The long-awaited recombination of Viacom Inc. and CBS Corp. will yield $500 million in cost synergies, with potential for growth within the distribution, advertising and direct-to-consumer products, and it will produce significant upside for revenue-generating opportunities, executives said on an Aug. 13 conference call.
The reunited company would hold the top spot among U.S. programmers, with a 22% share of prime-time viewers over two years old, said Joe Ianniello, CBS president and acting CEO, who will become chairman and CEO of CBS-branded assets at ViacomCBS. The companies split in 2006. However, CBS (US) and Viacom cable networks such as MTV (US), Comedy Central (US), BET and Nickelodeon/Nick At Nite (US) only command 11% of retransmission-consent and affiliate fees.
"There is significant revenue upside there going forward," Ianniello said, adding that the company will make its various distribution deals coterminous. Typically, the industry is centered on five-year deals, but CBS prefers three-year terms, so it can "get another bite of the apple quicker."
Advertising synergies will materialize during next year's upfront negotiations for the 2020-2021 television season, as ViacomCBS will bring its combined portfolio to market. Together, ViacomCBS would tally more than $8 billion in advertising sales.
On the direct-to-consumer subscription business, Ianniello declined to specify a revised target for CBS All Access and Showtime OTT, which are now projected to carry 25 million subscribers combined by 2022. The addition of kids programming announced last week should be a driver for CBS All Access, and the offering will further benefit from access to Nickelodeon fare, he said.
With revenue-generation synergies in affiliate, advertising and direct-to-consumer businesses, Viacom-CBS sees "billions of dollars of upside that we can achieve over time," the CBS executive said.
Bob Bakish, president and CEO of Viacom, who will have the same role at the combined entity, said ViacomCBS will combine content from both companies on subscription and ad-supported video-on-demand offerings. CBS will put content on Viacom's Pluto TV service and Viacom's content on CBS's subscription platforms.
"There is nothing at all preventing us from moving forward ... to unlock that opportunity in the very near future. Obviously, it's something that we will build on over time. But [there is] some low-hanging fruit there that we will seek to pick up quite soon," Bakish said.
CBS CFO Christina Spade, who will take the same role at ViacomCBS, said the combined company will continue to explore M&A opportunities in the with increased financial scale. ViacomCBS will have its eye on entities that can boost its position in the advertising, distribution and direct-to-consumer businesses.
ViacomCBS will have combined annual revenue over $28 billion, adjusted operating income before depreciation and amortization of $6.3 billion and adjusted operating income of $5.9 billion, on a trailing 12-month basis, Spade said. Net debt will be $17.2 billion, with net leverage at 2.8x.
On content, the combined TV, streaming and theatrical investments will allocate more than $13 billion on content spend. Viacom and CBS together have more than 750 series currently ordered or in production, with 425 in the U.S. That translates into 43,000 episodes: 25,000 domestically and 18,000 internationally. ViacomCBS' existing library extends to 3,600 films tied to Paramount Pictures and more than 140,000 TV episodes.
All told, ViacomCBS will generate over $13 billion in affiliate and licensing revenues.
The company will continue to produce content for third parties both in the U.S. and abroad, Ianniello said, and ViacomCBS will be mindful to offer enough content to existing international holdings, as well as upcoming direct-to-consumer products that will feature U.S.-based fare and local content.
The new company's board of directors will consist of 13 members: six independent members from CBS, four independent members from Viacom, Bakish and two from National Amusements Inc. Shari Redstone, who leads National Amusements and has advocated for the reunion of the companies, will be appointed its chair.
Upon completion of the all-stock deal, existing CBS shareholders will own approximately 61% of the combined company, with Viacom shareholders controlling about 39%. Each Viacom class A voting share and Viacom class B nonvoting share will convert into 0.59625 of a class A voting share and class B nonvoting share of CBS, respectively.
National Amusements, which holds approximately 78.9% and 79.8% of the class A voting shares of CBS and Viacom, respectively, has agreed to deliver consents sufficient to assure approval of the transaction, which is subject to regulatory approvals and other customary closing conditions. The deal is expected to close by year-end.