The long-anticipated merger of Viacom Inc. and CBS Corp. should add fuel to international and streaming ambitions for the combined entity, media analysts said.
Viacom President and CEO Bob Bakish, who formerly led Viacom's international operations and is set to take over as CEO and president of the new ViacomCBS, indicated that the merged company would benefit from pooling its streaming and content offerings for an international audience as it seeks to better compete with Netflix Inc. and others. Analysts noted the new ViacomCBS will also bring added scale for content licensing along with Viacom's more entrenched international footprint.
Much of CBS' international strategy to date has centered on producing and licensing fare to content providers, though it does offer direct-to-consumer products in Canada and Australia. Viacom is further along abroad, with channels in more than 180 countries and a handful of international production facilities. Viacom is also gearing up for the international expansion of ad-supported video-on-demand platform Pluto TV, which is expected to be in 19 territories between 2020 and 2023. CBS president and acting CEO Joe Ianniello, who will become chairman and CEO of CBS-branded assets at ViacomCBS, has pointed to direct-to-consumer subscription opportunities in Western Europe and Latin American, but no timeline has been announced.
Secular challenges in the U.S. pay TV market, relative to cord cutting in the face of escalating video package pricing and resultant subscriber loses, has media companies seeking more opportunities abroad. NBCUniversal Media LLC parent Comcast Corp. bought U.K. operator Sky Ltd in 2018, noting that the deal would boost its international revenue base to 24% from 9%. Premium network Starz, considered another potential CBS acquisition target, is looking to grow its international streaming customer base to between 15 million and 25 million by 2025.
"Our expansive production capabilities and deep library assets have the potential to fuel a significant [direct-to-consumer] product that can be deployed all around the world," Bakish told analysts during the companies' Aug. 13 conference call following the Viacom-CBS deal announcement.
Macquarie analyst Tim Nollen in a research note pointed out that the deal would bring together Viacom's strength in Europe, Latin America and India with CBS' growing international streaming ambitions.
Loop Capital analyst Alan Gould wrote that the ViacomCBS deal will allow CBS to add low-cost children's programming and music programming from Viacom's Nickelodeon/Nick At Nite (US) and MTV (US) to its CBS All Access streaming product, while new theatricals and library fare from Paramount Pictures would benefit CBS premium network Showtime. CBS could also mine the Paramount library for TV shows, according to Gould.
Naveen Sarma, an analyst at S&P Global Ratings, said in an interview that Viacom's Paramount Channels could benefit from adding content from CBS and Showtime. Neil Begley, an analyst at Moody's, said the company could also consider bundling its streaming services much like Walt Disney Co. will when it introduces Disney+ as part of a $12.99 monthly offering with Hulu LLC and ESPN+ on Nov. 12.
Begley said any international push by CBS All Access will require greater investment in local programming. Sarma also noted a growing emphasis on local programming by regulators in international markets, particularly Europe. Such regulation has yet to be implemented in Latin America.
Underpinning ViacomCBS' various strategies is content spending that would have totaled some $13 billion over the trailing 12 months at the combined entity.
Michael Nathanson, an analyst at MoffettNathanson, estimated the companies spent $1.9 billion on films, $1.7 billion for sports and $6.9 billion for TV production, including content earmarked for over-the-top outlets. The rest he attributed to pay-per-view content, other events, royalties and publishing under Simon Schuster imprint.
Analysts expect more going forward. Sarma noted increased investment at Showtime, while Begley expects CBS to roll out additional original series for its streaming product. Begley said ViacomCBS might also have to invest in international sports rights to attract streaming customers abroad, but he noted soccer, cricket and auto racing rights may not be available.
In the U.S., analysts expect CBS (US), whose sports properties includes the Southeastern College football package and college basketball, including its joint rights deal with Turner Sports for the "March Madness" tournament, will have to pay a hefty increase over the $1 billion it currently pays for NFL rights deal, which expires after the 2022 season. Credit Suisse Doug Mitchelson wrote in a note that if deep-pocketed digital companies enter the auction, CBS' rights fees could soar 60%, with negotiations expected to take place in the next couple of years.
More immediately, the PGA Tour wants to sink new rights deals over the next few months, even though its current pacts with CBS, NBC (US) and Golf Channel (US) extend through 2021. CBS Sports Chairman Sean McManus, speaking at NFL on CBS Media Day August 13, hours before the ViacomCBS deal was announced, said negotiations have not yet begun with the PGA but he was optimistic a deal would be struck.
"CBS has a good tradition of re-upping important properties, I would like to think we would do that again," McManus said. "Sports are even more important in the future. We have always received corporate support and expect that would continue."