Viacom Inc. (NASDAQ: VIAB, VIA), the parent company of the Nickelodeon brand, today
reported financial results for the third quarter of fiscal 2016 ended June 30, 2016.
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The Loud House is TV's top show for kids 2-11, helping to propel Nickelodeon to 52 consecutive weeks as the number one kids' network. (Photo: Business Wire)Philippe Dauman, Executive Chairman, President and Chief Executive Officer of Viacom, said, “In the quarter, Viacom continued to execute on our strategic plan by increasing investment in high-quality original content, enhancing our connection to audiences, accelerating the growth of data-driven advertising products and further expanding our unmatched global reach. Ratings increased at several of Viacom's major networks, including Nickelodeon, Nick at Nite, VH1 and TV Land, and ratings trends at nearly all of our networks showed sequential improvement as we successfully completed a very strong upfront across our brands. Internationally, our media networks are driving strong double-digit revenue growth, with new channel launches, growing distribution partnerships and substantial ad sales gains. Viacom's third quarter results were impacted by the underperformance of
Teenage Mutant Ninja Turtles: Out of the Shadows."
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(Graphic: Business Wire) increased 2% to $3.11 billion, as Filmed Entertainment gains more than offset a decrease in Media Networks revenues. Media Networks revenues were $2.51 billion, a decline of 3%. Domestic advertising revenues decreased 4%, as pricing increases were more than offset by softer ratings at some of our networks compared to the previous year, and a continuing strategic reduction of unit loads. International advertising revenues increased 13%, driven principally by growth in Europe. Absent an adverse 6% impact of foreign exchange, international advertising revenues increased 19%. Domestic affiliate revenues decreased 10%, principally reflecting a difficult comparison with the timing of revenues from certain distribution agreements in the prior year. International affiliate revenues increased 9%, and absent an adverse 3% impact of foreign exchange, international affiliate revenues increased 12%.
Filmed Entertainment revenues grew 30% to $621 million, driven by gains in license fees and theatrical revenues. Worldwide theatrical revenues increased to $91 million in the quarter, reflecting the June release of
Teenage Mutant Ninja Turtles: Out of the Shadows. License fees grew 39% to $297 million in the quarter, driven by the licensing of certain titles for subscription video-on-demand services and revenues from Paramount Television productions.
Quarterly operating income declined 29% to $769 million. Media Networks adjusted operating income decreased 22% to $872 million, reflecting revenue declines as well as an increase in programming and marketing expenses. Filmed Entertainment reported an adjusted operating loss of $26 million, reflecting the timing of expenses and theatrical performance in the quarter.
Quarterly net earnings attributable to Viacom decreased to $432 million and adjusted net earnings declined to $419 million. Diluted earnings per share for the quarter were $1.09 and adjusted diluted earnings per share were $1.05.
DebtAt June 30, 2016, total debt outstanding was $12.37 billion, compared with $12.29 billion at September 30, 2015. In the quarter, the Company repaid the $368 million aggregate principal amount of its 6.250% Senior Notes due April 2016. The Company’s cash balances were $192 million at June 30, 2016, a decrease from $506 million at September 30, 2015.
About ViacomViacom is home to premier global media brands that create compelling television programs, motion pictures, short-form content, apps, games, consumer products, social media experiences, and other entertainment content for audiences in 180 countries. Viacom's media networks, including Nickelodeon, Comedy Central, MTV, VH1, Spike, BET, CMT, TV Land, Nick at Nite, Nick Jr., Channel 5 (UK), Logo, Nicktoons, TeenNick and Paramount Channel, reach approximately 3.8 billion cumulative television subscribers worldwide. Paramount Pictures is a major global producer and distributor of filmed entertainment.
For more information about Viacom and its businesses, visit www.viacom.com. Viacom may also use social media channels to communicate with its investors and the public about the company, its brands and other matters, and those communications could be deemed to be material information. Investors and others are encouraged to review posts on Viacom’s company blog (blog.viacom.com), Twitter feed (twitter.com/viacom) and Facebook page (facebook.com/viacom).Cautionary Statement Concerning Forward-Looking StatementsThis news release contains both historical and forward-looking statements. All statements that are not statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements reflect our current expectations concerning future results, objectives, plans and goals, and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause future results, performance or achievements to differ. These risks, uncertainties and other factors include, among others: the effect of actions taken in the name of the Company's controlling stockholder to affect control of the Company and the related uncertainty under which the Company is operating; the public acceptance of our brands, programs, motion pictures and other entertainment content on the various platforms on which they are distributed; the impact of inadequate audience measurement on our program ratings, advertising revenues and affiliate fees; technological developments and their effect in our markets and on consumer behavior; competition for content, audiences, advertising and distribution; the impact of piracy; economic fluctuations in advertising and retail markets, and economic conditions generally; fluctuations in our results due to the timing, mix, number and availability of our motion pictures and other programming; the potential for loss of carriage or other reduction in the distribution of our content; changes in the Federal communications or other laws and regulations; evolving cybersecurity and similar risks; other domestic and global economic, business, competitive and/or regulatory factors affecting our businesses generally; and other factors described in our news releases and filings with the Securities and Exchange Commission, including but not limited to our 2015 Annual Report on Form 10-K and reports on Form 10-Q and Form 8-K. The forward-looking statements included in this document are made only as of the date of this document, and we do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. If applicable, reconciliations for any non-GAAP financial information contained in this news release are included in this news release or available on our website at http://www.viacom.com.###
Below is Viacom's Q3 2016 Results Earnings Call Transcript, in which Viacom Management discusses the company's Q3 2016 Results, from
Seeking Alpha:
Viacom's (VIAB) CEO Philippe Dauman on Q3 2016 Results - Earnings Call Transcript[...]
Philippe DaumanThank you, Jim, and good morning everyone. Welcome to Viacom's third quarter earnings call. As you know, since our last call, we have been subject to controversy relating to governance which has obviously created an overhang for our company. Last week, courts in Massachusetts and Delaware rejected motions to dismiss allowed discovery to proceed and scheduled trials to take place in October. We view these favorable court rulings as positive steps that move us ahead to a resolution. In light of the litigation, we won't be able to comment further on this topic during today's call.
Meanwhile, Viacom continues to focus on making progress against our strategic plans. We are increasing our investments in more and more original content across multiple platforms, extending our lead in sophisticated data products, building engaging new consumer experiences through innovative, thoughtful distribution partnerships, as well as new consumer products, recreation and hospitality initiatives, expanding our formidable international presence; and forging new strategic paths, including a potential partnership to unlock the value of Paramount and provide competitive advantages for the studio and Viacom overall.
These initiatives are the most recent manifestation of a careful, comprehensive and consistent vision for Viacom that we've pursued since I became CEO in 2006 to focus on original content, enhance our distribution revenues and build a robust international business while adapting to change. That job is never done, nor is it easy.
There are disruptive challenges in our industry, particularly for those companies like Viacom that focus on younger demographics. But we are having increasing success at several of our brands and we are leveraging those learnings to accelerate that success at other properties. Wade and Tom will go into the numbers in a moment. First, let me review some of the drivers of our results for the quarter and what lies ahead.
In ad sales, we concluded a strong upfront. More advertisers committed early instead of waiting for the scatter market later when inventory is scarce. This movement and ratings progress at core networks, as well as our new advertising products resulted in mid to high-single digit price and volume increases. Our end-to-end data-driven marketing solutions continue to help us lead the way in advanced advertising and our proprietary predictive engine, Vantage, is even more demand by sophisticated marketing partners. We expected to triple the number of Vantage deals from last year to this year and we exceeded that goal. In this upfront, we will secure 35 to 40 Vantage deals with our partners. Significantly, more than half are based on comScore metrics, signaling a welcome market shift to alternative currencies.
In addition, we held the industry's first-ever datafront where we showcased our data capabilities and announced Vantage intent powered by longtime partner American Express. This exclusive, unprecedented collaboration resulted in the first product to tap American Express' unique data using predictive analytics to help marketers reach consumers even earlier in their purchase consideration process.
These are all powerful examples of how we have transformed our company over the last several years. On the affiliate side, in the third quarter, we saw long-term deals with both DISH and Cox, both with solid annual rate increases. The decline in affiliate revenues was impacted by several factors, including the lapping of a large SVOD deal last year. As we disclosed in June, we expected to complete a significant SVOD agreement in the third quarter of this year, but recent uncertainty, coupled with our evaluation of various new distribution opportunities, have led to a slowdown of these discussions.
As we have discussed, despite the continuing impact of changing audience behaviors and preferences, I am pleased to say that in the June quarter we've stabilized our ratings and several of our networks are leading the industry in their categories. Viacom holds six of the top 30 ad-supported cable networks; and our family of networks captures the most share in nearly every demo, 2-plus, 2-11, 2-49 and most importantly, 18-49 and 18-34; and through the five weeks of the fourth quarter, our revenue weighted ratings are up.
Among viewers 2-plus, in the third quarter, VH1 delivered the biggest ratings gain of any of the 30 largest non-news cable networks; and Nick Jr. had the largest year-over-year ratings increase of any rated network. And we're also seeing strong traction across platforms. Viewership on our mobile apps is up 26% over the third quarter of last year.
Nickelodeon's story is a highlight and a perfect example of our strategy across the company to broaden our revenue base and drive audience engagement. Nickelodeon's ratings increased 6% in the quarter and it extended its number one ranking among kids 2 to 11 to 52 straight weeks, increasing an already substantial lead to over 20% over our biggest competitor in the quarter in that demo.
And the best news is that much of Nickelodeon's success is driven by a broad lineup of popular programming that is new and fresh from a variety of genres, including animation, live action and preschool. Leading the way is Henry Danger, which is the quarter's number one show among kids 2 to 11 and 6 to 11 averaging 2.4 million total viewers per episode.
Nick's newest animated series, The Loud House, has become a runaway hit and is averaging almost 2 million viewers per episode. In the current quarter, Kids' Choice Sports outpaced last year's strong performance, up double-digits; and like all of Nickelodeon's tentpole events continues to be an extremely attractive opportunity for advertisers. On digital platforms, Nick continues to see strong year-over-year growth in video viewing, up almost 20% for the quarter across Nick and Nick Jr. sites and apps.
Moving to the consumer products world, Teenage Mutant Ninja Turtles, Blaze and The Monster Machines, Paw Patrol and Shimmer and Shine are all strong consumer success stories with outstanding growth potential. Additionally, our recreation and hospitality efforts continue to come online. Finally, the SpongeBob musical has opened in Chicago to very positive critical buzz. We're looking forward to bringing it to New York next fiscal year.
This is the new Nickelodeon that Cyma Zarghami and her talented creative team have been building; and we couldn't be more excited or proud of the great turnaround they've engineered fueled by strategic insight, continued investment and unwavering faith in their capabilities. There is no kids' brand with more magic than Nickelodeon right now; and we believe that their broad portfolio of legitimate hits will drive significant diversified growth for years to come.
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Looking ahead, we remain intently focused on expanding and leveraging our diverse set of assets. We continue to diversify and strengthen our brand portfolio, reflecting demographic and market specific opportunities. Ten years ago when I became CEO, our international portfolio was singularly focused on youth. Today, our portfolio is radically different with more breadth and depth with a focus on the global six: Nick, Nick Jr., MTV, Comedy Central, the Paramount Channel and Spike. In fact, the Paramount Channel, the largest ad-supported movie channel in the world, is now in 93 million homes outside the U.S.
Our first major push beyond MTV was the Nickelodeon portfolio, which now reaches 283 million homes internationally. And we're now a major player in the adult demographic, which is significantly larger than our kids or youth segments. Comedy Central, our third global brand, is in 180 million homes outside the U.S. We now have 11 Paramount Channels, the largest ad-supported international film channel in the world, built from scratch in just four short years. And we've begun the rollout of Spike, which is doing very well for us in the three markets we've launched.
In just the past fiscal year alone, Viacom international Media Networks launched 15 new channels, with particular focus on the Middle East and Africa this past quarter. Of course, we also have two flagship local brands in the general entertainment space, Channel 5 in the UK and COLORS in India; and both are operating extremely well. Again, two significant and highly promising businesses that did not exist at Viacom 10 years ago.
In total, our channels now reach 3.8 billion aggregate subscribers, more than any other family of networks in the world; and looking ahead, there is very significant opportunity. The second priority is evolving from being simply an exporter of U.S. content to becoming a global content producer. We still bring a lot of high-performing domestic Viacom content to overseas markets, particularly on the kids' side, but we are also increasing production at Viacom international Media Networks for our networks around the world. In fact, there are seven in-house productions currently underway for Nickelodeon's global channels.
Third, and perhaps most exciting for its obvious significance to our entire portfolio, we are redefining what it means to be a TV network. Across our international footprint, pay TV penetration is approximately 40%, presenting us with attractive opportunities to exploit our digital products, including the Viacom Play Plex platform.
Viacom Play Plex provides TV everywhere functionality to cable customers, subscription services for mobile operators, as well as direct-to-consumer opportunities. We've got the infrastructure, the brands, the content and the products to quickly scale the way we get content to consumers across 180 countries.
Finally, Viacom international Media Networks is already generating significant revenues through consumer products; and we see a lot of potential recreation, particularly retail, hotels and live experiences. These opportunities exist throughout our portfolio, but we're putting particular focus on Asia, the Middle East and Latin America.
Now let's talk about Paramount. There is no question that studios had a rough go at the box office recently. But as they always do, we expect fortunes to turn. As you know, Teenage Mutant Ninja Turtles: Out of the Shadows did not meet our expectations, but there are significant bright spots at the studio.
In particular, Paramount Television continues to grow rapidly, delivering new titles in the quarter including Berlin Station for EPIX. Paramount Television will be a continuing source of growth, augmenting the revitalization of Paramount's theatrical slate. Again, it is worth noting that Paramount's television production is a business that also did not exist a few years ago. We made it a priority to return Paramount to the television production business and we made it happen.
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To conclude, we continue to focus on our strategic initiatives and are confident that they will bear significant fruit as we prepare for our next fiscal year. The ratings at our domestic Media Networks are improving. Our successful upfront and continued leadership in data-driven products will allow us to take advantage of continued ratings improvements at key networks.
Our distribution landscape will improve as we lapped the fiscal 2016 consolidation impacts and SVOD comps and we continue to grow and monetize new platforms. Our international networks group will continue to expand in scope and value and Paramount will see better days ahead through improved film site performance, television production and we hope a groundbreaking strategic alliance.
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Wade Davis[...]
Theatrical revenues increased to $91 million due to the release of Teenage Mutant Ninja Turtles: Out of the Shadows in the quarter. License fees increased 39%, principally driven by the licensing of certain titles and subscription video on-demand, as well as contributions from our television production business.
Filmed Entertainment generated an adjusted operating loss of $26 million in the quarter as compared to income of $48 million last year. The loss in the quarter reflects the underperformance of Teenage Mutant Ninja Turtles: Out of the Shadows. In terms of taxes, the year-to-date adjusted effective tax rate was 32.8%, reflecting a 100 basis point increase as compared to the prior year.
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Question-and-Answer SessionOperator[Operator Instructions] And our first question comes from John Janedis with Jefferies. Please go ahead.
John JanedisThank you. Two questions, if I could. First, Philippe, to what extent is the public nature of the turmoil impacting the day-to-day running of the business and negotiations with partners?
Philippe DaumanWell, obviously, it's somewhat of a distraction, but we're not deterred from pursuing the strategic initiatives that I described. Our brands are what drive our business. So to some extent, and probably the biggest impact has been on the ability to move forward rapidly on the Paramount transaction, which had initially been targeted to result in an agreement about a month ago. So that's certainly been slowed down. But as I indicated in my prepared remarks, they continue. And I hope that we will reach a conclusion on that that will be beneficial to the company in due course.
So that's really the principal impact apart from the general distraction naturally, but it does not deter us from pursuing our international growth; does not deter us from getting affiliate agreements concluded; does not deter us from producing great new programming; does not deter our management teams across our networks to be really focused on building our ratings; did not deter us in getting a successful upfront; did not deter us in developing continued industry-leading marketing products; did not deter us from finding new ways to distribute our content to our audiences everywhere they are on every device they utilize; and does not deter us from continually entering into new partnerships with companies like Roku, Snapchat and comScore and on and on.
So we're focused. We are driving value for this company, and we view any difficulties that we face as a challenge that we will overcome. We'll be creative in overcoming and really search for every opportunity.
I touched on some opportunities that will take a while to unfold, but they're pretty exciting. When you think about the power of the Nickelodeon brand, the fact that we have ratings success for so many new shows. People used to talk about our being so dependent on SpongeBob, but now we have such an array of shows and each of those shows has consumer products opportunity around the world, particularly as we have grown our Nickelodeon footprint. And speaking of SpongeBob, this musical is really great. Now, when it hits Broadway it could be an opportunity, not just inherently, but to revitalize that property. So the opportunities are many fold.
We have a strong management team. As you know, over the last year-and-a-half, we have reorganized significantly. We have new leadership at several of our networks. You're seeing the effects already that the new leadership is bringing. VH1 being the perfect example that I cited. So, yes, it's a distraction. But in the scope of time, it will be viewed as temporary, and our strategic initiatives continue unabated.
John JanedisOkay. Thanks. And then maybe, Philippe, on the international front, advertising looks like it performed much better than peers. Can you just speak to what's driving the performance there? And is that trajectory expected to continue given the headlines coming out of Europe?
Philippe DaumanWell, we have seen - the UK, we have great stronghold countries and we continue to build scale, both organically with our six global brands - and by the way we have many other brands that we're driving, whether it's BET or different Nick brands and so forth. So when I'm referring to six brands, I'm talking about the ones that are global in reach, every continent and continuing to grow across as many countries in those continents as possible. But when you have in the UK, we bought Channel 5; very attractive acquisition. We revitalized the brand. I mean, literally we changed the brand logo and we have invested in programming and we have a leading position there. It's gained share.
We've also looked to build scale in other countries and it's paying off. So we have really been building a platform last several years, which is really now coming to maturity. We still have a lot of opportunities to expand there. We're focused on building value. I've said it over and over again. And India, which is not a consolidated entity, continues to grow at extraordinary rates, will continue to grow at extraordinary rates year after year for years to come.
We continue to add network there. It's a country with a lot of opportunity; large population, fastest economic growth rate in the world today, the top growing economy in the world with a population that just loves entertainment. So our sector is growing much faster than GDP. So I believe I talked about it the last ten years and how it's grown to this point. I believe over the next 10 years, our international assets are going to have a value that potentially surpasses the entire value of the company today on the trajectory that we have.
James BombasseiJohn, just on the future growth productions, obviously a lot of our activities in the segments are driven by the success in the UK marketplace. While we haven't seen a significant impact from Brexit, we do anticipate that something might have some slowdown in the future quarter. And as that manifests itself, it could bring us a little bit of a slowdown but we still think the growth is going to be very, very, very strong driven by ratings gains that we've had across our networks. And just to note, the India segment is not in the consolidated results, but below the line, but is a huge and fast growing business for us. Next question?
OperatorOur next question comes from Alexia Quadrani with JPMorgan. Please go ahead.
Alexia QuadraniHi, thank you. Can you provide any color on sort of domestic advertising outlook for the September quarter? I guess given the better ratings on some of your networks, can we see improvements from the decline we saw in the quarter or are make goods and a reduction ad load still a very big headwind in the quarter?
Thomas DooleyI think on the quarter that we're in, because of the Olympics, I think we'll have a little bit of worse performance than we had in this quarter. But as we look forward beyond that, we start to see the favorable trend in advertising sales that we saw in this quarter continue. And the upfront that we entered into was both significant and very successful for us and our products. By products, I mean, the traditional advertising that we sell, and all the data advantage product that we sell and all the integrated advertising product that we sell. Our ad sales organization performed extraordinarily well in bringing our product to market. So we look forward to 2017 as a very important and meaningful year to get advertising sales back on track at Viacom.
Philippe DaumanAnd also, this is where we will have our Viacom Vantage product, a mix of new currencies really, really kicking in. So, again, it's another example just getting through this fiscal year and getting to a stronger position, benefiting from the strategic initiatives that we have been undergoing over the last few years. And so, we're going to start seeing the culmination of all those initiatives in a number of areas, and this being, of course, a very important one on the revenue side.
Alexia QuadraniAnd just a follow-up on some of the networks. You've really done a great job in turning around some of the ratings in some of your core networks, but MTV is still really struggling. I guess anything that we can look to from the outside there that would suggest some sort of positive turn in the outlook?
Philippe DaumanYeah. So MTV, we have completely revamped the senior leadership of MTV over the last several months. The team is complete. They've been working on bringing the volume and quality of development to what it was not too long ago. We really had a fallow period there. So we've remedied that. And we're going to start seeing the output from that development from the new team - in this quarter we're going to start seeing it, and then building up again as we go into the new year. That will be very meaningful for us.
And as we've seen in some of the other networks, as you describe, whether it's VH1 or Nickelodeon, obviously you need the quality and we have a highly motivated, energized new management team to do it coming from many different other companies in our industry. But you need to have shown and you need to have to be able to fill your schedule. So with that, we have reason to be optimistic that we can improve from what has been a tough period. We're just putting in place - we put in place in other networks. So that, given that MTV is one of our bigger networks, could have a significant impact for us.
Alexia QuadraniThank you.
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