Streaming Is ViacomCBS’s Focus For Wall Street

Streaming revenues are still a small portion of the total for both TV Entertainment and Cable Networks at ViacomCBS, but streaming is being made its own reporting segment for the company next year. That will include both subscriber-based Paramount+ (which also has advertising) and Showtime OTT along with ad-supported Pluto TV. Meanwhile, the much larger traditional TV (network and stations) and cable nets will be merged together as a single television segment. The Film business will continue to be reported separately.

President-CEO Bob Bakish spent nearly all of his quarterly conference call on Thursday following release of third quarter results talking about streaming — its rapid growth and expectations for future growth. And, to be sure, the Wall Street analysts almost exclusively asked questions about streaming.

Finally, just before the call ended, we got to hear one question focusing primarily on the traditional ad-based businesses, as Bakish was asked about the impact of supply chain problems on advertising sales.

“Let me start by saying we were super happy with Q3. We delivered growth in our advertising line — which as a reminder excludes streaming ad revenue — and really strong growth when you combine both the advertising line and the streaming advertising line. We’re up about 9% versus prior year, and we are up versus 2019 as well. But the immediate question is really what’s going on today. So, looking at the fourth quarter, we see a combination of headwinds and tailwinds in the quarter.

“On the headwinds side, we do have some record political comps that we’re up against. And yes, a supply chain-driven softness as we sit here today. You mentioned the auto category. We have some softness there. There’s some softness in sort-of physical tech-related products. What I would say is that this softness translates into people wanting to shift spending out of it to better align with anticipated product availability. We’re not seeing cancellations, so it’s more of a shift to better see when they think their products are going to be available to consumers,” the CEO said.

“At the same time, there are tailwinds in the quarter, which we’re happy about. Obviously, strong upfront pricing kicking in from the last upfront — the benefit of a new fall season, including live sports. Live sports is a big scatter driver. When we look at the quarter, we do expect strong growth relative to prior year and 2019 on a combined advertising and streaming advertising basis. So, despite some of these supply chain issues, we still see nice growth,” Bakish said.

“If we look a little bit further out, we don’t really know at the end of the day how this supply chain issue — the timing of it reverting. But when it does come back, we do see the potential for upside as clients will now need to move product that has been stuck. We also have a great election cycle, I’m sure, coming in 2022 from an advertising perspective. In big picture, we really like our proposition which combines linear and our IQ digital as really being able to solve marketers’ problems. And, by the way, IQ is already 25% of our business,” he concluded.

CFO Naveen Chopra detailed how advertising revenue (excluding streaming) was up 1% to $1.9 billion. “That strong demand was somewhat offset by ratings pressure, political spending that benefitted the prior year quarter, as well as the sale of CNET. Taken together, the impact of political and the sale of CNET resulted in nearly 500 basis points of headwind to advertising growth in Q3,” he told analysts.

TV Entertainment was obviously most impacted by the record political comps. The segment saw ad revenues for the quarter decline 2% to $943 million. But revenue gains in streaming, licensing and affiliate fees gave TV Entertainment an overall 24% increase in revenue to $2.9 billion.

Why the reporting change?

“We’re actually making those changes because we are really evolving the way that we’re managing the business and we’re increasingly thinking about it as the three parts that we outlined. That traditional media business that combines broadcast and cable networks — it’s sort of a lower growth, but very healthy margin business. The movie studio, which as you know is a core source of content for both our theatrical and streaming platforms. And then that D2C [direct to consumer] segment, which is a portfolio of a bunch of high-growth businesses where we’re still in investment mode,” Chopra explained.