Sidelined Paramount to Be True ‘Part of Viacom,’ New CEO Says

  • MTV to start making movies; Spike becomes Paramount Network
  • Media giant seeks to reverse waning influence on youth culture

Viacom Inc.’s new chief executive officer is bringing Paramount Pictures, the company’s prized movie studio, back into the fold just a few months after his predecessor tried to sell a large piece of it.

Under Bob Bakish’s plan to resurrect beleaguered Viacom, five cable networks, including Nickelodeon, will produce one or two movies a year based on their TV shows, adding up to about half of the films Paramount distributes each year, he said in an interview. One of Viacom’s less-watched channels, Spike, will become the Paramount Network, a new home for high-end scripted shows and the best of the legendary studio’s library.

Since taking over as CEO in November, Bakish has been concocting a plan to help New York-based Viacom grow even as the audience for live TV erodes. He’s pushing the cable networks to look beyond TV for growth, from producing movies and short-form programming to developing businesses like live events and theme parks.

Bakish is unveiling the new strategy to convince investors and shareholders their company isn’t in inexorable decline. After a calamitous year in which owners fought with management and sales fell, the company reported fiscal first-quarter earnings and revenue Thursday that topped analysts’ estimates, providing Bakish with momentum as he embarks on his plan.

Profit excluding some items declined to $1.04 a share though beat analysts’ 84-cent projection, while sales rose to $3.32 billion, exceeding analysts’ $3.18 billion average estimate. The shares rose as much as 7 percent to $45 in New York Thursday, their highest intraday price since August.

“Through the drama, a number of things have been lost,” Bakish said during a recent visit to open a new Viacom office in Hollywood. “We have multiple multibillion-dollar brands under our roof that other companies would kill for.”

Six Brands

With distributors AT&T Inc. and Dish Network Corp. excluding less-watched networks from new online pay-TV services, Viacom is looking to strengthen its most potent assets to make sure they make the cut. The company will restructure its 24 cable networks around six key channels -- Nickelodeon, MTV, Nick Jr., BET, Comedy Central and Paramount -- and give the leader of each brand greater resources to pursue new initiatives. 

These networks represent 80 percent of U.S. affiliate and advertising revenue, including brand offshoots like BET James, MTV 2, Nick 2, according to Steven Cahall, an analyst at RBC Capital Markets. “A key question will be how programming expense flexes during this reprioritization,” he wrote in a research note Thursday.

Viacom’s smaller networks will be folded under the six brands, and some may be overhauled. The creation of a Paramount Network will add to speculation about a sale of Epix, the premium TV network Viacom co-owns with MGM Holdings Inc. and Lions Gate Entertainment Corp., since Paramount movies are some of Epix’s most valuable programming.

“Paramount is becoming part of Viacom, getting closer to Viacom,” Bakish said.

The demise of smaller networks may be inevitable, according to Bernstein analyst Todd Juenger.

“You have to drop the weaklings,” he wrote in a research note. At the same time, the company cannot afford to cut out $1 billion-plus in earnings before interest, taxes, depreciation and amortization, profit that Viacom may not be able to recapture from raising prices on the new “core 6 networks.” These channels are also over-earning already, and facing the brunt of the ongoing migration of kids and teens away from conventional TV, Juenger said.

Viacom’s cable networks and Paramount used to be better integrated. MTV and Nick used to supply several movies annually to Paramount, including hit franchises “Jackass” and “Rugrats.” MTV produced three movies a year between 1999 and 2008, while Nick produced a couple a year.

Their contributions to Paramount have since dwindled. MTV contributed just two movies over the last two years, and one of them, “Goat,” grossed a measly $23,020 at the box office. Nick has been making one movie a year. At the same time, top talent from Viacom TV networks, such as Amy Schumer, Jordan Peele and Keegan-Michael Key, made movies for other studios.

Big Loss

Paramount’s string of box-office flops led to a loss of $445 million in the fiscal year that ended in September and dismissed Chief Operating Officer Rob Moore. Paramount boss Brad Grey has held onto his job, but will now cede about half his slate to six different cable networks. Grey resisted at first, Bakish said, but eventually came around.

“I gave some examples, and he said, ‘You know what, you’re right,”’ Bakish recalled. Nick will produce four movies with Paramount Pictures to be released in 2018 and 2019, starting with “Amusement Park,” Viacom said Thursday. Other networks will soon follow. Viacom didn’t make Grey available for comment.

Filmed entertainment sales rose 24 percent to $758 million, surpassing than the $658.2 million seen by analysts.

Bakish began hatching his turnaround plan just a few hours after the board named him interim CEO in November -- Viacom’s third boss in as many months. 

The 53-year-old Bakish asked each of his subordinates to submit a few names for a committee that would assess all the ways in which Viacom could perform better. Dubbed “New Day,’’ this committee comprised senior executives including BET’s Richard Gay, Paramount’s Amy Powell and Nick’s Sarah Kirshbaum Levy, who has since been promoted to oversee cable operations.

Redstone Backing

Bakish’s moves helped persuade Shari Redstone, whose family owns a controlling stake in Viacom, to abandon her push for a merger between Viacom and CBS Corp., the other company her family controls. It also earned Bakish the job as full-time CEO.

This isn’t the first time a Viacom boss has promised a revival. Former CEO Philippe Dauman made similar promises after steady declines in viewership at top cable networks, but couldn’t stop the bleeding. Viacom has reported declines in advertising sales at its U.S. networks 10 quarters in a row, and its stock has fallen for three straight years.

While Viacom owns many of the TV networks that defined youth culture in America and beyond for three decades, it has struggled to adapt to the rise of online video services Netflix, Amazon and YouTube, as well as social networks like Facebook, Instagram and Snapchat. Teens who once came home to turn on cable TV after school can now find similar enjoyment on their smartphones at any time.

Viacom can’t reverse those trends, but it will invest more in the production of short-form videos for apps like Snapchat, and create multiple new touch points for young consumers, from MTV-branded concerts to Nickelodeon theme parks. 

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