A little more than a year ago, Viacom then-CEO Philippe Dauman was under siege from investors who grew tired years underperformance at the conglomerate and controlling shareholder and then-chairman Sumner Redstone was battling for his reputation as unusual sexual proclivities were made public.
Fast-forward one year, Redstone has been made chairman emeritus with no real day-to-day power at the conglomerate he built over the course decades, and Bob Bakish has been working to turn around things as president and CEO the conglomerate. His first course action after being named interim CEO at the end October last year, before becoming permanent CEO in December, was to engineer a restructuring.
So far, so good, many analysts are saying. Credit Suisse analyst Omar Sheikh, for example, recently told his clients that Viacom shares are “egregiously low” and he expects them to rise 85 percent over the next 12 months. Welcome news, indeed, especially for long-suffering employees who have seen their retirement accounts languish for years. Three years ago, for example, the stock traded for north $58 a share, while on Friday they closed at $24.66.
Bakish, in fact, has earned Wall Street praise for being realistic (under-promising and over-performing, as the parlance goes) and for being a straight talker. “Almost anyone would be viewed positively relative to his predecessor,” quips Brian Wieser Pivotal Research, while Michael Nathanson MfetNathanson praised top management for their “honesty and openness,” adding: “It wasn’t always that way.”
Viacom is set to report earnings for its latest fiscal year on Nov. 16, which marks a year and day from when Bakish was made acting CEO and president.
Jobs 1A and 1B for Bakish were to turn the struggling cable TV channels and Paramount film studio around. Tom Gorke took over affiliate sales and VH1's Chris McCarthy was made president MTV, its third executive in that role in three years, while Jim Gianopulos was made chairman and CEO Paramount, taking over from Brad Grey (who later died cancer).
By most metrics, Viacom's TV networks business is seen as a success since the changes, with total ratings up 3 percent at its cable channels, including 27 percent growth at BET, where the miniseries New Edition was huge, and 11 percent at MTV, even where struggling shows remain. A reimagined TRL, for example, was a big part McCarthy's vision for more live programming but a dud on traditional TV (it's making headway on digital platforms like Snapchat, though). Nickelodeon, while down in the latest quarter, remains No. 1 with the children’s demo that it targets, courtesy shows like Dude Perfect. At Comedy Central, The Daily Show With Trevor Noah had struggled but has since stabilized since the election President Donald Trump, an event that has given Noah plenty comedic fodder thus far.
Plus, vice chairman Shari Redstone recently indicated that Viacom should expect strong growth at its international cable channels.
Insiders say it was a goal Bakish’s to engage in carriage negotiations earlier and to be more proactive in striking slightly more creative deals. After a three-year hiatus, he convinced Suddenlink to come back to the Viacom fold and the key outlines a deal with Charter Communications were recently agreed, with the final agreement still to come. The conglomerate is supposed to get a little less per subscriber, putting it on par with what Time Warner Cable had been paying before it was acquired by Charter and rebranded Spectrum, but eight Viacom’s top channels will likely remain on Charter’s basic package, which would represent a significant victory for Bakish.
Doug Mitchelson UBS calls the soon-to-be wrapped-up Charter deal an “elimination Viacom’s biggest risk,” and he notes the company won’t have to worry about meaningful future carriage deals for 18 or more months.
Nevertheless, the future outlook for carriage Viacom's young-skewing networks, and the money the company can get for it, remains a topic debate on Wall Street as younger audiences are seen as having more competing options than ever in the digital age. “Affiliate renewals continue to translate to angst and drama for the industry,” notes John Janedis Jefferies.
Indeed, cable will remain challenged as long as consumers are cutting the cord on their subscriptions and defecting to streaming services like Amazon and Netflix. By the end the year, more than 22 million Americans will have already done so, according to eMarketer.
Along those lines and still unknown, though, is whether Viacom’s contracts with cable carriers will allow it to launch a streaming product a la Disney’s plan for one that will feature Pixar, Marvel, Star Wars and Disney-branded content, which is something insiders say is desired at Viacom.
“Equity markets always think that turnaround stories are both linear and easy,” Nathanson said in a recent report. “We just don’t know how Viacom can sustainably grow cable networks cash flow unless they can count on a massive recurring cost-cutting strategy. However, because the arms race in content spending, we wouldn’t welcome or suggest that choice.”
A primary Bakish strategy has been to make the various brands work better together — the well-performing show, Wild ‘N Out, therefore, moved from MTV2 to MTV, for example — and to use the well-known brands to more advantage. That’s why Spike TV will become Paramount Network in January, launching with shows like Yellowstone, starring a rancher played by Kevin Costner, and Waco, a miniseries about the 1993 standf between federal authorities and David Koresh’s Branch Davidians that stars Taylor Kitch and Michael Shannon.
But while TV is enjoying a relatively quick turnaround so far, the Paramount film studio is another story, given the 2017 movies that underperformed, like Baywatch, Monster Trucks, and Ghost in the Shell, all greenlit under the prior regime.
Currently, the studio ranks seventh in terms domestic box fice market share, behind all the other major studios as well as Lionsgate. No immediate relielf is in sight: Darren Aronksy's allegorical horror movie mother! hit a wall when it opened in September; George Clooney's noirish Suburbicon is struggling as it opens this weekend; and Alexander Payne's satirical Downsizing, which arrives in December, could prove problematic.
While there is a Mission: Impossible 6 scheduled for July and the Transformers spinf Bumblebee will hit theaters in December 2018, it won't be until 2019 that moviegoers will get a look at the Gianopulos slate, which includes the James Cameron-produced untitled Terminator project, Gemini Man starring Will Smith and directed by Ang Lee and a sequel to Top Gun starring Tom Cruise.
Meanwhile, following Bakish's vow to make better use all the Viacom labels, Gianopulos has launched the Paramount Players Division, headed by Awesomeness founder Brian Robbins, to develop films based on Viacom's channels and TV shows. He also drafted former DreamWorks Animation co-president Mireille Soria to head up and re-energize Paramount's animation division.
About the time when Bakish took over, speculation was that Viacom may want to pursue a merger with CBS Corp., its sister company given the Redstone family also contols CBS and the companies were split years ago, but those rumors appear dead for now. Also, attempts to sell a piece Paramount to a strategic investor failed. Viacom had expected a valuation $10 billion or more for Paramount, but Mitchelson figures it’s now worth about $5.4 billion, and most analysts figure the TV business is more important to Viacom’s near-term health.
“We think investors are underestimating Viacom’s earnings power the next few years and ultimate asset value,” Mitchelson said in a recent report. “Management has been executing on its turnaround strategy, including improving ratings, upcoming cost realignment and delivering on affiliate renewals.”
Viacom declined to comment for this report, originally published by The Hollywood Reporter.