[MUSIC]
I noticed that we're three
minutes behind schedule.
The Dean would not like this.
Good morning.
My name is Michael Demello.
I'm class of '91.
'81, sorry.
Boy, I just got 10 years there.
How about that?
>> [LAUGH]
>> I wish.
And one fell swoop, right?
>> [INAUDIBLE]
>> Thank you, thank you.
I work on it.
I was honored to be asked to introduce
this session entitled the convergence of
media and
technology in a multilocal world.
Actually I asked to introduce this,
I find the theme very interesting and
challenging.
And one of the reasons is my experience
at Colombia has meant a great deal to me,
both professionally and personally.
I wouldn't have been able to achieve what
I did in my career in both banking and
in private equity without my
Columbia business School and
my Columbia undergraduate degrees.
I'm now delighted to introduce
to you Jonathon Knee,
with whom I have the pleasure
of having dinner last night.
Michael T Frees, Professor of
Professional Practice of Media and
Technology and co-director of
the media and technology program.
He will be moderating the session.
Professor Nee teaches a number of
courses including media mergers and
acquisitions and
strategic Management of media.
He also serves as a senior advisor at
Evercore and Trilantic Capital Partners.
And previously held senior positions
at Morgan Stanley's media group and
in the communications, media, and
entertainment group at Goldman Sachs.
Goldman Sachs, Morgan Stanley, okay.
His writing has appeared in the Wall
Street Journal, the New York Times,
The Washington Post,
the Los Angeles Times, and The Atlantic.
You can read more about him in the event
program that was distributed as you
walked in today.
And I'll turn over
the floor to professor Nee.
Thank you very much.
>> [APPLAUSE]
>> And
amongst other things, he was the author
of The extraordinary wine last night,
so we owe him an incredible
debt of gratitude.
>> [APPLAUSE]
>> So I guess I'm gonna start
the program by introducing you
to the magic of the media and
entertainment world, as we've transformed
this panel into a fireside chat.
So, some of you may have noticed
that on the original program,
this was gonna be a panel and
unfortunately,
two of our guests Michael Frees and
at the last minute had to be elsewhere.
But the good news is that I am
the Michael Frees professor,
so kind of Michael Frees is here and
i spirit and [FOREIGN].
So they are here in spirit.
But, in the flesh, we have Bob Bakish
who is the CEO of Viacom at a moment
in the media industry's history and
Viacom's history that makes the fact
that we have him for the full hour just
one on one with all of us,
an extraordinary gift to all of us.
Bob has been at Viacom for 21 years,
and he has done pretty
much every job at Viacom,
except I've never seen you
working in the cafeteria.
But other than that-
>> There's still time.
>> There's still time [LAUGH] Right?
It's a tough business,
anything is possible, so
we are very lucky to have him here.
Because he is incredibly well-positioned
to answer my questions and your questions.
So start thinking about your questions
because it's gonna move swiftly
from our fireside chat
to your fireside chat.
So welcome, thank you for doing this.
I guess what I'd like to start
with is the environment we're in.
Which is one of incredible, and
apparently accelerating change.
And from a management perspective,
part of the challenge of that for
a global media business is that,
the nature of that accelerating change
is different in different markets.
It accelerates differently,
it looks different.
Whether it's regulation,
whether it's local tastes.
So talk for a little bit about how you
optimize the opportunity when
you're in that kind of environment,
both as you think about it on
a market by market basis, and
when focusing on a market by
market basis is the right answer.
As well as, a global basis because
obviously if there's no scale why bother,
be, being global.
>> Yeah sure, well first of all it's great
to be here, with all of you in Paris.
I always love being in Paris and
I've been CEO of Viacom for
a little less than two years.
But for the preceeding decade, I ran our
international networks business, which
means, I ran all the businesses outside
the U.S., excluding the Paramount Studio.
So, this notion of global
is something that I spent a lot of time
thinking about, and in fact, living.
And if we rewind the tape to 2007,
which is when I took over what was then
called MTV Networks International, over
time became called Viacom International
Media Networks, which it still is today.
You know, in '07, that was a business
that actually wasn't really growing and
was unprofitable and
I quickly came to found, or
came to call it a confederation
of independent nations.
And it certainly had
a focus on being local.
But in many respects,
local had become a cancer to the business.
And so onset a journey to create
a multinational media company out of it.
And this notion of what we came to call,
I didn't invent the language,
it was invented at an ad sales meeting for
the executives, glocal,
part global, part local.
And so
the answer to the question really is,
you need to have an overall view,
an overall plan.
Part of the reason I got the CEO job,
actually I think a big part of
the reason is when I met the new board,
they asked all the divisions to
come in and present as a primer.
This is back in 2016.
And we were the only group that came in
not only with a primer of what we were and
a little on where we had come from,
but most important where we are going.
We call that vim in 2020.
So as you think of a global enterprise,
and
really any enterprise
you have to have a plan.
But then when you get to the realities
of dealing with the world,
you quickly realize that you
have to Customize that plan and
the associated execution to the local
level, because as Jonathan said,
you have differences in regulation,
you have differences in culture,
you have differences in competition.
You might have high GDP growth,
you might have low GDP growth.
You might have a distribution
environment that is.
Heavy free to air,
in the case of media, or
very high penetration pay,
and all this stuff matters.
And I also believe, by the way,
that from a cultural standpoint,
that yes, we are a US media company.
We're listed in the New York Stock
Exchange, etc., headquartered in New York,
but we have real local
footprints all around the world.
Unlike most media companies, we don't
just have a salesforces outside the US.
We have operating assets including
right here in France where we operate
a range of local French networks.
But we're really guests in countries,
and so we do have to conform to culture.
So the short answer is,
you have to have an overall plan and
then you have to the degree
you think it makes sense and
you have to make some judgement,
you have to customize at the local level.
All while looking to preserve
the benefits of scale where you can.
Certainly the further
you get from the screen,
the more you wanna be
kinda globe spanning.
Which is back to, for example,
we have shared service centers on
the financial side in Budapest and
Hungary which serve all of Europe.
We do that because it's a very
well-educated geography.
A lot of multinationals there and
so good labor for us.
And relative to say, doing something
here in Paris, significantly cheaper.
But that's it, it's a balance.
>> So, everybody is focused more or
less on over the top,
and Netflix for the obvious reasons.
AT&T, having closed the Time Warner
deal has recently announced,
I think a date for
the launch of its Netflix competitor.
Obviously, Disney first
buying BAMTech to provide
the infrastructure to actually do it.
Which Time Warner learned the hard way
is something that you actually need
before you announce,
you're gonna provide an OTT product.
And then bought Fox to
have the content to do it,
so they won't be far behind.
You could probably be
characterized as the last remaining
independent media
conglomerate with a studio.
As you think about longer term,
being a global player,
how essential do you think
it will be to have your own
proprietary OTT platform?
Or how sustainable is it to use the fact
that it sounds like there's gonna be
multiple competing OTT platforms that you
can get to bid against each other for
your stuff?
>> Yeah, look, that question is kinda
all the rage, and as you point out,
the most recent development in that regard
was AT&T's announcement this week that
their D2C product will launch presumably
in the US towards the end of 2019.
I think it's probably worth stepping
back a little bit from the specific of
the question, although we'll go to the
specific question and the specific answer,
just to give it some context.
Because what's really going on
here is we're moving from a world,
and again to the first question, the
specific at a country level will vary, but
the trend line, so you may be at
a different specific place, but
the general notion is the same.
We're moving from a world where everyone
got access to kind of the same product.
And when I say everyone,
it might be 85% of the people in the US,
it might be 50% of the people in France,
etc.
But generally, there was very
consistent availability of product
to a world where that is fragmenting.
And it tends to be fragmenting
by price points and
the reason that's happening is
consumers have more choice than ever.
So if we use a US example, that world used
to be big basic, call it $80 a month,
now actually your bill is higher cuz
other things are attached to it.
Today, we have activity
at a $40 price point,
actually that's more like
$45 now as price creeps up.
Something that I said would happen two
years ago because the current economics at
that $40 price point are unsustainable
if you care about making money and
we can debate.
Maybe there's some people that don't care
about making money because they have other
businesses wrapped around it.
And then you have lower end price points.
You got some stuff going
on in the high teens.
And of course you have the Netflix's
of the world at like 12 bucks, and
then you also have free, also known as
AVOD, Ad Supported Video On Demand.
So, that's the big context and
OTT is part of that
because over the top allows companies, and
therefore, consumers to have access
to different kinds of bundles.
And it's probably worth noting that
at all those different price points,
we're increasingly seeing that even
products within those price points
isn't consistent.
So this notion of exclusivity, and again,
this a bit of a deviation from the past,
where it was more about ubiquity.
Now, you're getting more into exclusivity,
where people are either making or
buying specific products for
specific platforms that are operating
at specific price points.
So that's the big picture that's going on,
we're going from sort of a bit of
homogeneous world to a much
more fragmented world.
I think, by the way, in that journey, and
we're probably still in the early
innings of that journey.
Nobody really knows where penetration and
these tears will level out,
etc., but
it still certainly has a ways to go.
By example of that, the majority of
the world is still at the highest
price point in any particular market.
But obviously, the trend lines on things
like what we call UEs, the universe
at different price points are showing the
lower ends of the price points growing and
the higher end of
the price points declining.
Again, as a macro statement,
it varies by country.
So, in the context, so
that's the kind of big set up.
And again, this sort of PR,
and in some respects,
deal making activity is all about
companies vertically integrating and
pursuing endeavors as generalization, but
pursuing equation of
Netflix-likes products.
Because they see that, they see
the evaluation company which continues to
be extraordinary by
most financial metrics.
And, they also see the fact that they
have created a truly global network.
Now that product within that global
network has a lot of local and
one of the things they're doing today
is more and more local programming,
which has some economic challenges.
But nonetheless, people see that and
say, okay, that's the future,
therefore, that's where we must go.
And you see,
as an example of that, the Fox,
Disney transaction,
you see AT&T Time Warner transaction,
and then a lot of other
activity about people
getting in the OTT space
in a more organic way.
When we look at that, I look at sort of
the call it the Netflix space saying,
it's very capital intensive.
Again, you can just look at whether
what they are spending organically,
$12 billion on content,
rough, plus or minus.
The Disney transaction,
what they paid for Fox, which by the way,
when the dust really settles on that,
which will include the divestiture
of the regional sport networks in
the United States for some range of call
it $20 plus billion That transaction will
get even more expensive, because those
will clearly trade at a lower multiple,
than the multiple they played for.
So it's a very expensive game.
It also looks, if you draw any kind
of trend line, like it'll be crowded.
And so from Viacom perspective,
we look at that and
say, that's not really
the game we want to go play.
On some levels, we don't have
the balance sheet to do it anyway, but
on a more practical level,
we think there's
actually great opportunity in this
world through a different path.
And that path is informed by
the fact that sitting here today,
more content is consumed than,
video content,
is consumed than any
point in time in history.
The trend line of that continues to go up,
the opportunity to see that
continue is definitely there as the mobile
infrastructure really migrates.
I mean 3G is actually sufficient but
certainly, we got to four and five.
There's no question that you have even
better appliances for video consumption.
And you have inherent consumer demand.
People like to be entertained.
We used to say, our product could only
be used on the living room couch,
then it got to be in the kids' room,
second TV set.
Now, it's really anywhere.
So, there's huge and
growing demand at the consumer level,
at the call it platform level,
there's more and more entrants.
I found it somewhat amusing
at the beginning of this week
that it was rumored in the US that Costco
was gonna develop an over-the-top product.
What subsequently came out,
which makes much more sense,
is what they seem to be doing more is
they want to offer OTT products to some of
the high ends of other club members, so
that would be essentially licensing or
in some form, subsidizing.
That makes much more sense than
starting from it scratch themself.
We could get into why if we want to, but
just take that as a given for a moment.
So you see all this activity, and
as all this activity is happening,
you also see vertical
integration happening.
So, Fox, Disney essentially being
taken off the market as a supplier,
as they vertically integrate and
drive presumably one or more DSC services.
The Warner Bros, Time Warner Company,
which includes The Warner Bros Studio and
the Turner Networks, probably on some
trend line of vertical integration,
particularly building off of this
announcement earlier in the week.
So, let's assume the Warner product
is less and less available.
I don't know exactly what Comcast,
NBCU is going to do, but
they clearly could go down that path.
And at the same time, you have Viacom,
which is at the core, a content company.
Sumner Redstone's famous words Content
is King, which back from the 80's.
And we're truly a global company in that
we create content all around the world.
So, as there's more and more demand and
less availability from historically
trusted, high quality suppliers,
we think that's a great opportunity
as an example of that are Paramount.
And for
those of you that don't know Viacom,
we have a set of businesses in
what's known as that TV business,
or historically known as the TV business,
which is around networks and
original content, brands like Nickelodeon
and Comedy Central, MTV and the like.
And then we also have one of
the icon Hollywood, 100 plus,
actually about 107 year old film
studios in Paramount Pictures.
So in Paramount, some years ago,
when our company and
CBS were one company,
the companies were split.
This is in the kinda 05 and
06 time frame, and
at the time, Paramount was in the film and
television business, but
the television production business and
associated library went with the CBS
company, because CBS had
a US broadcast network.
And we could get into a debate of whether
that was a smart idea, dumb idea, etc.,
it doesn't matter for
this purpose, because it happened.
And so you had Paramount
only making film product.
And in recent history, certainly in
the 14, 15, 16 quite unsuccessfully.
That's a whole other story.
But a couple of years ago,
for practical reasons and
because we saw a demand, Paramount got
back into television production business.
And in this year,
which we just closed in 2018, it
did just short of $400 million of business
in that category, up from 0, 4 years ago.
And it not only did that but it made hits.
Some of the hits you might be familiar
with is 13 Reasons Why which we made for
Netflix.
The Alias which we made For
the Turner networks and more recently,
Jack Ryan, which we've made for Amazon.
That business had,
we call it nine series on air or
online for customers,
including internal customers in '18.
It'll have 16 on air or online in 19 and
it'll do about $600 million of business.
So, very rapid growth.
And it's really been
driven by this phenomenon.
As we get our international assets, we own
the number one broadcaster in Argentina
called Telefe, which has its own
kind of mini-paramount lot and
produces about 3,000 episodes of content
a year, just outside of Buenos Aires.
That's now making between 700 and
1000 hours at 19,
it depends on pickups, for
kind of a Latin orbit, U.S.
Hispanic, Latin America and
people buying novels all around the world.
Yeah, that and
what we're doing on our domestic brands.
That'll be a billion dollar
business plan in a couple years.
And the fundamental reason it's
that is all of this demand.
And for us, we see that as
a very compelling opportunity.
We also see some over the top
product war in the niche.
We have a preschool product called Noggin.
2nd version of that will come
out right after the holidays.
We're working on a 3rd version.
I think the 3rd version's
more interesting.
But it really is
a tremendous opportunity for
a truly global content company, and you
don't have to play it all the same way.
>> So, as a recovering investment banker,
that was a disturbingly, a coherent
description of the strategic imperatives,
because as a recovering investment banker,
we thrive by people
doing incoherent things.
And the first 10 years of this century was
mostly focused on companies separating.
So, Time Warner spun off
their cable business
because they realized that
it made no particular sense.
The same thing happen at Cable Vision,
spinning of its content business and
then with Comcast buying NBCU,
that was the beginning of going back and
then that is how bankers
are able to send their children.
>> Fees.
>> To private schools,
they come together they go apart,
they come together.
But this is actually a moment
of extraordinary joy for
bankers because just the overall
quantum of deals, which I think,
at the end of the day, is probably most
associated with fear and desperation.
Bankers feed off of fear.
But it's not,
it's an odd mixture of vertical,
horizontal, international, conglomerate.
When you look, it sounds like you're a bit
skeptical of the vertical phenomenon.
But when you look at the overall spectrum
of deal activity that's happening,
what piece of it do you say, well,
that actually is interesting?
It might make sense for us.
>> Sure, so
let's start with a little story.
Back in 1997, when I just joined Viacom,
I joined at the corporate level.
Running planning, development, and
technology, so that included strategy and
MNA, and at the time, we owned
a company called Simon & Schuster.
And at the time, Simon & Schuster was
a full-line publisher, both in the, well,
in the consumer, in the professional,
and the educational business.
And at the time we were thinking about
what do we do with this asset, how do we
create value, and the thesis we came up
with was taking the educational piece and
moving it in a technology field direction
and creating a new age education company.
Maybe we did that with a tech partner,
who knows.
Bunch of bankers came in, cuz we're trying
to figure out if we did it as a venture.
What would it be worth?
And so, they started showing us comps
of educational publishing companies.
And pretty quickly we said wait a second.
Are you saying Simon &
Schuster is worth x?
And the x had a billions attached to it.
And they said, well, actually your
company's better than these companies,
should be worth more.
And we pretty quickly decided,
because the company via Viacom
at the time, was highly levered.
Something else we inherited in 16,
but that's a different story.
We said, wait a second.
If we can sell the company for this much
money and not have any execution risk,
that's a better play for
us at that point in time.
Because candidly, we're more
about the entertainment business
than the education business and
there are no synergies
that we can figure out that are material
between entertainment and education.
So we divested it, we sold to Pearson,
we sold at a very nice multiple.
We were very happy, life was good.
And then about six months later,
one of our competitors ran a full page ad
in the Wall Street Journal that said
X Uniting Education and Entertainment.
And I looked at the ad and I said there
is absolutely no basis to do this.
They don't know what they're doing.
There are no synergies involved.
Something that at least in that
space I continue to believe.
Today and
I think it's fair to say their adventure.
>> I don't know how.
We're in France.
How can you make fun of Mr. Messier?
That ad was taken out by one of
the few French media moguls,
for the brief period of time
that he was a media mogul for
after he bought Vivendi Universal,
I believe, yeah?
>> I'm not gonna comment
on who's ad it was.
>> Okay, sorry, sorry.
>> I'm gonna stick with
the basis of the point,
which is-
>> [LAUGH]
>> There are no synergies in that
combination.
So this notion of vertical integration,
which as you point, companies get taken
apart, companies get put together,
it's kind of a cyclical thing.
Is not a new phenomenon,
although there are rare examples.
I never say never, there are some
productive examples I'm sure.
But it is very rare that
there are actual synergies.
And even if you look at Comcast today,
where Comcast bought NBC Universal.
And I remember when that happened, it
was I don't know, a decade ago, roughly.
At the time, it happened we in
the industry thought well, that would be,
that won't go well.
Clash of culture etc., but
to their credit that has gone very well.
And in fact, NBC Universal is a more
successful company today than it was when
it was owned by the prior owners.
But I would assert to you that that has
nothing to do with vertical integration.
That has to do with better management.
And so I think you got to really look at
it and say what are you trying to do?
Now when we at Viacom look at this.
We again we have pretty levered
company a circa the end of 16.
We were called investment grade and
we had an investment grade rating.
But we didn't have
investment grade metrics.
And we had a glide path to get there
by actually September of this year that
just passed and we were supposed to be at
investment grade metrics by that time or
we would be downgraded by S&P.
Now, I'm happy to say that in August S&P
reaffirmed our investment grade
credit rating, and that was on the back
of paying down $2 billion in debt.
We'll pay another $1 billion of debt
by the end of this calendar year.
Improvement in operating metrics,
and etc., but
if you had asked me in January of 2018
would that happen I would say, no.
I was pretty sure we were gonna get
down graded, but thanks to hard work and
all that, that didn't happen.
I say all this to have you understand
we've been constrained in our ability
to use our balance sheet to pursue M&A and
we haven't gone after any scale trends.
Quote unquote scale transaction, instead
what we have been doing is looking for
ways to use transactions
to accelerate our strategy.
So these tend to be much smaller deals
that have a very specific purpose.
We've done three of them
in the last twelve months.
We acquired first a branded
content company called WHOSAY.
For those of you, who are less familiar
with the space, branded content is
kind of an integrated piece of content
with advertising messaging in it.
WHOSAY does that.
Mostly in the digital native space,
so making stuff and
publishing it on third party social
platforms like YouTube, etc.
And generating revenues and
cutting through for advertisers.
So we acquired that and
bolted it on to our company as
a lower end ad solution
that we didn't have.
But that, when complimented with our
pipeline into the largest agencies and
advertisers in the world has
already proved quite successful.
We then followed that up buying a company
called VidCon which runs the largest
annual gathering of social influencers
in the world in Anaheim, California.
Think of them as YouTube stars.
And so, we now own that company and
it provides not only a business,
ciz doing that's a business.
But it also provides a platform of
relationships with this type of talent,
and we do use that type of talent both for
our traditional product and for
our digital native product, so
we thought that was a good idea.
Now, just like in the case
of who say we both did it.
We sort of partnered it with our
existing sales force that give them
product depth and
different selling capability.
In the case of VidCon,
what we're doing is we're globalizing it.
So we'll have VidCon's event is in
Anaheim, California in the summer,
we just had one in Australia, and
we're gonna have one in London in 2019.
So again, accelerating this
strategy of building stronger
relationships in that space,
and also an events business.
And then the third one, we just acquired,
was a company called Awesomeness.
Now Awesomeness is interesting in
that prior to acquiring the company,
we hired the creator of the company,
Brian Robins to run a label for Paramount.
Part of our strategy,
we probably should have started there, so
you know big picture what we're
trying to accomplish, but
part of Icom strategy is to leverage
the combined company a lot more.
So actually get some scale
through assets we already own and
part of that is using our brands from
our network space in the films business.
So think films under the BET brand or
Nickelodeon brand, etc.
The first of those, by the way,
will come out in two weeks.
It's a BET film by Tyler Perry,
who's probably the most prolific
African-American producer,
starring Tiffany Haddish,
who's one of the hottest stars,
not just African-American stars, but
stars full stop, called Nobody's Fool.
Anyway, we hired Brian to lead that,
cuz he had a unique combination
of historical expertise.
So he was in house, and then when
we created another division to more
aggressively go after the digital
native space, Viacom Digital Studios,
we hired another Awesomeness exec,
the number two exec Kelly Day to run that.
So we had two people who really
knew the company in-house, and
Awesomeness had gone from an independent
company to a three-way joint venture,
whose owners were Comcast/NBCU,
Hearst, and
Verizon, three people that couldn't
figure out what they wanted to do, and so
became a non core asset, and
we swooped in and bought it for $0.05 on
the dollar relative to the last round
when two of the partners had bought in.
So it was a great financial transaction,
but
it was again an example of an accelerant,
because people look at that and say, yeah,
that's a website company, and
they're not exactly right.
What it really is, is a content company,
and it makes long form content,
both film length and
episodic television length,
target at a young female demographic,
so think teen girls, and
does it at very attractive price points,
think $500,000 an episode for scripted,
which is very low price point, and
so that's part of our broadening,
and I talked about the incredible
demand for content.
This company makes content for
Netflix, makes content for who for
Hulu and for others, and
we think fits very nicely in.
So that's what we've been doing, and in
every case, it is in the case of WHOSAY,
it has accelerated what we call
our advanced marketing solutions,
our next generation advertising strategy.
In the case of VidCon it has
accelerated both our event strategy,
cuz there's a lot of time
spent in experiential, and
our digital native strategy,
with respect to talent relations.
And in the case of Awesomeness it has
accelerated our content strategy as we
ramp and create more and more, and we did
all three for well south of $100 million.
>> Well, that highlights why every banker
you see has a huge smile on their face,
in the current environment.
So you bought Awesomeness for
$0.05 on the buck.
They do long form content.
They also do some short
form video content.
>> Yeah.
>> Most everybody, including Google,
who has tried to make investments in short
form content has been lucky to get
$0.05 on the dollar once they did it.
And yet, at the same time
Jeffrey Katzenberg is able to
raise at $1 billion valuation, and
take money from all kinds
of otherwise apparently,
successful and intelligent people,
and from a standing start,
in the face of all of this evidence that
it will end badly, a brand new company,
I think, actually called New TV,-
>> You are correct.
>> To create, from a standing start, short
form content, and it's Jeffrey Katzenberg,
and Meg Whitman, and a bunch of other,
more or less famous people,
but no actual underlying assets,
but $1 billion evaluation.
What do you-
>> No, cash.
They got the money.
>> Of cash money, cash money.
So I guess it must be post-money,
more than $1 billion,
what do you make of that?
>> Well look,
Jeffrey has a very compelling idea, and
he has a very strong track record.
His idea is that there's an opportunity
fueled by Mobil consumption, and again,
a thesis that that's only gonna
continue to growth as devices and
networks get higher and
higher capabilities.
His thesis, and
it's based on research that he's done,
is that there's an opportunity to create
high quality content in the roughly six
minute duration space, and the research
goes to average length of tone,
and in places, etc., and so,
he believes that there's an opportunity
to create a company, now called New TV,
to essentially create a new
entertainment format,
the six minute high quality video format,
and create sVODS,
subscription video on demand service,
around that.
And he actually originally started
out looking to raise $2 billion and
fell back to $1 billion,
which makes it probably, if not the,
certainly one of the best
capitalized startups of all time.
Look, he originally was going to get all
of the money from just the media and
entertainment industry.
We are, as an industry,
own some equity in it, but
the bulk of the money didn't come from us,
it came from more, dare I say,
traditional financial sources, investors.
Look, I think it's a very
interesting thesis.
For the record we are a small minority,
a very small minority owner at Viacom,
and Jeffrey's not a guy you would
bet against, having seen him and
known him for some years.
So I think it's interesting.
I think it's great for
a company like Viacom, because assuming he
is succesful at creating a six minute
format, whether it's Paramount,
or it's MTV, or it's Telefax,
our Latin American business which operates
under VIZ, Viacom International Studios,
will be supplying it, and in fact,
we're already working in that direction.
As to whether it'll be successful or
not, we'll see.
But it is certainly a grand vision,
a motivated and successful guy,
and tremendous financial resources to go
after it, although from what I understand,
one of his challenges is,
if you're joining as an employee now, and
you're getting equity comp,
you're joining at $1 billion valuation,
which has proved to be somewhat of
a challenge, perhaps, they didn't expect.
But, nonetheless, an audacious plan,
and we wish him great success.
>> All right,
I have one more question, then all of
you start thinking about your questions.
Bruce Greenwald,
who is speaking as well, and
I wrote a book called Curse of
the Mogul as you may recall,
and one of the main complaints
that we had just sort of looking
at the data of media companies
overtime is the destain for
efficient operations in favor
of grant strategic thinking,
and to be fair, part of that
disdain I think is driven by what
is now viewed as a truism
from William Golding's book,
that, in entertainment,
nobody knows anything.
And if nobody knows anything [LAUGH]-
>> That's a truism.
>> You might as well just focus on
strategy since trying to focus on
the actual nuts and bolts of
operations is kind of a waste of time.
That said, you've gotten a huge amount of
credit in a relatively short period of
time from turning around Paramount,
which was a basket case,
and has had a series of successful films,
and
you've described what you've
done with television business,
which basically went from 0 to 100,
in a very short period of time.
When people hear the word efficiency,
you immediately go back to widgets and
how many widgets you can get out of
a machine in a certain amount of time.
Does it even make sense
to talk about efficiency
in the context of creative businesses?
How do you think about it?
Did you just get lucky [LAUGH], or
did you do something in particular
to turn around the entertainment
portions of those businesses?
>> Well, there's a lot packed in there.
So, I do believe that I have
been fortunate in my life, so
I won't say we had no luck involved,
but Look, my playbook is management team,
plus strategy, plus execution.
And so if you look at Paramount, Circa
the end of 16, the studio had just come
off a financial year where it lost $500
million on an operating level, and
consumed 1 billion and two in cash.
Which is a pretty good trick when you have
a library that throws off 300 plus million
to the positive you do the math.
And I had never been responsible for
a Hollywood studio, major studio,
but it was pretty apparent to
me that something was broken.
And so we thought about it developed a new
strategy which fit in the context of
our Viacom strategy overall, and
went shopping for new management.
Because at the end of the day, people
are responsible for running businesses.
And if a business isn't running well,
one of the levers you've
got to pull is management.
So put a new strategy in place,
hired new management, in this case,
in the form of Jim Gianopulos
who had a successful run at Fox.
And after screening a lot of people, and
meeting less people, far less people, but
spending time with people,
he emerged as my clear number one choice.
And then under Jim's leadership,
rebuilt the management team there.
And now, Jim joined as an employee in,
I don't know, April, I think, of 17.
So he's been there, call it a year,
little less than year and a half.
We now have had basically
three successive wins.
The first one was a film called
Quiet Place, which is this low budget,
John Krasinski thriller.
But really they thought it was a horror
film, but it was really a family film.
If any of you have seen it,
you know what I mean.
And if you haven't seen it,
I'd really encourage you to,
cuz it's a really compelling film.
Made that film for about $17 million,
obviously had to market it.
So invested far more in it, and
produced a very, very nice return.
That was followed up by a small film
called Book Club, which actually,
Jim bought because we didn't have any
films to release in a particular window.
That film was tend to, older female,
it's casts is older, etc.
It's a great film that turned
out to be very well for us.
And then it's kinda interesting
that we're sitting here in Paris.
We then had the sixth installment
of Mission Impossible.
Staring Tom Cruise, and
people were somewhat skeptical.
Well, how great of a film is it gonna be?
Although the other studios stayed away
from us on opening weekend as they were
right to do.
Which went on to become not
only a successful film, but
the biggest of all
the Mission films to date.
Which doesn't usually happen for
the 6th film.
And that's true on a US
domestic theatrical basis,
on an opening weekend basis,
and on a global basis.
And the only one that you could
say we had gravity pulling in
our direction was global.
Because China is bigger today than
it was for the fifth installment or
the fourth installment.
But opening weekend in US, you can't make
that claim, it really is a great film.
And now those films were, none of those,
well, Mission wasn't greenlit nor
was Quiet Place greenlit by
the current management team.
Quiet Place was greenlit three weeks
before Jim started, but they managed
the production, and they were the guys
who marketed it, among other things.
He brought in a new head of marketing.
Who made a breakout from what could've
been a niche film into a mass market film,
and the same thing with Mission.
They kept it on budget,
something that Paramount hadn't been
good at in the last number of years.
Got the film down to
a more reasonable length,
something also Paramount
hadn't been good at it.
Still was too long but, and
marketed it very effectively.
So there's a case where through
management and a differentiated strategy.
And their strategy is really gonna
start coming online in three weeks when
November 2nd.
I think that's about three weeks,
maybe a little bit more.
When the first of our branded films
come out under the BET label.
So I would say that's an example
of execution, certainly not MNA.
Now your point on efficiency
is an interesting one.
I do believe there's a real role for
efficiency.
It won't cure all ills for sure, and
you can screw things up by cutting money,
so you have to be careful
where you cut money.
But there's no question that
operating not only well but
efficiently is something you
should do in the media business.
And that goes to, we embarked on
a cross transformation in our domestic
business towards the beginning
of this fiscal year.
In that we dropped about 100 million, a
little more than 100 million in the bottom
line this year, and we will drop over
300 million as we kind of move forward.
And that's just doing things like sourcing
in a much more structured, and
dare I say, efficient way.
It's things like opening
shared service centers,
like I mentioned on
the financial side in Budapest,
where you move transactional work,
at least initially transactional work.
To lower cost locations and
benefit from factor costs.
As well as looking at organization, and
finding ways you can operate in a linear
more nimble way, which by the way,
can pay effectiveness dividends in
addition to efficiency dividends.
Something we've also seen.
So it's certainly not a one
dimensional playbook, and
I wouldn't bet the ranch
on just deficiencies.
But, I mean, I would think it's
irresponsible not to look for
ways you could operate more efficiently
particularly in a business that's not
growing 20% a year.
And if your business
is growing 20% a year,
I would argue,
don't worry about that, right?
It's more important to have more people
running in parallel and grabbing for
market growth.
And certainly, our media networks business
had been doing that if you go back to
kind of the 90s, etc.
But at some point as the business matures,
it becomes more important
to operate efficiently.
And that's certainly part of our playbook,
and
will continue to be part of our playbook.
Great, why don't we, sir,
why don't you wait a mic,
>> I'm gonna go ahead first.
>> He's got-
>> All right, you'll be second, go ahead.
>> Thank you very much,
I have two questions.
>> We're only going to take one,
so you'll have to do that.
>> [LAUGH]
>> One now,
did the Murdoch's get out at the top?
And what do you think
of the next strategy?
I mean, are they now ahead of the curve?
Of the curves you spoke about earlier.
>> Well, anyone that thinks they can
call on the top shouldn't be running
at media company should probably be
strictly in the investment business.
So I'm probably the wrong person
to ask if he got out at the top.
Obviously, I think everyone certainly
in the media found it interesting
that Rupert was a seller, he's not
historically been that as you well know.
Now arguably he's not
getting any younger either.
But he saw an opportunity, and again,
it's more of a question to him than to me.
But he got a very high multiple for
that asset, and
clearly he thought made sense to do.
I think the Sky transaction is
probably the more extreme version for
those of you that are less familiar with
this, as part of Fox selling to Disney.
It also put Sky, which is a European
company, biggest presence in the UK,
but also in Germany, Italy, and
now Spain, more on the distribution side.
It basically put that in play because
Fox had a significant minority stake.
Actually had tried to buy the whole
thing some years ago, and
ran into problems with the Among
other things the British government.
But that was an asset that also people
thought would never be available for sale.
And if you look at the multiple
Comcast just paid for that,
it's pretty extraordinary.
So on a sort of multiple continuum basis,
he clearly did a nice deal.
The deal actually isn't closed yet
on the Disney side.
But I don't know what else was
going through his head but, I think
that was pretty impressive in terms of
value recognition for those assets.
>> About the convergence of media.
How much is the connected car and
autonomous vehicles
affecting your future plans?
>> Well, this goes to what we were
talking about in the beginning,
which is we are in a world which I
think this tread line will continue and
something like a connected car
is part of why it will continue.
Where demand for
content will continue to go up.
I mean, think of being,
living room, now all of a sudden,
instead of you driving your car,
you're gonna be driven essentially.
And why wouldn't you want to get
entertained along the way, so I think it's
a very good assumption to operate that
that will be another opportunity.
Now, will it be delivered by
an existing distribution player,
the Sirius XM as an example who's
in the satellite radio business.
And a big part of their business is based
on people getting new cars that have
Sirius radios built in and then
benefiting from that they transition and
it's run by a guy named Mel Karmazin who
actually used to be involved with Viacom.
Do they go from audio to video,
maybe, and I'm
not saying anything cuz that's no insider
view of serious, I'm just speculating.
Or does some other type of entrant fo and
do that or
does Uber try to do that
as part of their app.
Who the hell knows.
But that will happen for sure and
it goes back to, really why I believe
Viacom is in such a great place,
cuz go to the Fox Disney transaction or
the Warner transaction.
Both of those are the best things
that could possibly happen to Viacom.
People are, What?
How do you think that?
Aren't you worried?.
No.
They highlight the value of
the assets we own in this case
certainly of a Hollywood studio.
And in fact, the supply of those has
diminished by two and we own one of them.
So that's a great event in terms of
focusing on the value of the assets we
own and secondarily something that
we're still not agree really beginning
even to get credit for in terms of equity.
And secondarily, they are part of
the continuum that's driving more and
more demand for
compelling content and we are,
I'd say one of the few companies that
not only produce content across formats.
Theatrical length episodic television
length, short form length.
But also do it on a global basis and
have a track record of producing hits,
including in 2018.
So I think that's a great thing,
and I think the Connected Car,
which who knows when it's gonna be.
I was at CES not last year but
the year before and saw the Mercedes one,
it looked pretty cool.
But it will definitely continue to
create demand for high quality content.
And it'll probably do that in
a way where your ability to
produce in different length at
different price points is important.
And that's, again,
why I love the fact that we bought.
I love that we produce
content in Buenos Aires.
And one of the unfortunate
things about being in Argentina
lately has been the destruction
of the Argentinian peso.
But before that happened, doing something
in Argentina cost 30 cents on the dollar
versus doing it in the US, or certainly
doing it in New York, it now costs 15.
So it's an extraordinary opportunity,
and our telefa unit,
produced four shows this year that
had over a 45 share on television.
Which is a staggering
high in this case number.
So, at the core,
we are producing not only content, but
hit content across formats,
we talked about the film example.
Also, and all around the world,
as connected cars come online, I think
that'll be additive and it certainly
fits within the context of our strategy
>> The last two here and here so go ahead.
>> I also got one back here.
>> We'll make three.
>> We got to make girls here too, you're
picking all guys what's up with that?
>> Alright, alright.
So neither of you are women.
>> Sorry, I know you're not.
>> [CROSSTALK]
>> I've been man shamed, so
why don't we go to a woman next and
then we'll do two more.
Can you just pass back and I promise
we'll get you and then we'll get Lian.
>> Come on,
we got to have fun with this, right?
>> Sorry.
>> Bob I was wondering if you could
share a bit more as part of Viacom's
transformation, how you're
approaching data, and analytics, and
building that capability
into your organization.
Especially as you're competing
against the Netflixs of the world.
>> Sure, so I think at a high
level that fits into two areas.
It fits into internally
making better decisions and
in terms of externally
evolving our product line.
An example of the latter that
I mentioned briefly is we
have a multibillion dollar
advertising business.
We're essentially attach messaging
to our media assets that benefit
our clients in various shapes and forms.
In the last couple of
years we have looked to
evolve that business to benefit
from increased targeting,
essentially, and
used that to drive price and yield.
That operates under a banner we
call advanced marketing solutions.
And again, there are various shapes and
forms of it, but in the last two years,
as we have engaged in a different way for
example with our distribution community,
folks like Comcast, Charter, and the like.
Part of our strategy there has
been to broaden the conversation.
And not just license I might set
a linear feeds and on demand product but
also provide other areas
where we can both benefit and
therefore become a more important
supplier to them in this changing world.
And so part of that advanced marketing
solutions, and specifically,
we now can insert dynamically into over
90% of VOD homes in the US, which means
I can deliver an ad to your set top that's
different than the gentleman next to you.
We do that through essentailly access
to the plant, but we also do that
by buying some data from the distributor
which allows for that targeting.
So that's an example, and
we can also do that increasingly,
in what we call the national feed.
Whereas we can dynamically insert
into some of that inventory.
That will be a journey over time
as more distributors come out and
we extend into the clock.
But that's an example of data really
being fused to an existing business so
that we evolve it, and ultimately ensure
that we are competitive with the fan guys.
And in fact have all the benefits of our
environment which tends to be more secure,
not suffer from adjacencies.
But also benefit from targeting another
attributes associated with
data driven advertising.
So that's a product example and
by the way, we'll do about, well I say we
will, not that fiscal year has closed.
So we did just short of $300 million of.
Advanced marketing solutions business, and
that business is on a very
healthy growth trajectory.
So it's important not only with respect
to the evolution of our product line in
serving the needs of our clients,
but also in the context of returning
our ad business to growth,
particularly in the US.
The international,
everything varies by country, and
then internally-
>> No, no, I'm gonna get in trouble, so
we're gonna go to the next one.
We'll go to Leon, and
then we'll do these two.
>> That was a nice way of saying
I'm long-winded, thank you.
>> No, no.
>> I'm just curious for your perspective.
They originally broke up Viacom
into two companies, CBS and Viacom.
>> Yes.
>> I think the motivation by some there at
that time was to focus or create
visibility for the high growth of Viacom.
Now here it turns out that CBS was
the winner of Viacom, they know that well.
Now the family wants to put the two
of them back together again, so
what has changed in the industry?
And what is the advantage to
the shareholders of putting Viacom and
CBS back together again?
I'm just curious.
>> Yeah, so the first thing I'd say is,
we continue to see significant
opportunities in terms
of organic execution.
And actually we're starting to get, and
this goes to both the turnaround of our
company, I gave the Paramount example,
and also the evolution of our company.
And so AMS fits into the evolution of it.
And we're starting to get some
credit on the street for that.
If you look at how 19 will track out,
we'll continue to put points on the board.
In fact, I believe we'll put points on the
board as soon as our next earnings call,
where we will talk about what's going on,
which will be mid-November.
And that is our focus today.
Now, in the context of putting
companies together writ large,
not vertical integration, but
more horizontal integration,
of which Viacom-CBS would be an example,
and you could create other examples.
There are material synergies
associated with things like that.
When we were looking at a potential
deal with CBS some time ago,
cuz there is no active
process at the moment.
And if there were to be,
that would be more driven by our boards.
But at the time,
I was publicly quoted saying there was
a billion dollars of synergies there.
And those were mostly on the cost side,
a vast majority on the cost side.
There was some revenue built in, and
look, a billion dollars of earnings,
not that easy to create.
And so we thought there was some
interesting opportunity there.
And I think that goes back to
Jonathan's point earlier of why
there's a lot of interest
in transactions in general.
In places where growth is challenged, that
can be a way to create earnings growth and
evolve the positioning of a company.
So I think that's mostly what
that's about, and again,
it's not our focus today.
Our focus today continues to
be on organic execution, but
there continues to be
speculation about that topic.
>> The logical-
>> Yes, what?
>> The logical question is,
you lost those synergies when
you broke up the two companies.
>> But he didn't decide to do that,
but go ahead.
>> Good morning,
you described the Netflix strategy,
the 12 billion spent on
content as capital-intensive.
So I'm curious,
do you think you'll get a return on that,
especially in the context of
the sprawl of OTT offerings happening?
You have Disney, HBO, etc.
So just,
you seem to be thinking that maybe they're
not gonna get a return on that, so
if you could just explain, thanks.
>> Well that short answer is we'll see.
I think if you look at equity valuations,
the street certainly thinks they're
gonna get a return on that.
So if I'm them,
I'm gonna keep playing that direction
until someone changes their mind.
And who knows if that'll happen or not.
But certainly, look,
credit where credit is due,
they have created
a definitive global network.
They were the first people to do it,
they have triple digit million subs.
And they have a good degree
of consumer appeal, and
they're continuing to invest in that,
and their evaluation is supporting that.
Now, clearly other people have seen that,
and
they're either looking to
defend traditional businesses.
I was in Europe in June, as an example,
meeting with, not in France,
well, I was in France, but these
particular meeting weren't in France.
Meeting with some of our
traditional clients,
who also wanna reinforce their
position in sort of the video
delivery ecosystem in their country,
and are looking for exclusive product.
And that's triggered a strategy where
we're putting together an unwired network
of buyers all around the world and
producing content for that network.
Because none of them,
as they said to me in those meetings,
have $12 billion to spend.
But they believe they need
exclusive content, and
by buying just a country specific,
and us putting a slate of 10 or
12 together per year,
it's a way to fit that.
And so I think you will see competitive
responses from traditional players.
You'll see other people with
a more frontal assault to develop
a more equivalent product.
And clearly that's the narrative where
Disney's going, that's the narrative of
where AT&T's going, at least in the US,
Disney arguably more global.
And we'll see how that all shakes out.
>> The last question.
>> Okay, morning.
When we were talking about the convergence
of media from a business point of view,
obviously because we're sitting
in a business conference.
But I would like your honest answer,
I would like to look at
this topic in another way.
Is the media converging into
the politics of every nation?
Say, Armin, is the media now trying to
control the politics of every country?
Because we see presidents complaining
about it, and prime ministers also.
So is the media manipulating
the politics of a nation?
>> Well, let me first start by saying that
we're not in the news business at Viacom,
we're in the entertainment business.
So my comments will be
strictly my own opinion,
and will have nothing to
do with our business.
Other media companies have news
businesses, as an example.
So I'd say two things in
response to your question.
One is, media businesses, at least
a subset of the media businesses' revenue,
and therefore earnings,
and presuming valuations,
are based on their ability to get
consumers to spend time with them.
And so that that is a guiding premise
that we certainly use when we make
decisions of what shows to green light or
films green light, etc,
and I think more broadly,
people make decisions.
But the second thing I'd say, which is
actually what I think is going on here,
is it has nothing to do with
traditional media per se.
Sure, the news networks are playing into
it, but that's not what's going on here.
What's going on here, and
I think it's troubling,
is the impact on society of social media.
Because social media theoretically
gives everybody a voice.
But practically speaking,
only promotes extreme voices.
So it's driving polarization, because only
extreme points cut through the clutter.
And then people subscribe to things that
fit their interest, versus the old days of
getting a more balanced view from,
say, a traditional news network.
So at the core what's going on here is,
the societal impact of social media.
And my concern is the trend line
says it's only gonna continue to
drive polarization and
essentially destabilize.
And I don't really know
what you do about that.
But that's much more about what's
going on here, than what CNN or
Fox News or you know, pick your favorite
or least favorite news brand is doing.
At the core,
it's being driven by social media.
>> So
speaking of important societal trends,
I believe that based on your performance
today, there'll be a huge trend of panels
becoming fireside chats because of the
quality of what you delivered us today.
>> Hear, hear.
>> Thank you.
>> [APPLAUSE]
>> Thank you.
>> [APPLAUSE]
>> Thanks, Van.
>> Thank you.
