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By Keach Hagey and Joe Flint 

In 1992, MTV gave birth to the reality-television genre when it aired the first episode of "The Real World," a groundbreaking show about seven strangers who agreed to live together in a house and have every minute of their lives filmed.

This week, MTV announced it is rebooting the franchise -- but not for MTV. Instead, the show will appear on Facebook Watch, the social network's video-on-demand service.

"We can't actually make that show on cable," said Chris McCarthy, president of MTV. The format that works for adults on cable, he said, is "super loud," unscripted content that "in many ways is a telenovela like 'Love & Hip Hop' or 'Jersey Shore.' A simple show like 'The Real World' would not work, but on a streaming network or on a digital platform it would kill it."

The move is part of a broader strategy at Viacom to stop fighting the growing dominance of digital players such as Netflix Inc., Amazon.com Inc., Alphabet Inc.'s Google, Facebook Inc. and Apple Inc. in television, and instead feed them.

With a merger with corporate sibling CBS Corp. now at least temporarily off the table, Viacom has landed on this strategy as a way of navigating the tricky path between the decline of its core cable business and the growing size of its competitors.

While rivals such as Walt Disney Co. -- which is poised to absorb Fox's film and television studios -- and the recently Time Warner-enhanced AT&T Inc. plan their own streaming platforms to take on Netflix, Viacom is seeking to become a studio that mines its library of intellectual property for content to sell to the streaming services and other third parties.

Viacom Chief Executive Bob Bakish recently predicted that this studio-production business, which would include new content-production arms at MTV, Nickelodeon and the company's international division, would become a "billion-dollar business by 2020." He was careful to distinguish it from the company's former strategy of selling reruns of its old hits to streamers such as Netflix, which many analysts came to believe was hastening the demise of the cable bundle, and which Viacom has largely stopped doing.

The new strategy is born of necessity for a company in Viacom's financial situation. Mr. Bakish recently said Viacom isn't seeking to build its own streaming service "a la Netflix" partly because it would be too "capital-intensive."

Mr. Bakish has reversed the revenue and earnings declines that greeted him when he took the helm in late 2016, helping push the stock up 26% over the past year, but the outlook for Viacom's cable channels -- the overwhelming majority of its business -- remains tough. Analysts expect revenue from them to remain flat at best, even as ratings improvements at MTV and Comedy Central have helped the company take a larger share of a shrinking pie of cable viewership.

Viacom's Paramount Pictures film and television division is expected to return to profitability next year, executives said. The studio has had some big hits this year, including the horror movie "A Quiet Place." The unit also is moving to make content directly for streaming players -- completing a deal with Netflix for a sequel to its teen comedy movie "To All the Boys I Loved Before," according to people familiar with the matter. The first film was made by Awesomeness, the production company Viacom acquired earlier this year.

While Paramount's television-production division has been making television shows like "Jack Ryan" for Amazon and "13 Reasons Why" for Netflix since its inception in 2013, making movies specifically for streaming services that won't be distributed in theaters is still largely uncharted territory in Hollywood.

Netflix, which doesn't disclose the performance of content on its platform, announced on an earnings call this week that the first "To All The Boys" was one of the "most viewed original films ever with strong repeat viewing."

Brian Robbins, co-founder of Awesomeness who ran a Paramount unit before he was tapped to take over Viacom's Nickelodeon division, said media companies are leaving money on the table by only putting movies out through the expensive pipelines of theatrical release, where a film's budget must usually be exceeded by its marketing budget.

"We have a treasure chest of development in scripts -- millions and millions of dollars per script that have been written by some of the greatest writers ever," Mr. Robbins said. "Why aren't we leveraging this for more than just the 16 movies that year?"

Paramount anticipates expanding its relationship with Netflix and other streaming services as outlets for movies that may not have the muscle to make it at today's franchise-heavy box office but can still be successful on the right platform.

These projects, Paramount Chairman Jim Gianopulos said, are better suited for an outlet in which results aren't measured by "what happens between Friday evening and Monday morning."

Paramount's TV division is doubling its output from nine to 18 shows next year, according to Nicole Clemens, the unit's new chief.

Besides continuing to produce for streamers and cable, Ms. Clemens also wants to get some shows on broadcast networks because the upside of a broadcast hit can be bigger -- especially if Paramount can hold on to international rights, which is something most streaming services usually demand.

Taken together, Viacom's moves are an acknowledgment that streaming is here to stay, and there isn't much any one company can do to stem the roughly 3% annual decline in the number of subscribers to the traditional cable bundle that was the company's profit engine for decades.

"Our goal isn't necessarily to get people to come to cable. Our goal is to get people who are already on cable to spend more time with us," MTV's Mr. McCarthy said. "I don't know that we are going to change anyone's existing habits, and I think it has been a fool's errand for most people to think that we could have."

Write to Keach Hagey at keach.hagey@wsj.com and Joe Flint at joe.flint@wsj.com

(END) Dow Jones Newswires

October 20, 2018 10:14 ET (14:14 GMT)

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