WHEN: Today, Tuesday, September 17, 2019
WHERE: CNBC's "Squawk on the Street" – Live from the Goldman Sachs Communacopia Conference in New York, New York
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Viacom (soon to be ViacomCBS) CEO Bob Bakish and CNBC's David Faber on CNBC's "Squawk on the Street" (M-F 9AM – 11AM) today, Tuesday, September 17th – live from the Goldman Sachs Communacopia Conference. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/09/17/watch-cnbcs-full-interview-with-viacom-ceo-bob-bakish.html.
All references must be sourced to CNBC.
JON FORTT: Now let's head out to David Faber. He is at the 28th Goldman Sachs Communacopia Conference sitting down with special guest. David.
DAVID FABER: Thanks, Jon. Yeah, I feel like I have been at all 28 at this point here at Communacopia. But very happy to have Robert Bakish with me. Bob Bakish, the President and CEO of Viacom, soon to be ViacomCBS. Actually, how long? You know, the merger is not a change in control, so a lot of people say the regulatories are going to move faster than your typical deal. Is that true?
BOB BAKISH: We believe so. Great to be here, David. We think we're going to close sometime in December. So, things are moving along. We benefit, as you say, from National Amusements common control, in the context of the merger process.
DAVID FABER: Alright, so, December is -- will be upon us fairly soon. You know, it has been about a month since you announced the deal. The stocks did not react particularly well, at least given the weeks, months, years of speculation and many waiting for perhaps what would have been a positive response. Were you disappointed in the market response so far in both stocks?
BOB BAKISH: Yeah, look, clearly, we are disappointed of how stocks are reacting. You know, I have spent a lot of time in the last four weeks, and really the last probably two weeks in particular, talking to investors, making sure they understand the tremendous opportunity ahead of Viacom and CBS. You look at the assets that this company unites: whether it is Paramount Pictures – an iconic 105-year-old film studio, the power house CBS – broadcaster, station group owner, studio, D-to-C operator, Showtime – which is really, you know, preeminent and a storyteller that's really come in the fore in the last five years, Simon & Schuster – the preeminent consumer publisher. We think that's a tremendous opportunity. You look at it, a library of 145,000 television series, 3,600 films and participation in news and sports and obviously entertainment – scripted, unscripted -- on a global basis. It's a tremendous opportunity. And it really positions us to be a preeminent content provider to the world. We are going to be singularly focused on maximizing the value of that content, both through our owned-and-operated platforms and to third parties. You'll see us being to execute that strategy as we close. That it is going to enhance our opportunity to work with distributors and advertisers all around the world. And it's going to accelerate our transition to the next generation platforms in the streaming space. So, we are tremendously excited.
DAVID FABER: Right. And you mentioned, of course, speaking to investors, which you will be doing as well today in about an hour and a half. I've also spoken to some, as you might imagine. They were very disappointed by the $500 million synergy number. Many pointed to that initially and said: It just seems much lower than we'd anticipated. We are not sure why they chose that number. What do you tell them?
BOB BAKISH: So, that was definitely a topic of conversation with me, with investors as well. Here is what I would say. Look, the $500 million, first of all, it's a cost-only number. It is a synergy number that will drop to the bottom of the line. It's one we have clear line of sight and will deliver over the next 12-24 months. So, that's a bankable number. I've also, in my discussions with them, I've talked about: Sure, we have higher numbers we're looking at. We're going to look for more opportunity. And as we get into this process, I would not be surprised that we didn't find it. Now, that's the cost-side. The revenue-side in that number is zero.
DAVID FABER: Right --
BOB BAKISH: Ultimately --
DAVID FABER: You're talking about net 12 to 24 months after the --
BOB BAKISH: Right. But ultimately, the reason you do this deal is for revenue synergies. And we see four buckets synergies. Again, zero in the $500 million number. We see substantial distribution revenues in this deal. Look, we will, on closing, be the leading market leader in television audience share in the United States. 20% of total day. 22% of primetime. That makes us a partner that video distributors absolutely need to have as part of their offering. We think that's a substantial opportunity. Likewise, in the advertisement space, we are not only 22% of primetime, we are number one on every single demographic. And you add to that, the advance marketing solutions that Viacom brings to the table and we as a solution product provider for advertisers are the clear market leader. We think that leads to substantial synergies in the ad space. You go to product licensing. In many respect, it's a Back to the Future play. This company used to be together and when it was together, it licensed film and television product together. That's an opportunity that we see in the marketplace, as well. That will drive synergies on the product licensing side. And finally, the streaming space. Now that's a different kettle of fish. But that also is a place where the combined asset will enable acceleration and substantial progress. So, four big sets of revenue synergies. And that's ultimately do the deal.
DAVID FABER: Right. But, you know, I wonder whether investors, though, will look at the added scale, of course, of this but say: Hey, you are still in a business that's being eroded every day. Yes, it is great to be 20% of the market. But that market is getting smaller and smaller in terms of at least what we have dealt with for many years. Streaming is sort of where they want to focus in terms of potential growth opportunity. I mean, yes, you may grow the synergies, or revenue increases as a result of being together, may be significant, but aren't you facing a declining market overall?
BOB BAKISH: No. What we see is a consumer market that's segmenting. We have seen that for the last couple of years. Still, the majority of consumers today in the United States are big bundle consumers.
DAVID FABER: They are – but they are going away. Bob, you know that.
BOB BAKISH: Below that, you have -- smaller bundles have opened up. At the high end of that are over the top bundles that are substantially similar to the big bundle. At the low end are true skinny bundles, non-broadcast, non-sport in the case of Philo. That's a growth segment in aggregate. Below that you obviously have SVOD players like Netflix, which is also a growth segment, one we are supplying directly through our studio productions. And then below that, you ultimately have ad-supported free, where we have the market leader in Pluto. We see that segmenting marketplace, and what we are focused on as a company, and I think it's different than other companies, is focusing on the widest addressable market consumer perspective. And that is all segments. You look at us today of the big bundle and smaller bundle segments, we are better positioned together than we work independently. You look at us supplying the SVOD space, we are a major supplier of original content to that. We are not only making content, we are making hits. And by the way, every single one of the services that are either in the market today are announced or doing business with us on an original production basis, so we are in clear demand, particularly as other people cut back from that. And then again, we think the free space is a substantial opportunity – ad-supported free.
DAVID FABER: --you've been on with us talking about Pluto in the past, and what you see is the growth path there.
BOB BAKISH: And that's the way you address the largest total accessible market. That's what Viacom becomes focused on: taking a tremendous content asset, which includes both assets in the library as well as new production, maximizing the value of that across this whole distribution base.
DAVID FABER: But what about the investment that you'll need to make? And I ask that because Todd Juenger, he's been a negative analyst. To your credit, you have brought him in recently, which he acknowledged, to talk to him and try and explain things to him. He came out of that, thankful for the opportunity but continued to say that, in his opinion, Viacom and CBS may take -- must take one of two paths. Either announce as transformation with no investment, or announce an invest and grow plan. And in either scenario, the stock is going to underperform because it is going to cost so much darn money if you have to invest.
BOB BAKISH: Look, if you look at the scale of spending the combined Viacom and CBS, we spend about $13 billion. Why is that important in the context of this? One is because that scale of spending puts you in a club where you have a flow that ensures that you have state of the art capabilities in terms of developing content, that you have a flow of talent in terms of wanting to work with you. So, that's critically important. And Viacom and CBS gets you that. The other thing it gets you is how you spend that money. And we obviously spend it across film and television. In the film space, as well know David, we are on a very nice trajectory at Paramount. They'll have 16 films in 2020, starting with Gemini Man and Terminator in the next two months. Very excited about that. And then in the television space, very substantial ongoing production. And what we are going to focus on again through our broader set of owned-and-operated properties, as well as third-party is maximizing the return on that. Whether that's where you put library product – exclusive, non-exclusive – where you put new production. And importantly, how you fill partner demands. We have spent the last three years at Viacom working closer and closer with our distribution partners and these distribution partners are important in the over-the-top space as well. And that's where we see the substantial opportunity going forward. So, Todd is certainly entitled to his opinion. By the way, I spoke to Todd quite a bit about the notion of total addressable market, and I am 100% convinced that the Viacom strategy will get us to a larger total addressable market, enabled by things like mobile. And that in turn will unlock extraordinary value for this company.
DAVID FABER: And yet, Bob, there are still those who says the scale is not enough. Having just heard all the scales that you have, they still say: you're still too small to actually compete overall, whether it is with a robust streaming service or the point you are making, of hitting all of these different areas. I assume you disagree with that. But what do you say when others say: Well, you are not big enough to compete with a Disney or to compete with some of the other giants that are out there?
BOB BAKISH: Well, I disagree with it, as you say. I mean, we just did a transformational deal that unites a tremendous set of capabilities. But let's talk about us in the streaming space and what makes us different. Because, I think there are a number of things. One is we are not a pure SVOD strategy. We are a hybrid of free ad-supported and pay. That means you can bring in the widest assessable number.
DAVID FABER: You've got All Access on CBS side. You've got Pluto, as well.
BOB BAKISH: Pluto as a free service, into a pay portfolio which is CBS All Access, Showtime, Noggin. We are lunching BET+ later this week. So, we think that integration is tremendously attractive and it's a differentiator.
BOB FABER: Are you going to rebrand that at all? Or does that stay how it is? Do you know?
BOB BAKISH: Look, we will see how the portfolio, particularly on the pay-side, evolve over time.
DAVID FABER: Peacock is taken, by the way. Just so you know.
BOB BAKISH: I heard that this morning. I think it's an awesome brand. But, again, so point one is it is a hybrid of free and pay. Point two is look at the content collection in it. We have, sure, entertainment content— not only scripted but unscripted. We are a leader in both. We have news content. We have sports content. All of that is national content. We have local content, i.e. on a market-by-market basis in the United States. We have international content. And by the way, we serve every demographic. So, a second differentiator is we are going to bring substantial content, breadth and depth to this space. The third thing is this notion of partnership. I fundamentally believe in partnership. Anyone who thinks they can serve the world consumer through one slice, you know, D-to-C, SVOD, I think it is missing the bigger total addressable market opportunity. Look at what we did with Pluto. No one understood that. Now we're working. And they thought: Oh, it's a free D-to-C product. On some levels it is, on some levels it isn't. We are working today with Comcast, with Cox. We're going to announce--
DAVID FABER: Is there real programming on Pluto that a lot of people want to watch, Bob?
BOB BAKISH: Absolutely. When we announced the deal in January, we had 12 million monthly active users. When we had our third quarter earnings call in August, we announced 18 million monthly active users. That's a 50% increase in six months. U.S. only. By the way, if you look at time spent per active user, it is growing even faster. You got 160 content suppliers, including by the way, the NFL on the platform. We are rolling it internationally. So, there is tremendous demand and we've started to monetize it aggressively in the ad market. So, that play is tremendously valuable and it's a piece of our streaming strategy.
DAVID FABER: We are running out of time. You mentioned the NFL. The contract, it's still a bit away but these things can sometimes be negotiated ahead of time. Are you confident that CBS is going to keep the NFL?
BOB BAKISH: I am confident that Viacom and CBS will have a long-standing and highly-productive partnership with the NFL. Why? You look at what they get from CBS, they get what everybody thinks. Broadcast reach. For a mass market business like the NFL, that's important. Second thing they get that people don't really talk much about is high quality production. CBS produces multiple games per week for them in the season. That's the way their product is exhibited to the American consumer. They care deeply about that and they have great trust in CBS. Enter Viacom. You got two other things that are important to the NFL. One, you got young audience reach. CBS is largely speaking older audiences. Viacom is younger audiences. Both linear and on demand. And younger audiences are important to bring into the brand from a long-term perspective. The second thing Viacom brings is reach outside of the United States. That also is critical to long-term brand development. So, as you look at Viacom and CBS, four things come to the table. That package is very hard.
DAVID FABER: Although something else they care about is this.
BOB BAKISH: Sure. They're going to want a bigger check. Absolutely.
DAVID FABER: Yeah. And you can pay it?
BOB BAKISH: Absolutely. The financial strength of the combined company is second to none.
DAVID FABER: Bob, we are out of time today. Look forward to talking to you again in the future. Good luck in an hour and a half or so when you present. Thanks for taking some time.
BOB BAKISH: Thanks, David. Appreciate it.
DAVID FABER: Bob Backish, the President and CEO of Viacom, soon to be ViacomCBS.
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