Barron's Streetwise - Bob Bakish On Paramount+ and Why ViacomCBS Stock Is Going Bananas

Episode Date: March 12, 2021

The showbusiness chief talks about the future of TV and movies, and the sneaky success of PlutoTV. Learn more about your ad choices. Visit megaphone.fm/adchoices

Calling all sellers, Salesforce is hiring account executives to join us on the cutting edge of technology. Here, innovation isn't a buzzword. It's a way of life. You'll be solving customer challenges faster with agents, winning with purpose, and showing the world what AI was meant to be. Let's create the agent-first future together. Head to salesforce.com slash careers to learn more. We said in the beginning of 19 that it would be a billion dollars business in the not too distant future. For sure, I thought people thought we were smoking something. But the reality is it's going to be a billion dollar business very soon.

And then it's going to keep going. So we love Pluto. It is very much an entry point to the ViacomCBS streaming ecosystem and it continues to expand outside the United States and will continue to add territories. Welcome to the Barron Streetwise podcast. I'm Jack Howe, and the voice you just heard, that's Bob Backish. He's the CEO of TV and film giant ViacomCBS. We last spoke with Bob on this podcast back in May, and since then, his stock has gone bananas. So what's going on? Is it the recent launch of the Paramount Plus streaming service, or the growth of the platform Bob just mentioned called Pluto. Maybe the ongoing investor shift toward reopening stocks has something to do

with it. Vaccines are offering some hope for movie theaters. I mean, Paramount just moved the theater release day for A Quiet Place 2 forward from September to May. Shh. That's the movie where if people talk too loudly, a monster comes and eats them. Must make it hard to podcast, am I right? I mean, could you imagine trying to do it? Oh, jeez. Listening in, keeping us all safe from monsters, is our audio producer, Metta. Hi, Meta. Hey, Jack.

Meta, we've talked about cable television bundles before. You don't bother with one, right? What do you have, just Netflix? Yeah, I have Netflix and HBO. Probably a social life too, I'd guess. No. Well, I'm now going modern just like you. I recently moved to a new house 10 minutes away from my old house, and I told the cable company thanks, but no thanks.

And I signed up with another company for fiber optic internet service. I cut the cord, as they say. I'm unbundled. I feel free as a bird. I just have to remember separate passwords for my Wi-Fi mesh and my various streaming services. Plus, I have to manage user profiles on each service for each family member. But there's only Netflix, HBO Max, Peacock, and now Paramount+. And my Disney Plus virtual bundle, which includes Hulu and ESPN+. Plus, I have PBS streaming service. That's called 13 Explore, and Prime Video, which I get with my Amazon subscription, and Apple TV, which I get through a bundle of services

called Apple One. Also, the broadband company threw in a year of Discovery+, so I have that. And my wife doesn't love that we don't get her news channel anymore, so I might have to sign up with a VMVPD. That's a virtual multi-channel video programming distributor. It provides a bundle of live channels that you stream over the internet. Like a cable bundle but without the cable. It couldn't be simpler. What do you end up watching? Almost nothing. I mean sometimes I watch YouTube videos about how to make my Wi-Fi mesh work better. Welcome to the future. Thank you, Meta.

So I recently spoke with ViacomCBS CEO Bob Backish about streaming and other show business stuff. Hey, Bob, nice to see you again. It's Jack Howe from Barron's. Hey, Jack, how you doing? Doing well, thanks. Thanks for making a few minutes to speak with us. Sure. I looked at your shares earlier. You and I last spoke around May 15th, and the stock had taken a hit because of the pandemic.

And since then, it's returned 300%. It's beaten the market by more than 260 points. I've been going around taking all the credit for that, but here's your opportunity to explain if you had something to do with it, what are the few most important pieces of progress or most important developments you'd say since last spring that you've put together? So there's probably three things. One is certainly the market has improved since then. The COVID bottom was probably early April or so, and it was pretty ugly. Clearly, we're in a better place overall. But there's two probably ViacomCBS specific things I'd point to. One is there are a lot of naysayers about this

transaction when we closed. Would there be value in the combination? And I think certainly since then, leading into today, we've proved there's definitive value on the traditional side. When Bob says the traditional side, he means regular television, including cable. In early December 2019, Viacom and CBS merged, and Bob, who had run Viacom for three years, became chief of the combined company. His challenge was pretty clear. Regular television was a cash cow. It still is. But over the long term, there's a risk that viewers will gradually leave cable for streaming services. CBS, the perennial leader in TV ratings, had a streaming service for diehard fans of the channel called CBS All Access. And it had Showtime, the premium cable channel that doubles as a streaming service. Viacom had a collection of channels that skew young, like MTV, Comedy Central, and Nickelodeon.

Plus Paramount, a storied movie studio that Bob had already brought from deep losses to small profits. Viacom also had Pluto TV, which is a free streaming service that makes money through advertising. The Viacom-CBS merger happened just a couple of weeks after the launch of Disney+, and shareholders wanted to know, where's our big streaming service? Well, now it's here. It's called Paramount Plus, and it launched just this month. It costs $4.99 with ads or $9.99 without them. Bob says his goal is to reach 100 million to 120 million users by 2024. Those are big numbers. For comparison, Disney Plus is the number two player in streaming now, and it just hit 100 million subscribers. That's helped Disney stock

return about 90% over the past three years, beating the S&P 500 by 40 points, despite the pandemic's effect on theme parks and movie theaters. Netflix is the number one player with about 200 million subscribers, and that stock has been an incredible long-term performer. In other words, stock investors reward streaming success. But already, Viacom CBS shares have returned 112% since the merger and Bob becoming chief, which means either investors feel good about the plan for streaming, or they like how the company is doing in traditional TV, or they see better days ahead for movie theaters or some stew of these factors.

So I asked Bob, how do you plan to make Paramount Plus stand out in a crowded field? What's the pitch? So it is a highly differentiated service. The sports offering is compelling, combining the NFL, the NCAA, numerous golf franchises, European football. Add to that breaking news. There really aren't news components on most services. Now, I don't think people are going to subscribe for news, but they're certainly going to consume news if it's available. And then it goes to entertainment. And you look at the content asset of ViacomCBS and our flagship brands and what we're able to bring to bear both from a original production side and a library side, really across every demographic, every genre, television and film, it's pretty compelling. Before Paramount+, Bob was like an entertainment arms dealer. plus, Bob was like an entertainment arms dealer. If your streaming service was running low on kids content, he could set you up with some Paw Patrol or some SpongeBob for a price. And if you wanted

something saucier for the grown-ups, he could do some South Park or Chappelle's Show, both of which were licensed by HBO Max or The Lovebirds, a movie that went to Netflix. It was a good strategy for bringing in cash while the getting was good. Now things will obviously change. Paramount Plus is planning a string of originals inspired by titles from its film library, including Flashdance, Grease, and The Godfather. It's also making new versions of successful shows from the past, like The Real World.

Meta, that is not the one with Snooki in it, am I right? I don't think so. I think that's the one where they live in a house. I mean, people are still living in houses, right? There must be some other hook. It really set that show apart. Anyhow, here's Bob. And let's just let the conversation run from here on with limited interruption, as they say on TV. In other words, I'll shut my big bazoo now. Unless you hear me talking to Bob, that doesn't count. That's previously recorded bazoo. Now then, Bob on licensing.

Doesn't mean we're never going to license another piece of content again. We are in the content licensing business, but for sure, we are leaning more into intercompany licensing. What about the theater business? When you look at, I mean, it's hard to know, obviously, with the course of the virus, but by the time we get out the other end of this pandemic, the entertainment business is going to be so remarkably changed with all the streaming services tied with big movie houses. What do you think is going to happen to the theater business long-term? Look, we do believe people will go back to theaters, just like I believe people will go to bars and want to get together again post-pandemic. We do believe a theatrical option is an option consumers should have. The big screen, great sound, et cetera, you know, film like Mission Impossible 7. Trust me, I've seen pieces of that movie.

You're going to want to see it on the big screen. But at the same time, consumers clearly want earlier access to titles for streaming. So different studios are doing different things. We chose a model which I believe is a great balance and is sustainable, which is put it in a theater for, again, 30 to 45 days, give people that theatrical option. And by the way, if you look at the degradation curves of revenues of titles, you'll see that after 30 days and certainly after 45, most theatrical titles really aren't doing any revenue. So why wait 90 days to move it to your own then operate streaming platform, move it after 30 to 45. So we like that model. That's what we think the future looks like. Again, different people have different points of view, but

some of these other models, I question whether they're really sustainable. Let's talk about Pluto. Pluto is your advertiser supported or what some people might call your free streaming service. And you've explained in the past how that'll kind of work together with your premium streaming services in terms of people being able to move back and forth. And I thought it was pretty unique. I wonder if you could just lay that out again for us, how Pluto will coexist with the other streaming services and how you can make it so that they can complement each other rather than compete against each other. Yeah. So let's start with, we're the only company that has embraced the triumvirate of free, broad, and premium pay streaming. We did that because we see three distinct lanes from a

consumer perspective and because we think the combination is, dare I say, synergistic. and because we think the combination is, dare I say, synergistic. So Pluto, it is a rocket ship. As you know, we reported 43 million global MAUs at the end of December on a global basis. When we acquired that company at the end of 2018, it had 12 million MAUs, so tremendous growth. So that business is already getting to scale. We said at the beginning of 19 that it would be a billion dollars business in the not too distant future. For sure, I thought people thought we were smoking something. But the reality is, it's going to be a billion dollar business very soon. And then it's going to keep going. And then it's going to keep going. Add to that Paramount+. We definitely see an opportunity to source subscribers for Paramount+, from Pluto. Some Pluto subscribers will only want to use free, but some of them have paid services.

Why not offer them an opportunity to subscribe to Paramount+. We've already done that with our Showtime service. And over time, this ecosystem, if you will, will be progressively linked and integrated such that we have advantages in subscriber acquisition costs, lifetime value, and churn management. And it's not only about acquiring subs. Think about when someone pauses a pay subscription, wouldn't you like to keep them in a free ad-supported universe to continue to monetize them and position them to be remarketed as their situation changes. We think that makes a lot of sense and we're certainly going to go down that direction. My favorite sporting event, the Masters, is coming.

And you might be one of these guys who can give us an early read on the economy by telling us what's going on with advertising. Not just for your business but but for the broader economy what do you see what are you hearing from advertisers right now and what does it tell you about the health of the economy the speed and shape of the recovery so look the bottom of the ad business was the second quarter of 2020 that was an ugly quarter to say the least second quarter was a bloodbath. Third quarter was a nice improvement. Fourth quarter, which we just reported, swung back to positive, positive three in terms of return to growth. And, you know, we see where we were in the Super Bowl and where we are as we complete the first quarter. I like what we're seeing in the ad market. We're

ramping out of COVID for sure. We still have a couple categories that aren't quite there yet. Films, as an example, because they're still not releasing. But by and large, the ad market's in much better shape. We will certainly benefit in 2021 because we do have some big events in the first quarter that we did not have in the first quarter of 20. That includes the Super Bowl and the NCAAs. So I'd say in general, the ad market is looking like it's getting healthier again. I've got to believe that in your job, you can focus on any one of a number of things. I mean, you have a lot of different responsibilities in terms of you can look at content, you can talk with the salespeople, all these different things. But which parts of the job do you like the most?

How would you characterize yourself as an entertainment chief? I like figuring out how to use assets to create value, how to solve complicated problems. So I very much enjoyed the first year of combining Viacom and CBS. Sure, we didn't anticipate there'd be a global pandemic or social unrest, but the opportunity to take assets and realign them and turning them into, at least at this point, partial believers and doing that by delivering the numbers, delivering whether it's ad revenue numbers, sequentially improving affiliate numbers, sequentially improving getting incremental carriage,

reducing aggregate costs through combination, all of which we delivered and arguably over-delivered on. I think that's super fun. Are there any things that you'd like to get into that you're not into now? And are there any other entertainment assets that you think you might be making a play for later on? Or do you feel like you have everything you need right now? So let's start with, I am extremely happy that we combined Viacom and CVS because it gave both legacy companies the opportunity to compete in today's marketplace in a way that they couldn't have before. I think that's indisputable, particularly with respect to streaming. So that was tremendously

important that that happened. And it was tremendously important that we moved quickly to unlock that benefit. We haven't fully unlocked it yet. There is still more to go. And clearly 2021 will be very important from a streaming perspective. And so that's what we're focused on. There is no asset in the marketplace from an acquisition standpoint that is a must have. I think, again, the current configuration of the company is very strong. Doesn't mean we won't look. But right now we're focused on organic execution and continuing to unlock that value. Tell me about the long-term ambition. When you get daydreaming about what you could possibly accomplish there over, let's say, the next

five years, the next 10 years, what's your hope for how big this business can become? What's your hope for how big this business can become? Well, I think it's to establish beyond the shadow of a doubt that ViacomCBS is one of the preeminent media companies in the world in the 21st century. And that means successfully navigating the transition from linear to streaming if you cut through it all. It doesn't mean linear is going to go away, but fundamentally, that's what I'm focused on. linear is going to go away, but fundamentally that's what I'm focused on. Because you look at the legacies of these companies, whether it's CBS or Viacom, no question they were leaders in the prior configuration of the media business. I'm focused on ensuring that that's true going forward. I think that's tremendously exciting. I think we have a lot of momentum. I think we're getting there and I'm excited about what we're going to get done in 2021.

Always good to talk to you, Bob. Thanks for making the time and best of luck in the year ahead. All right, Jack. Thanks a lot. Stay well. Meta, can you hear that hammering in the background? I sure can. Got some guys doing some work.

Nice. Great timing. Thank you for listening. Meta Lutzoft is our producer at Meta. If this were the show with Snooki on it, which character would you be? I only know Snooki as a character, so I'd be Snooki. But me too, so I'm also Snooki. That's a show, two Snookis.

Subscribe to the podcast on Apple Podcasts, Spotify, or wherever you listen to podcasts. And if you listen on Apple, please write us a review. If you want to find out about new stories and new podcast episodes, you can follow me on Twitter. That's at Jack Howe, H-O-U-G-H. One last thing. Check out the new season of another Barron's podcast called The Readback with Alex Yule. This season is all about the red hot IPO market.

And halfway through the season, someone gets murdered. Right, Meta? Not exactly, but... This is how we generate buzz in the podcasting business. Listen to The Readback wherever you get your podcasts. See you next week.