Filed by Viacom Inc.
Pursuant to Rule 425 under the Securities Act of 1933, as amended
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934, as amended
Subject Company: Viacom Inc.
Commission File No. 001-32686
COMPANIES | FEATURE
Viacom CEO Bob Bakish on Streaming, Merging With CBS, and the Stock
By Jack Hough Sept. 13, 2019 5:00 am ET
Bob Bakish, president and chief executive officer of Viacom Kyle Grillot/Bloomberg (Source)
CBS is easily bigger than Viacom, both in stock market value and recent profits. So with the companies set to recombine after nearly 14
years apart, how did Viacoms chief of three years, Bob Bakish, get the nod from the Redstone family, which controls both companies, to run the whole show?
One reason is that Bakish has made fast improvements to challenged assets. Last quarter, Viacom (ticker: VIA) logged its first growth in U.S. advertising
revenue in five years. Its film studio, Paramount, which was losing hundreds of millions of dollars when Bakish took over, is expected to turn a profit this fiscal year.
Another is that Bakish has found some answers to televisions existential challenge: how to follow viewers, wherever they choose to watch. Viacoms two-year-old cluster of businesses called Advanced Marketing Solutions, or AMS, can run TV-like ads against content that might
otherwise escape themincluding on set-top boxes and social media, and at Netflix (NFLX) alternatives that dont charge subscription fees. One of the largest is Viacoms Pluto TV, which
had 18 million viewers as of the end of July, and probably has added millions since then.
AMS revenue, including Pluto TV, jumped 84% during the fiscal third quarter through June. Its expected
to approach 20% of all U.S. advertising revenue for the year.
Barrons recently visited Bakish at Viacoms Times Square headquarters in
New York. Below are some of his comments, edited for space and clarity.
On achieving healthy sales growth during late-spring up-fronts, where ad buyers lock in commercial space:
Bakish: We knew going in that inventory would be tight and
pricing would be strong. What advertisers wanted was high-quality reach, particularly among young viewers. We delivered a package of linear advertising on traditional networks, plus Pluto, and video ads in content distributed more broadly throughout
the internet. Thats more reach than you can get on traditional TV.
We got substantial increases on linear TV. Every major ad holding company signed
on. And by selling more nonlinear inventory, we preserved more linear for the scatter market [where advertisers buy commercial space closer to air time]. Thats important, because scatter inventory is trading at a much larger premium than usual
to up-front inventory.
On combining CBS and Viacom:
The assets are highly complementary. Viacom has a younger audience, and CBS (CBS) has an older audience. CBS is U.S.-centric, and Viacom is more international.
Combined, the companies are No. 1 in every U.S. audience demographic. Thats a tremendously strong position to distributors and to advertisers. Combine that with Viacoms widely understood leadership in Advanced Marketing Solutions.
And we can accelerate direct-to-consumer products.
stated that theres a $500 million synergy number. To be clear, thats cost savings that we have a clear line of sight on. Its reasonable to assume theres additional potential on costs. Revenue synergies account for zero
of that $500 million, yet there are substantial opportunities. In fact, thats the reason you really do the deal.
We have a strategy that allows Viacom to participate in all segments. We provide linear programming plus on-demand for
big bundles. In skinny bundles, were very well represented, and will be even better represented with CBS. In the subscription video-on-demand segment, we make
original hits for Netflix, Amazon, Hulu, and international services. We own and operate niche products like Noggin and BET+. And, of course, theres Pluto. Over time, with a combined Viacom-CBS,
well work on what our over-the-top streaming product is, and youll see that evolve.
The beauty of Pluto is its premium content,
overwhelmingly watched on smart TVs, with long-form ads, and advertisers dont have to worry about questionable adjacencies [or ads running with inappropriate content]. In addition to being direct-to-consumer, Pluto is carried by Comcast and Cox. We have a very significant mobile deal were about to announce.
We can upsell people from Pluto to one of our pay services. A very common behavior in streaming is, you burn through whatever youre watching. In a
normal world, youd churn out. Here, we can retain you inside of Pluto and monetize you on a free basis [with advertising].
On future mergers and
Of course, well look at things. But we just did our transformational deal. Theres no other deal we have to do. To the extent
that we do a deal, well make sure its linked clearly to our strategy and is value accretive for our shareholders. One of the misunderstandings in the marketplace is that were going to go on a dilutive M&A spree.
Were not going to do that.
On content spending:
Our $13 billion in combined content spending has grown modestly over time and will continue to grow modestly. But what people should focus on is the
content asset associated with that spending. Our focus will be on improving the utilization of that asset. We see a significant opportunity to improve returns on investment.
On stock buybacks:
The combined company produces very
substantial cash flow. The first and best use is to invest in our business, including content. Well continue to pay a modest dividend. Were not going to radically ramp it upwere not trying to run a utility. The third use of
cash, potentially, is M&A. Well look. Fourth, delevering. But both companies are investment grade today, and rating agencies like us better together than apart. That leaves excess cash flow. It allows us to be opportunistic in the market
should we want to buy back stock.
On the stock:
I think people dont truly appreciate the formidable combination of assets that this deal creates. I think they underestimate our ability to execute. But
the thing theyre really missing is how this deal creates a company for today and tomorrow. For savvy investors, this is an opportunity to buy an extremely high-quality asset at an extremely low multiple.
Write to Jack Hough at firstname.lastname@example.org