Bakish Goes Bold

With about two months as the official permanent CEO of troubled cable programmer Viacom under his belt, Bob Bakish has introduced a five-point turnaround plan that includes a shift in focus to six core brands: BET, MTV, Nickelodeon, Nick Jr., Comedy Central and Paramount.

Also included in the efforts: revitalizing and elevating its approach to content and talent; deepen its partnerships to drive revenue; be aggressive in the digital space and energize the organization.

The news comes as Viacom reported mixed fiscal first quarter results: overall revenue rose 5% to $3.3 billion, but adjusted operating income fell 11% to $748 million. At the media networks, affiliate revenue was up 2% while domestic ad sales dipped 3%.

While some of the moves are a bit esoteric, Viacom is taking big steps on a path that other programmers have only talked about – reducing their number of networks to accommodate a viewer base that increasingly doesn’t watch traditional linear TV.

Viacom said it isn’t shutting down those networks, but its investments will be concentrated on the six core brands. Other channels not in the core six will get a rebranding – for example, it will transform Spike in 2018 into The Paramount Network.

Other programmers have talked about it – NBC Universal Steve Burke has said in the past that is company probably only needs to focus on five networks – and distributors have complained of having to pay for channels that their customers don’t watch. But it is s risky move in that the so-called marginal channels throw off a meaningful level of cash flow and help offset overall high overhead at the core networks.

According to SNL Kagan, the remaining 19 non-core networks represent 29% of domestic revenue and 27% of domestic cash flow, according to Sanford Bernstein media analyst Todd Juenger, adding that the true incremental cash flow contribution could be higher given that the networks offset overhead allocations.

In a note to clients Juenger wrote that the non-core networks will most like be shut down in the future, but Viacom will be hard pressed to make up the financial contribution, which totals about $1 billion in cash flow.

“You have to drop the weaklings," Juenger wrote. “But you cannot afford to cut out $1+ billion of EBITDA.  And we don't believe you can recapture that $1+ billion of EBITDA from raising price on the Core 6 networks (which, recall, will also be increasing content investment), because they are also over-earning already, and facing the brunt of the on-going secular migration of kids/teens away from conventional TV.”

"Today we share a strategy that will enable Viacom to realize the full potential of its premier global portfolio of entertainment brands,” Bakish said in a statement. “Building on our leading domestic and growing international footprint, this strategy will expand the depth and reach of our flagship brands across multiple platforms and around the world, while also providing for more competitive differentiation and increased adaptability for our business overall. There is much work to be done, but we are confident we have the plan and people to take our brands to greater heights and build a bright future for our company.”

Viacom said it would offer more details in its earnings conference call at 8:30 a.m. Thursday.