VIACA, VIAC - ViacomCBS

[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.

 

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.

 

You are conflating two different things: IP franchises and actors/directors/producers. Yes, all the competition is good for the latter, as there is now much more demand for their services. It is much less clear to me that the value of the former has risen. It seems like most all the players are focused on building/expanding their own IP, much more so than buying others'.

 

 

 

[griezeman23]

I bought a fair amount today.

 

Thesis is pretty basic: if an acquirer walked in the door and offered the current share price, they'd get laughed out the door. The equity is trading like 3x OIBDA (and is not overly levered @ 2.75x on OIBDA). Sure the business could decline further but I think theirs a lot more value here that could be extracted ($7bn in receivables, $700mn in cash, $1bn in the corporate HQ, etc.) outside of the core business assets. You could arguably say that the equity is then trading <3x EBITDA, which given today's environment, I find ridiculously attractive. 

 

Sure, it could get cheaper, but I'd think a company like Amazon would jump at a chance to acquire these assets; particularly, the NFL rights since they already do TNF...

[Foreign Tuffett]

I bought a fair amount today.

 

Thesis is pretty basic: if an acquirer walked in the door and offered the current share price, they'd get laughed out the door. The equity is trading like 3x OIBDA (and is not overly levered @ 2.75x on OIBDA). Sure the business could decline further but I think theirs a lot more value here that could be extracted ($7bn in receivables, $700mn in cash, $1bn in the corporate HQ, etc.) outside of the core business assets. You could arguably say that the equity is then trading <3x EBITDA, which given today's environment, I find ridiculously attractive. 

 

Sure, it could get cheaper, but I'd think a company like Amazon would jump at a chance to acquire these assets; particularly, the NFL rights since they already do TNF...

 

What are you talking about? CBS' NFL TV rights expire in a couple of years and are being negotiated right now. Why would someone acquire ViacomCBS to get the rights when they could just deal directly with the NFL by outbidding CBS?

[txvalue]

I bought a fair amount today.

 

Thesis is pretty basic: if an acquirer walked in the door and offered the current share price, they'd get laughed out the door. The equity is trading like 3x OIBDA (and is not overly levered @ 2.75x on OIBDA). Sure the business could decline further but I think theirs a lot more value here that could be extracted ($7bn in receivables, $700mn in cash, $1bn in the corporate HQ, etc.) outside of the core business assets. You could arguably say that the equity is then trading <3x EBITDA, which given today's environment, I find ridiculously attractive. 

 

Sure, it could get cheaper, but I'd think a company like Amazon would jump at a chance to acquire these assets; particularly, the NFL rights since they already do TNF...

 

What are you talking about? CBS' NFL TV rights expire in a couple of years and are being negotiated right now. Why would someone acquire ViacomCBS to get the rights when they could just deal directly with the NFL by outbidding CBS?

 

The sum of the parts here is easily $60+ even after debt is accounted for.  CBS and Viacom have been together for literally days, so they give Bakish a bit of time to get things moving the right direction and if that doesn't happen I have little doubt they can find a buyer at 45+ for the company.  There are even estimates of $80/share when debt is taken out of the equation.

 

- TV stations

- CBS Broadcast

- Cable (Nickolodean, MTV, BET, Comedy Central, VH1, Paramount Network)

- Intl Assets

- CBS interactive

- CBS All Access

- Pluto

- Showtime

- Paramount Film Studio

- TV Studios

 

They also own all sorts of other things like Simon & Schuster, half of the CW and on and on...

 

[griezeman23]

I bought a fair amount today.

 

Thesis is pretty basic: if an acquirer walked in the door and offered the current share price, they'd get laughed out the door. The equity is trading like 3x OIBDA (and is not overly levered @ 2.75x on OIBDA). Sure the business could decline further but I think theirs a lot more value here that could be extracted ($7bn in receivables, $700mn in cash, $1bn in the corporate HQ, etc.) outside of the core business assets. You could arguably say that the equity is then trading <3x EBITDA, which given today's environment, I find ridiculously attractive. 

 

Sure, it could get cheaper, but I'd think a company like Amazon would jump at a chance to acquire these assets; particularly, the NFL rights since they already do TNF...

 

What are you talking about? CBS' NFL TV rights expire in a couple of years and are being negotiated right now. Why would someone acquire ViacomCBS to get the rights when they could just deal directly with the NFL by outbidding CBS?

 

The sum of the parts here is easily $60+ even after debt is accounted for.  CBS and Viacom have been together for literally days, so they give Bakish a bit of time to get things moving the right direction and if that doesn't happen I have little doubt they can find a buyer at 45+ for the company.  There are even estimates of $80/share when debt is taken out of the equation.

 

- TV stations

- CBS Broadcast

- Cable (Nickolodean, MTV, BET, Comedy Central, VH1, Paramount Network)

- Intl Assets

- CBS interactive

- CBS All Access

- Pluto

- Showtime

- Paramount Film Studio

- TV Studios

 

They also own all sorts of other things like Simon & Schuster, half of the CW and on and on...

 

 

@FT

I understand but its not just about paying the highest price for sports rights. It's about making sure things are done well as well as relationships. If you give it to a new player in the market (Amazon, Apple, etc.) and they consistently have issues (signal, distribution, etc.), the NFL gets screwed. Thus, its a HUGE risk for them to switch away from a reliable and well-known partner if there is a competitive bid.

 

There's a reason why EA has been able to maintain FIFA (many licenses, however) and Madden (one) for years without being the largest players. Certainly, a big enough bid could de-rail VIAC but an acquirer with deeper pockets would have the inside track at renewing this. Just my two cents...

 

@txvalue

I am not shooting for a double here but I think this is a low hurdle for management at this point. THey know the market just puked out their business plans so I am sure they are back to the drawing table about how to fix the business. @ <6x EV/EBITDA, the bar is pretty low for a business like this, imo.

 

Lots of ways to win here: execution, asset sales, re-upping business, M&A. Not too many ways to lose: i.e. management keeps its head in the sand (which is a distinct possibility), loses the NFL license. I think the downside risks are out in the future a bit (ex: they lose the NFL rights but we won't know this for several months, at least, since contract expires in 2022 and not 2021) more than the the wins, which can be perceived as a bit closer (change in business strategy on next call, M&A, new business, etc.).

[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.

 

You are conflating two different things: IP franchises and actors/directors/producers. Yes, all the competition is good for the latter, as there is now much more demand for their services. It is much less clear to me that the value of the former has risen. It seems like most all the players are focused on building/expanding their own IP, much more so than buying others'.

 

You're right that they are 2 different things, but I think the underlying driver (demand by streamers for must-watch content) is the same. And there have been content acquisitions lately. FOX was huge, contested, and at a high price. The primary upside was the content.

 

The success DIS had with lucasfilm/marvel has emboldened them (and maybe others) on acquiring franchises.

 

There were rumors awhile ago about MGM selling (biggest piece of value is James Bond franchise). That would be a pretty indicative transaction for the value of franchises, imo.

[nickenumbers]

Really good points by all and solid discussion.

 

I told myself before the earnings release this morning that it was going to be a S**T Show.  They have only been together for 50 days.  They are combining 2 companies, and they have many games of offence and defense occurring simultaneously within the newCo.  Then, they have expense/asset skeletons that they had to rip out and throw into the trash this quarter.  I am sure they dumped in even more trash just to totally puke it out of the P&L and be done with it.  Layoffs, and real estate sales.

 

I was hoping for a nice positive surprise for the earnings announcement this AM, but I only gave it a 20% probability.  So, that fact that they S**t the Bed, should have been expected by most of us.

 

But, I think they made a pretty solid case for 2020.  Their guidance was decent, and they fielded analyst questions well on the call.  Worst case, the catalog is worth a lot to an acquirer.  My DCF puts them at about $54/share with about a 2-3% revenue growth rate.  If I were Amazon, Apple, Google, Facebook, Netflix, I would consider coming in and buying them while they are down.  Maybe offer $45-50.  Maybe $65.  Maybe buy them with my high PE stock.

 

They are not going to beat NFLX or DIS in the long-run, but they might be able to carve out a little spot for themselves.

[Spekulatius]

Buyer today as well. I am surprised it plunged as low as it did, as the issues were well known and expected. I read the CC transcript and CEO Bakish seems like a no nonsense kind of guy. Other players in thisdpace have issues too ( Disney - ESPN) yet trade at vastly higher valuations.

 

This stock is cheap any way I look at it (SOP, EV/EBITDA). I agree it could become a value trap if management doesn’t execute, but then I would Redstone to step in and force some changes.

 

I actually think this would be a company for BRK to acquire a stake. They have been involved in media properties before (Capital Cities).

[RVP]

This is interesting. At current prices, I think the market just wrote-off the entire Viacom assets and more.

[griezeman23]

Buyer today as well. I am surprised it plunged as low as it did, as the issues were well known and expected. I read the CC transcript and CEO Bakish seems like a no nonsense kind of guy. Other players in thisdpace have issues too ( Disney - ESPN) yet trade at vastly higher valuations.

 

This stock is cheap any way I look at it (SOP, EV/EBITDA). I agree it could become a value trap if management doesn’t execute, but then I would Redstone to step in and force some changes.

 

I actually think this would be a company for BRK to acquire a stake. They have been involved in media properties before (Capital Cities).

 

Well, on a TEV to free cash flow basis, it's not particularly cheap (18x) but that's primarily because they are investing in content to launch their DTC product. Thus, the amortization expenses they are recording right now (for legacy content) do not match the current content spend leading to suboptimal OIBDA to cash flow conversion (~30%). However, I think this is why I think it's it is such an attractive take over target, as it would be a cash machine within another larger content provider.

 

To hit on a great point that FT has made: content costs are elevated today, which may mean that there's no way that amortization returns to levels seen today i.e. OIBDA margins, even pre-synergies, are inflated and artificial. That's a risk to the "valuation is cheap" thesis b/c cash flow conversion would never get close to 100%.

 

However, I think the SOTP case Spek and others have outlined provide another "put option" in the business that I think is well above the current stock price. The data and eyeballs that the ex-Sports IP the company has would add a lot of value for other content providers / streaming platforms.

 

Additionally, even if the NFL rights aren't renewed then they still have March Madness, PGA and SEC Football. Malone, among others, have discussed the appeal of sports assets and Malone himself has bet pretty large on sports (Formula 1 and the Braves).

[nickenumbers]

Cool Graph Below.

 

And here is the article:

 

https://finance.yahoo.com/news/viacomcbs-parts-might-add-greater-155830999.html

 

Can someone explain a thesis that in 10 years the margins are really good, the cashflow is attractive and there is less competition?  [i don't know if I can argue that case.]

 

But, network entertainment and Cinema have been slugging it out for eyeballs for 50 years....  Maybe things are fine in 10 years and it is just more of the same.    ???  I dunno.

 

[KJP]

 

Additionally, even if the NFL rights aren't renewed then they still have March Madness, PGA and SEC Football. Malone, among others, have discussed the appeal of sports assets and Malone himself has bet pretty large on sports (Formula 1 and the Braves).

 

Isn't SEC football going to be gone soon as well:  https://www.sportsbusinessdaily.com/SB-Blogs/Breaking-News/2019/12/SEC.aspx

 

Note the massive increase in licensing fees -- from $55 million to a rumored $300+ million per year for a new ESPN/ABC deal in 2023. 

 

Also, the Malone assets you refer to (Formula One and the Braves) are fundamentally different because they actually own the content in perpetuity.  The CBS's of the world merely license the right to broadcast that content for certain period of time.  Given the developments in streaming, it currently appears that increases in value of that content are going to go to content owners, rather than to distributors like CBS.

[griezeman23]

 

Additionally, even if the NFL rights aren't renewed then they still have March Madness, PGA and SEC Football. Malone, among others, have discussed the appeal of sports assets and Malone himself has bet pretty large on sports (Formula 1 and the Braves).

 

Isn't SEC football going to be gone soon as well:  https://www.sportsbusinessdaily.com/SB-Blogs/Breaking-News/2019/12/SEC.aspx

 

Note the massive increase in licensing fees -- from $55 million to a rumored $300+ million per year for a new ESPN/ABC deal in 2023. 

 

Also, the Malone assets you refer to (Formula One and the Braves) are fundamentally different because they actually own the content in perpetuity.  The CBS's of the world merely license the right to broadcast that content for certain period of time.  Given the developments in streaming, it currently appears that increases in value of that content are going to go to content owners, rather than to distributors like CBS.

 

Thanks for clueing me in on the SEC Football deal. I'd also point out that they did pick up the rights to the Champions League and is looking for other sports deals, so it is not like the thesis is completely gone but clearly pressured - much like the rest of the business

 

On the Malone point: Absolutely the Malone businesses are vastly different. I was more trying to highlight the value of sports as assets in the media space rather than say VIAC sports assets = FWONK/BATRA. Clearly not the case, as ViacomCBS would not be trading this cheap (5x EBITDA) o/w...

[CorpRaider]

The mid-tier offering of a generic "house of brands" thing was really underwhelming.  They can't even really blame that on the recent closing...like you had time to come up with something better than that before the merger was even approved.  Not even a "pluto plus?"  So, they are just going to run with the CBS all access brand but just throw/bury a bunch of other stuff on there?  AT&T's "AT&T TV or HBO or HBO MAX" is probably the only worse branding attempt this retail layperson can think of. 

 

On the other hand, if their $1.6 billion in streaming revenue got the same ev/rev multiple as NFLX it would be worth basically the whole company.   

[Spekulatius]

House of brands sounds bad, but the idea to cluster by content rather than by distribution channels might work. Instead of Paramount, CBS TV, Nickelodeon,

Break the company Into theme cluster like the CBS crime/ cop stuff+Jack Ryan,  Star Trek, the Nickelodeon stuff (Spongebob, Paw Patrol) and then enrich with licensing, theme parks (with partners) and who knows what.

 

Or just become a content arms dealer and license everything to the best bidder non exclusively and also offer on CBS +. This company just needs a jolt and creativity. many ways to make this work, given the assets they can work with.

[ugadawg_98]

House of brands sounds bad, but the idea to cluster by content rather than by distribution channels might work. Instead of Paramount, CBS TV, Nickelodeon,

Break the company Into theme cluster like the CBS crime/ cop stuff+Jack Ryan,  Star Trek, the Nickelodeon stuff (Spongebob, Paw Patrol) and then enrich with licensing, theme parks (with partners) and who knows what.

 

Or just become a content arms dealer and license everything to the best bidder non exclusively and also offer on CBS +. This company just needs a jolt and creativity. many ways to make this work, given the assets they can work with.

 

 

Hi, Spek. Good to see you here. Love the commentary from all the participants, particularly on the SOTP angle. Two thoughts: I recall during the T/TWX deal, there was much commentary about HBO and how much of TWX’s value it purportedly represented. Is/should Showtime be considered a similar prize asset inside VIAC? Doesn’t/shouldn’t it have a similar optionality for VIAC as HBO was thought to have for TWX (eg. sell, spin, partner, etc)?

 

Also, on a different note, recognizing the Redstone control, any thought on opting for voting over non-voting shares?

[Spekulatius]

House of brands sounds bad, but the idea to cluster by content rather than by distribution channels might work. Instead of Paramount, CBS TV, Nickelodeon,

Break the company Into theme cluster like the CBS crime/ cop stuff+Jack Ryan,  Star Trek, the Nickelodeon stuff (Spongebob, Paw Patrol) and then enrich with licensing, theme parks (with partners) and who knows what.

 

Or just become a content arms dealer and license everything to the best bidder non exclusively and also offer on CBS +. This company just needs a jolt and creativity. many ways to make this work, given the assets they can work with.

 

 

Hi, Spek. Good to see you here. Love the commentary from all the participants, particularly on the SOTP angle. Two thoughts: I recall during the T/TWX deal, there was much commentary about HBO and how much of TWX’s value it purportedly represented. Is/should Showtime be considered a similar prize asset inside VIAC? Doesn’t/shouldn’t it have a similar optionality for VIAC as HBO was thought to have for TWX (eg. sell, spin, partner, etc)?

 

Also, on a different note, recognizing the Redstone control, any thought on opting for voting over non-voting shares?

 

Ugadawg, Good to see you here as well.

 

1) I do not think think they Showtime is even close to being of similar quality than HBO. Their programming simply doesn’t have the hit shows they HBO has (Game of Thrones). I don’t have a strong opinion whether Showtime could be better off/ worth more with a different company

 

2) There is in my opinion no point paying more for voting shares, when there is a controlling shareholder (like Redstone in this case ) having majority control. In the end, a proxy contest isn’t really possible as Shari Redstone would call the shots anyways, so we just ride along. That said, I do think that Sharis main motivation is preserving value, not being a media mogul. I don’t think she want to be in the limelight.

[Gregmal]

Personally, I just dont see why one would want anything to do with investing with the Redstones at this point. Some have brought up Berkshire as a suitor here; yea right. They are notorious for not getting involved with bad actors. The highlight reel we saw a few years ago was just a smidgeon, but enough for me to kind of cross this off due to the lack of voting rights here.

 

I get and dont dispute the value, but the Redstones are too much for me. They enable Moonves while its of use to them, then discard him in a cold and calculated manner when he no longer fits their ambitions. Shari, heck, even ran her husband into the mud. Sumner was a disgusting pig as well. You saw how hard they fought to stop value form being unlocked when there was hope CBS was up for grabs....and crushed that. So we already know those type of transactions are off the table. Which is a necessary free call option for me if you want to venture into a space that is possible structurally challenged.

 

But the character issues here are too much. Basically take the worst parts of stereotypical Hollywood people; promiscuous, materialistic, and self absorbed, and financial industry people; petty, cheapskates, egotistical, throw those two on steroids, and force them to procreate. The result is the folks who are in charge here. Pass.

[CorpRaider]

I agree with you about sumner as far as personal qualities but that kind of caused the mess/litigation.  Then again, he split the companies to try and highlight some value...so it's not like he didn't care about the share price(s) or tried to steal the company like the Dolans or Michael Dell.  In any case, seems he is all but gone at this point.

 

I think Shari Redstone was right to combine the assets (the main thing we can judge her on at this point).  Also, Dauman was horrible/weird AF.  I am also kind of impressed that she cut through Dauman and Moonves like a hot knife through butter.  Her husband should have resigned from NA when they got divorced.  He maybe justly got dealt too.  She did decline the chairman role at CBS a while ago (as soon as it became obvious sumner wasn't there anymore), which I thought indicated some perspective/judgment.  Definitely not an ideal situation, but I think I would prefer shari to the Murdochs or the Dolans (or even to be honest no one/vanguard or blackrock). 

[griezeman23]

https://www.cnbc.com/2020/02/22/nfl-tv-rights-up-for-renewal-in-2022-and-big-media-will-pay-more.html?__source=sharebar%7Ctwitter&par=sharebar

 

Some decent news for VIAC on the NFL rights - price to go up but NFL hesitant to give rights to streamers... Mind you, ViacomCBS still the most likely to lose rights to other non-streamers.

 

After doing some more digging this weekend, I'd agree with the thinking on this thread that Redstone's control seriously dents the asset sale or M&A thesis here (probability of this occurring is significantly lower than I initially thought). That being said, I still think there are more things that can go right for ViacomCBS than wrong in 2020.

[glorysk87]

I think Shari Redstone was right to combine the assets (the main thing we can judge her on at this point).

 

A) I couldn't disagree with you more, I think the combination was shortsighted and misguided and essentially wrapped an anchor around CBS and will eventually drive both companies into the ground.

 

B) The market also disagrees with you, with the share price down almost 50% since the deal was announced in January 2018.

[CorpRaider]

Thanks for sharing your strong opinion. I am sure it is well-founded and troubling for longs, but I personally don't find short-term price movement as dispositive of the question (or even probative really, given all the other stuff that has happened, including terrible linear/bundle figures from CMCSA and other things that have happened like the delays and unfortunate legal spat, with related need to cashier Moonves and Ianello).  I did find the strategy for the combined assets laid out on the earnings call underwhelming. 

 

Historically, selling to AT&T is a very good idea...for the seller.  But all I've seen on that was a rumor.  Maybe you have better information on that score.

[valuedontlie]

Forgive me for not having done a ton of work on this name yet... was hoping the board may have already done some heavy-lifting :)

 

What do the fundamentals look like here? Seems like the EBITDA/FCF guide are lower than the standalone VIA/CBS pieces? What's the debt situation? And what are the cash flow priorities (debt repay, buybacks, somethin else)?

 

Thanks!

[glorysk87]

Thanks for sharing your strong opinion. I am sure it is well-founded and troubling for longs, but I personally don't find short-term price movement as dispositive of the question (or even probative really, given all the other stuff that has happened, including terrible linear/bundle figures from CMCSA and other things that have happened like the delays and unfortunate legal spat, with related need to cashier Moonves and Ianello).  I did find the strategy for the combined assets laid out on the earnings call underwhelming. 

 

Historically, selling to AT&T is a very good idea...for the seller.  But all I've seen on that was a rumor.  Maybe you have better information on that score.

 

2 years isn't exactly "short-term price movement" in my view, but I guess that's just a point of disagreement.

 

I do want to point out that CMCSA has among the best TV subscriber numbers in the space, with the lion's share of declines coming from AT&T and Dish. Just thought it was curious you'd call out CMCSA.

[CorpRaider]

Probably that's just when I noticed the price movement/correlation in VIAC: when CMCSA announced that video sub losses were over 3% in 2019 versus...what 1.5% in 2018 and they were projecting more losses in 2020 if I recall and were delaying a price increase because they are getting their testes kicked in.  Perhaps, if that is best in class (and continues for very long), we are all fkd.  I take it you are an TMT analyst?  That is an interesting observation about the relative performance.

 

I am sort of reserving initial judgment on the VIAC combination until 2021-2022, i.e., after they get to go through negotiations with distributors applying the new scale and we see how they perform on the cost "synergies."  Like I said, I would have liked to see like something in the streaming strategy besides "house of brands."