We've talked a lot previously about our cost transformation activities. We are able to we continue to be able to drop significant savings to the bottom line. So in this quarter. If you look at SGN a improvements we were able to improve SGN AD buy by a couple of percent net of AD and promo expense.
And so those savings are really allowing us to invest in these growth initiatives without really impacting viacom's bottom line.
Yeah and in terms of your question on you know over the top and the like.
In this affiliate number the reality is I'm not going to unpack that because we have a multifaceted distribution business, which is reflected of the significantly broader landscape. We now operate in Viacom IP is in demand.
Across this landscape.
In many sectors were working to satisfy that demand and that's driving growth overall in distribution and Thats really how you need to think about it.
And if I could just follow up Bob if you sort of carry forward what wades comments on on the growth question have you sort of check the box on a lot of the things that you wanted to do regarding driving growth initiatives or should we expect that there's you know.
Plenty more to come.
Well I think we're just getting to an inflection point, obviously, if you go back.
Two three years, we had a bunch of near term revitalization work, we have to do and I won't recover that.
But we said simultaneously we evolve the company for the future and when we entered fiscal 19, we said, we're really leaning into that side and that's exactly what we've been doing and if you look at our third fiscal quarter and the return to growth on so many metrics you're seeing an actually start to play through the piano and our focus now is on continuing to ramp that that might be well that includes ramping things like our Pluto platform, ensuring that broadband only and for that matter video bundle consumers first in the U.S., but really all around the world have a premium content experience that leads the industry that includes our advanced marketing solutions business, which as Wade.
Discussed really differentiated us in the quarter in the upfront and sustained and sets us up and actually already has returned us to sustainable growth.
So you should expect us to keep doing that and you should also expect us to continue to look for ways to evolve our business and take advantages in a glass half full way of the many opportunities the shifting landscape presents alright. Thanks, so much.
Our next question comes from Rich Greenfield. Please proceed with your question.
Rich you might be on mute.
Operator, let's talk about it I'm, sorry, sorry about that.
Viacom and discovery through to be leading the industry in AD sales, which is my guess is probably pretty counter intuitive to most people listening to this morning's call is unscripted outperforming scripted I mean is that what's driving the improvement that you're seeing relative to the rest of the industry and just from a housekeeping standpoint, how much was the I think you close Pluto towards the end of last quarter. How much was the first time palito impact on AD sales. Just so we can kind of get a sense of what the underlying organic growth was and I realize there's probably a point in there for Easter as well and then just a follow up for Bob you had talked earlier in the year pretty excitedly about.
Mobile MVP de deals I think you had pointed to T mobile being kind of first of its kind.
We havent really seen much materialized there it will it.
A timing issue how soon how should we think about kind of the mobile and the PD opportunity. Thanks.
Sure rich so a lot there so I look I'm not going to comment on discovery I can tell you from a Viacom perspective, we saw.
Our our networks grow audience share in fiscal Q3, I'm certainly a unscripted slashed reality is a programming genre that works for US you know with it that's a big part of the.
MTV resurgence for sure shows like X on the Beach, The Hill Jersey shore et cetera.
They all are actually pretty monetizable as well so that's working for us, but obviously that's not the only thing you know as we said you know the real driver of AD sales growth is our ability to access incremental inventory in sophisticated ways I E advanced marketing solutions and Wade I'm sure we'll comment on that before he does let me just take your mobile question you know you're right I've talked about mobile for a while now and it's because we continue to think that it is a wheelie substantial opportunity to unlock in terms of consumers. Having these devices are kind of the remote controls for their lives are there with them. All the time and plant is now at a place where they're Super video enabled and the business is very commoditized and carriers are looking for ways to drive data ARPU and differentiate.
And we've done a bunch of mobile deals.
In both the U.S. and around the World certainly the U.S. 18, T. watch, where we added three additional services as part of our last deal T mobile and their forthcoming service and then really at Qs or after the six mobile deals we did in the last quarter. We're now up to 34 operating and I think we're at the very early days for this so very exciting development for our industry and Viacom certainly in particular.
So in terms of the impact of Pluto in the quarter.
This was the first full quarter that we benefited from from food, though.
So as we've said before is part of and that it's not something that we break out separately as part of Amazon because interval to how we operate BMS business, we're already using Pluto inventory to fulfill vantage campaigns were using Pluto inventory to satisfy certain areas of under delivery. So it's an integral part of not only M.S., but the overall AD solutions business, but the probably the most important thing or at least the most direct answer to your questions like the U.S. I can tell you that without crude oil we still would have grown domestic AD sales in the quarter and put no. It really wasn't the only bright spot and Amat vantage grew over 80% social and digital grew over 50% as we added new new source of inventory like I said in the remarks 18, Directv now it came to watch so.
HMS is hundreds of millions of dollars grew 80% in the quarter or this is an incredibly differentiated in a strategic asset for Viacom leading the market.
Our next question comes from John Hodulik of VBS. Please proceed with your question.
Great maybe a couple of quick follow ups on Pluto, Bobby you mentioned when you when you acquired the company that one of the big source of upside was going to be the cell that sort of 50% of the inventory that that was going on so just any progress you made there in terms of plugging that inventory into the damn mass and it just sort of your your your your your own tourist sales infrastructure and then.
Maybe way do you know you talked about the.
The engagement, but any metrics you can provide I mean, you put a lot of new content on Pluto is there you know you got 18 million monthly users, but and eat any anything you can tell specifically on what's happening in terms of engagement. It is that growing as we are seeing this more content on the platform. Thanks.
Yes for sure. So let me just start with the content per unit.
We continue to make great progress with from a content standpoint, we have over 65000 hours of content on the Pluto platform a cross what's now we're now over 200 channels on the platform and it comes from about 165 content partners. So it's an incredibly robust probably.
Unlike anything else in the marketplace in terms of premium content and that content really is working so it is driving significant really month over month per user watch times, it's not something that were specifically disclosing but the growth in watch time, coupled with the very rapid growth and overall usage the growth at 18 million monthly average me is driving inventory volume at obviously the massive that the inventory volume is growing at a pace that exceeds what the what the absolute audience volume growth is.
And I guess, that's a good segue into your question about fill rate right. So in terms of fill rate when we bought when we bought the business. It was significantly under 50% and I guess, we have a little bit of a you know of a I'm kind of rich man's problem here in the sense that we're making great progress on fill rate both from a direct sales and indirect sales standpoint, but the absolute volume of inventory on photo is scaling so rapidly that we're actually still under 50% sold and so you know as volume continues to scale rapidly. We have an incredible amount of room to run from a monetization standpoint, yeah, and just to add to that I mean, I think that's just raising the ceiling. The reality as we said, we plugged Pluto into our infrastructure and a whole bunch of ways content distribution and AD sales, we in the AD sales point, which what you're asking about with depth.
When we did it we it's helping us in the scatter market, we laid a very material upfront based on a standalone basis for Pluto and part of Amss and therefore part of solutions.
So that's got great traction in the marketplace and we just keep having more and more premium inventory to sell which just means. This thing continues to have the potential to get even bigger so were thrilled that we did this it's working even faster than we planned and it's a really great Road ahead.
Great. Thanks.
Our next question comes from Ben Swinburne of Morgan Stanley . Please proceed with your question.
Hey, good morning, guys.
Hi, Bob If you gave this earlier wait I apologize, but I wanted to ask if you could size the sort of TV production business now at Viacom kind of across Paramount and the media networks and.
What that looks like as you head into next year, and whether you think they'll start being you know sort of profitable or meaningfully profitable in that business and then secondly sort of sticking on the Paramount side, you know I think your TV licensing deal in the U.S., where that picks up in a couple of years. Just wondering if you how you think about the opportunity around licensing on in the pay one window, whether you know that whole marketplaces change you think there is that you may take that content in a different direction or sort of how you think the market shifts around in the context of that opportunity for Paramount.
Yeah sure Ben So look as we said our studio production business.
Continues to scale up very rapidly that that's true at Paramount where as I indicated we have 26 series now order two are in production I think on the last call. We referenced 22, we have fraud productions in place at our domestic media networks.
And I also mentioned that we continue to see that scaling a business. So we feel great about that we're definitely on track to what we said, which is an exit velocity in 2020, a of a billion dollars and that would include profitability on me second part of your question, which goes to the Paramount let's call it pay one window.
That's still we're not going to date, but that's still a little ways off but that's a place where time is our friend that validate the value that window.
That product probably increases every day, we regularly get inbound interest in that product from a range of players sort of across platforms.
You know, we're not doing anything in the near future because again, we think times, our friend and as time plays out we'll we'll determine the highest and best use of it and by the way as time plays out you'll see what a powerhouse Paramount will become on a slate basis, because we just talked about the 20 slate, but weve also looked longer it and it just the pipeline looks phenomenal and these guys really know what they're doing so bad that window will have incredible value to us once we make a decision on what we'll do.
Got it operator.
Operator, we have time for one more question.
Okay. Our next question comes from 10 million of Macquarie. Please proceed with your question.
Oh. Thanks, so much really appreciate the comments on M.S. I wonder if I could dig in just a little bit more in relation to the upfront I mean, Amazon is a very different beast from your traditional upfront negotiations are you selling this is like a package with your linear up front deals is that a separate sale I just wonder if you give us a bit more color on how you are using A.M.S. in the upfront and perhaps related Lee I believe there's an open 82.0, I guess you would call. It supposedly due to launch this fall any updates on consortium partners or anything new to say on opening pace. Thanks.
Sure.
So am has really allowed us to go into the upfront with the right strategy at the right time right. The overall market context for this upfront was linear inventory scarcity that everybody only expected to increase over time and so having this portfolio of products to be able to take two or through the marketplace. As a package was really really differentiated but most importantly, it was the place we were able to absorb volume while still driving price on the on the linear savvy question. So the answer to your question about visit a package is resoundingly yes.
It's important to note that unit that the way in which we brought it to market was a construct that every major holding company participated in so the strategy not only delivered results for us, but it was also embraced by the industry as a way to deliver results for for for their clients.
So so we couldn't be happier with both you know how amex is performing in general, but also the way in which has allowed us to have a differentiated offering going into the upfront terms of opened 82.0 opened 82.0 that represents a very significant and interesting steps forward for that consortium as we think about.
Moving open 80 functionality from.
Being really a tool for creation and posting of advanced TV segment to starting to become a broader planning and then ultimately are planning tool and ultimately buying platform, but in terms of the more specific announcements around our consortium partners in the actual rollout of the product I think it's best to leave that to the consortium.
Well.
So look in closing I Trust you can all see we had a great quarter and I'm really pleased with the performance. We continue to demonstrate as we invest in and evolve Viacom for the future. We're building off of our existing linear TV and film base, we're expanding on a global basis, we're rapidly growing or premium content reach beyond our traditional networks, including in DTC and we're creating innovative solutions for our growing roster of partners.
Our brands are strong and they are resonating with audiences of all ages and you see that in our heads.
We built a sophisticated advanced marketing solutions portfolio, that's ideally suited to the evolving marketplace and you see that in our return advertising growth.
And we've achieved a strong presence across the diverse video ecosystem ranging from traditional mbps to be m. bbds niches fun mobile and now free streaming which means were entertaining more consumers than ever.
In short our strategy to evolve Viacom for the future is working and our business model allows us to thrive and grow in what is a rapidly changing media landscape.
We're excited by the opportunity and growth ahead, and we thank all of you for your support and time.
We want to thank everyone for joining us for our earnings call.
This concludes today's conference you may disconnect your lines at this time.
Thank you for your participation and have a wonderful day.
[noise].