VIACA, VIAC - ViacomCBS

[CorpRaider]

We had some discussions about Viacom last year.  I ended up saying "too hard."  Deal has closed now.  I bought a 'lil bit (as a reminder, I am a small-time, retail schmuck) and rekindled discussions in another thread.  Here is the discussion:

 

VIAC, where no money has gone before.

 

What are your thoughts here?

 

Basically the same thing as set forth here:  http://yetanothervalueblog.com/

 

(including concerns about controlling shareholder...)  But I like the funnel in for content with Simon and Shuster and the "selling of the picks and shovels to the miners" kind of strategy for streaming wars (maybe even the cost-plus producing shows they don't own isn't anathema...it works ok for defense contractors); also the single product licensing function for the company seems like a great move; they have historically totally blown it with Star Trek (as compared with Wars) imop.  It's obviously cheap AF, even before any "synergies" (assuming they are soon to be destroyed).  Seems like there's maybe a catalyst with Bakish talking about re-upping their buyback authorization.  I also kind of like Bakish (having watched maybe ten interviews with him) he doesn't seem like a smooth bullshitter, Hollywood ceo.

 

Thanks, you bring up good points - I was surprised John Malone was so negative on both the "arms dealer" strategy with content (which has worked well for the record labels when it comes to streaming) and the cost-plus arrangements (especially where rights revert back after an initial period), as well your point on product licensing is an interesting one that I haven't seen discussed much elsewhere.

 

Yeah, I am with you.  I took note of his comments, but the more I think about it: a) he probably has a conflict there (both from cutting CHTR/the bundle out of good stuff like the Jack Ryan series, but also probably when talking about "sub-scale" stuff...Discovery), b) I have bought (hook line and sinker), analysis saying that cost plus contracts (while horrible for cost control incentives with the gov't/buyer) are basically infinite leverage/returns with no capital commitment for the contractor...so maybe they aren't so horrible...especially with all this $$$ sloshing around.  I do agree with him that it would be better to retain some upside, but maybe after season 1 is a hit they get some leverage....or maybe they can get it back cheap when NFLX and Amazon are distressed selling to stave off Chapter 11 in 5 years (hah!).

 

I think maybe I picked up the product licensing angle from this guy I follow on twitter, who blogs about media stuff.  Edit: his name is Matthew Ball (Twitter: @ballmatthew).  He puts out interesting stuff.  His twitter profile says he is former head of strategy at amazonstudios and is now a VC.

 

Seems like both $DIS and $VIAC are kind of running his playbook, TBH.  He said that since the VIAB and CBS split, using the Trek IP was suboptimal/a nightmare.  Said JJ Abrams (reportedly) wanted to do the Trek reboot movie rather than the first of the new Disney (the good-ish one) Wars, but because of the mess they created they weren't able to give him the cut of back end of licensing revenues (or something like that) so he went and did the $DIS film.

 

 

 

[CorpRaider]

BAC out with research report, $60 price target.  Analyst says: "We would like some I-banking fees, please."

[CorpRaider]

Looks like CBS is going to let SEC CFB package go to Disney/ESPN.  Not sure how I feel about that.  As an SEC guy, will be glad to get away from Gary Danielson. 

[KJP]

Looks like CBS is going to let SEC CFB package go to Disney/ESPN.  Not sure how I feel about that.  As an SEC guy, will be glad to get away from Gary Danielson.

 

Danielson really is hard to listen to, even though he's a massive SEC homer.

[CorpRaider]

*Alabama (and Tebow).  I miss Verne though; especially after he went blind.  "I'm not sure he got it (dude is 5 yards beyond the sticks."

 

But thinking a little bit more:  I suppose one might infer at least the potential for some evidence of rationality and/or capital discipline from this and the south park decision.  Even if they are stupid decisions, at least they are decisions (versus just following the path of least resistance/status quo). 

[NBL0303]

Does anyone know the difference between VIA shares and VIAC shares - it seems like they are both still trading - are these different share classes for the combined Viacom CBS? If so, what are the differences between the share classes?

[CorpRaider]

I only see the viaca (class A super-voting shares) and VIAC (class B).

[mjs111]

VIA are the old Viacom shares. VIA shares are not trading at this point.

 

Mike

 

 

[nickenumbers]

It would seem to me that the highest probable outcome for VIAC is that it will be purchased some time in the future.  They are the light weight in a cage match with a series of competitors that are multiple times their size [some maybe 10x their size.]  VIAC knows what it is doing, and they have value, but I don't think they can be effective over the long run against their competitors.

 

High Potential acquirers- Amazon, Apple, Netflix

 

Less Potential- Comcast, MSFT, DIS, Sony, FB, Google, Verizon

 

 

1. Do you think that they will be acquired?

2. Do you think that they want to be acquired?

3. Are there any significant deal killers that would stop them from being acquired?  [Anti-Trust, or Redstone Flat-Butt Refuse, etc]

 

Any other thoughts?  Thank you.

[HalfMeasure]

It would seem to me that the highest probable outcome for VIAC is that it will be purchased some time in the future.  They are the light weight in a cage match with a series of competitors that are multiple times their size [some maybe 10x their size.]  VIAC knows what it is doing, and they have value, but I don't think they can be effective over the long run against their competitors.

 

High Potential acquirers- Amazon, Apple, Netflix

 

Less Potential- Comcast, MSFT, DIS, Sony, FB, Google, Verizon

 

 

1. Do you think that they will be acquired?

2. Do you think that they want to be acquired?

3. Are there any significant deal killers that would stop them from being acquired?  [Anti-Trust, or Redstone Flat-Butt Refuse, etc]

 

Any other thoughts?  Thank you.

 

Agree with the consolidation angle and I don't think it's unique to VIAC. Streaming is becoming table stakes in terms of distribution mechanism, so my view is the entire content side of the business will continue to consolidate because the differentiating factor will be quality/volume of content on each platform. Would be curious to hear more details on your thoughts on why you bucket each name in the high vs. low potential acquirer buckets.

[nickenumbers]

High Potential acquirers- Amazon, Apple, Netflix

 

Less Potential- Comcast, MSFT, DIS, Sony, FB, Google, Verizon

 

Agree with the consolidation angle and I don't think it's unique to VIAC. Streaming is becoming table stakes in terms of distribution mechanism, so my view is the entire content side of the business will continue to consolidate because the differentiating factor will be quality/volume of content on each platform. Would be curious to hear more details on your thoughts on why you bucket each name in the high vs. low potential acquirer buckets.

 

High potential because they have a massive pile of cash, AND because they have not already purchased a legacy TV network.

 

Low Potential for the opposite of the high, but also because they might have some anti trust issues with existing TV networks they already own, or it isn't a primary focus.

 

 

To be honest, if there is not barrier to a big player doing it, I don't know why they haven't done it already.  Often it is easy to BUY, then to build from scratch.

 

I am trying to figure out why it hasn't happens.  Given, the merger VIA+CBS is only 38 days old.

 

What do you guys think?

[CorpRaider]

I don't think they are the lightweight.  They are spending $13 billion on content this year just due to the combined scale.  Nflx is spending ~$15 billion up from like 12.  Disney is spending like $28 billion but like $8 billion of that is on sports (versus like $2 billion @ viacomCBS). They are also profitable while they do it because they are already monetized via every channel, including cashing checks from T, NFLX and AMZN.  They also have uh 70 years of content library/i.p.  What would netflix pay for all the Trek i.p.? 

 

 

[nickenumbers]

CorpRaider,

 

I love your comments and color on the Content spend in 2020.  That is great data.  Plus I think there is a lot of optionality in VIAC due to the movie catalog, TV content, existing know how.  Call it optionality, or Side-Car investments.  There is quite a lot of value under the hood of this one.

 

I hope Bakish can unlock it and the Redstones are on board.  We don't need some more old slow, out dated thinking.

[CorpRaider]

Thanks.  I'm long so definitely at risk of getting too bulled up.

 

I mean NFLX does have 61 million subscribers in U.S. and 167 million worldwide.  I think CBS has like 6 counting CBSallaccess and Showtime.  Also google, apple and facebook might destroy the entire sector (they certain have the cash to burn if they want).  We will see what CBS is rolling out in the new streaming product at the earnings call (according to reporting). 

[Jurgis]

It would seem to me that the highest probable outcome for VIAC is that it will be purchased some time in the future.  They are the light weight in a cage match with a series of competitors that are multiple times their size [some maybe 10x their size.]  VIAC knows what it is doing, and they have value, but I don't think they can be effective over the long run against their competitors.

 

High Potential acquirers- Amazon, Apple, Netflix

 

Less Potential- Comcast, MSFT, DIS, Sony, FB, Google, Verizon

 

 

1. Do you think that they will be acquired?

2. Do you think that they want to be acquired?

3. Are there any significant deal killers that would stop them from being acquired?  [Anti-Trust, or Redstone Flat-Butt Refuse, etc]

 

Any other thoughts?  Thank you.

 

The problem with acquisition angle is that the high potential acquirers so far have decided to build not to buy. Amazon might buy something (like they did with Whole Foods). Apple and Netflix are unlikely acquirers of big media although I think Netflix should have acquired content. But perhaps they want only the content library and don't want all the other baggage that comes with it. And perhaps they think that the baggage makes the acquisition too expensive.

 

IMO there is too much content chasing too few eyeballs. I don't really see a way out of this, since companies have too much money and will be chasing content since it's sexy. Hey Chinese are bankrolling movies like Japanese (Sony) did in the past. I'm just not very positive about content companies because of that. And because of scars from Starz/LGF/DISCA.

 

Disclosure: positions in Amazon, Apple, Netflix, Comcast, MSFT, DIS, FB, Google

[Spekulatius]

It would seem to me that the highest probable outcome for VIAC is that it will be purchased some time in the future.  They are the light weight in a cage match with a series of competitors that are multiple times their size [some maybe 10x their size.]  VIAC knows what it is doing, and they have value, but I don't think they can be effective over the long run against their competitors.

 

High Potential acquirers- Amazon, Apple, Netflix

 

Less Potential- Comcast, MSFT, DIS, Sony, FB, Google, Verizon

 

 

1. Do you think that they will be acquired?

2. Do you think that they want to be acquired?

3. Are there any significant deal killers that would stop them from being acquired?  [Anti-Trust, or Redstone Flat-Butt Refuse, etc]

 

Any other thoughts?  Thank you.

 

The problem with acquisition angle is that the high potential acquirers so far have decided to build not to buy. Amazon might buy something (like they did with Whole Foods). Apple and Netflix are unlikely acquirers of big media although I think Netflix should have acquired content. But perhaps they want only the content library and don't want all the other baggage that comes with it. And perhaps they think that the baggage makes the acquisition too expensive.

 

IMO there is too much content chasing too few eyeballs. I don't really see a way out of this, since companies have too much money and will be chasing content since it's sexy. Hey Chinese are bankrolling movies like Japanese (Sony) did in the past. I'm just not very positive about content companies because of that. And because of scars from Starz/LGF/DISCA.

 

Disclosure: positions in Amazon, Apple, Netflix, Comcast, MSFT, DIS, FB, Google

 

Also, the re-combination of CBS and Viacom makes an outright purchase much more difficult to handle. CBS (which is the mot profitable part) is probably the biggest problem because there is a lot of baggage that comes with running a major TV network, which most likely will keep tech companies away. Viacom’s studio and cable assets are a mixed bag. Yes there are content gems like Star Trek, but Nickelodeon plays a weak hand, imo. Spongebob alone may not be worth the hassle.

 

Then from a financial angle, VIAC looks very cheap from a PE metric, but not that cheap (although cheapish)  from a  FCF metric - their FCF is < earnings due to content capitalization.

 

Also on another but related note, Malone talks his own book when he boast about  DISCA.  Their problem is that unscripted content can easily be pulled from YouTube nowadays. That’s where people go first now when they want to watch the equivalent of a documentary (in short form format). DISCA most important shows are now scripted format (pseudo documentary’s ) like “Deadliest catch” etc.

[nickenumbers]

Valuable opinion Spekulatius and Jurgis.

 

What do you think the Redstones are thinking?  What motivates them?  Do they think they can compete in the long term?

 

 

I think they have great potential/options in - Top Gun, Transformer Series, God Father..  But they need great writing and execution, a-la Disney with Star Wars.  Any one of these 3 series could be re-monetized and "cult-ified", but it has to be done really well.  [i am not saying that they will have the success of Star Wars, but they can have their own smaller version of it.]

 

 

[bizaro86]

Re:Nickelodeon, I think it is very likely that the US rights to Paw Patrol are worth more than the spongebob franchise in its entirety. The Nickelodeon catalogue (especially including paw patrol) is a great backbone for a streaming catalogue, as it covers an entire demographic.

 

I think the logical outcome here (so almost certain to not happen) would be for Netflix to buy them and then spin out (or sell) the broadcast network/tv stations, similar to the DIS/FOX deal.

[Jurgis]

I think the logical outcome here (so almost certain to not happen) would be for Netflix to buy them and then spin out (or sell) the broadcast network/tv stations, similar to the DIS/FOX deal.

 

Right. I was thinking that. But I'm also thinking that Reed Hastings is probably unlikely CEO to do buy/spinoff. We might get surprised, who knows.  8)

[CorpRaider]

Good point RE nickelodeon.  They have also inked licensing deals with NFLX for like a spin off SpongeBob character show and I think they licensed a show re: Teenage MT to someone else.

 

I agree on discovery.  It seems to me that DIS is already coming for their head with nat geo and youtube seems right down the alley as far as the instructional stuff.

 

 

 

[Spekulatius]

Valuable opinion Spekulatius and Jurgis.

 

What do you think the Redstones are thinking?  What motivates them?  Do they think they can compete in the long term?

 

 

I think they have great potential/options in - Top Gun, Transformer Series, God Father..  But they need great writing and execution, a-la Disney with Star Wars.  Any one of these 3 series could be re-monetized and "cult-ified", but it has to be done really well.  [i am not saying that they will have the success of Star Wars, but they can have their own smaller version of it.]

 

My thinking regarding Redstone is that she tries to preserve the value of the company that she felt was squandered away. I have to agree with her view. I don’t know if she is bent on keeping control of the company. I would think that she committed to the new management to let them do their thing and try to turn it around. I do think she would be willing to give up control if that the best way to preserve value, if Bakish isn’t successful.

 

FWIW, I reviewed this and think there is many ways to win owning VIAC at this point and valuation, so I bought a small starter position. I need to do more work to commit more funds and in particular I want to get a better feel how the new management operates and how they want to overhaul the business.

[txvalue]

I don't have a tremendous opinion of Redstone but otherwise generally agree w/ Spek. Opened a position in VIAC after it dipped below 30 this morning. Interested to see how Loeb responds to this earnings report.

[Foreign Tuffett]

The problem with acquisition angle is that the high potential acquirers so far have decided to build not to buy. Amazon might buy something (like they did with Whole Foods). Apple and Netflix are unlikely acquirers of big media although I think Netflix should have acquired content. But perhaps they want only the content library and don't want all the other baggage that comes with it. And perhaps they think that the baggage makes the acquisition too expensive.

 

IMO there is too much content chasing too few eyeballs. I don't really see a way out of this, since companies have too much money and will be chasing content since it's sexy. Hey Chinese are bankrolling movies like Japanese (Sony) did in the past. I'm just not very positive about content companies because of that. And because of scars from Starz/LGF/DISCA.

 

Disclosure: positions in Amazon, Apple, Netflix, Comcast, MSFT, DIS, FB, Google

 

Exactly. I think the bolded is the key issue with almost anything related to scripted media content right now. The level of competition has gone "up to eleven" on a sale of 1 - 10 and, incredibly, continues to intensify. This is the point I attempted to make in the Netflix thread some months ago.

[bizaro86]

The problem with acquisition angle is that the high potential acquirers so far have decided to build not to buy. Amazon might buy something (like they did with Whole Foods). Apple and Netflix are unlikely acquirers of big media although I think Netflix should have acquired content. But perhaps they want only the content library and don't want all the other baggage that comes with it. And perhaps they think that the baggage makes the acquisition too expensive.

 

IMO there is too much content chasing too few eyeballs. I don't really see a way out of this, since companies have too much money and will be chasing content since it's sexy. Hey Chinese are bankrolling movies like Japanese (Sony) did in the past. I'm just not very positive about content companies because of that. And because of scars from Starz/LGF/DISCA.

 

Disclosure: positions in Amazon, Apple, Netflix, Comcast, MSFT, DIS, FB, Google

 

Exactly. I think the bolded is the key issue with almost anything related to scripted media content right now. The level of competition has gone "up to eleven" on a sale of 1 - 10 and, incredibly, continues to intensify. This is the point I attempted to make in the Netflix thread some months ago.

 

I think that intense content competition is why big franchises (brands) are so valuable now. While there is now unlimited shelf space via streaming platforms, there isn't enough mind-share for all the content that companies want to make. The surest way to get mind-share is via an existing brand that already has it. Whether that's a "name" actor/director, or a franchise movie series. So the cost of "names" and owning movie franchises is going up.

[CorpRaider]

Haven't listened to call yet.  Did anyone ask them (or any ideas) how the third-party "studio" business "enhances library value"?  I get that there's no risk but (as John Malone pointed out) there's no upside either and they could be helping speed their demise. 

 

I guess they are used to "strengthening their distributor" with the old bundle universe.  It seems one explanation could be, for example, the amazon jack ryan series enhances the value of the character/jack ryan franchise even though Amazon totally owns rights to that show in perpetuity (I think).  Or if they did like a Romulan spin off series/origin story for NFLX it feeds back into the Trek i.p.  Disappointed they didn't even mention licensing as part of the flywheel in the slides.

 

[EDIT: ok, yeah Bakish addressed it in question 1 using the example of the sponge bob spin-off on NFLX.  He says the third-party studio business i.p. eventually reverts. I like it.]

 

I don't like that they keep talking about the "studio business."  I agree with Diller that seems like outdated dead model.