ViacomCBS is going to try to do everything. The market isn't sure it can.
Chief Executive Bob Bakish confirmed Thursday that the newly combined ViacomCBS will launch a new streaming service building off CBS All Access content and including programming from linear networks such as Nickelodeon, Comedy Central and MTV and movies from Paramount Pictures. CNBC first broke news of the new streaming service earlier this month. The service will have a "soft launch" later this year and will include 30,000 episodes of TV and up to 1,000 movies, he said. ViacomCBS didn't announce a price or a name for its new streaming service.
ViacomCBS will also continue to license content to third parties, such as Netflix and AT&T's HBO Max, to take advantage of "no risk" revenue, Bakish said. HBO Max is paying more than $500 million per year for Comedy Central's "South Park," and Bakish mentioned licensing a "SpongeBob SquarePants" spinoff to Netflix to connect SpongeBob with fans that don't subscribe to Nickelodeon.
ViacomCBS shares dropped a whopping 16% to about $30 per share at 10:20 a.m. New York time, suggesting investors aren't sold on Bakish's go-forward strategy.
"Honestly, it's a mess," Rich Greenfield, a media analyst at LightShed Partners said. "Their streaming strategy versus Disney+ or Peacock is not clear. They are still trying to balance legacy with new -- compare that to Disney+ which is all in on streaming."
The dramatic loss in value after Thursday's announcement is a complete rebuke of the two companies' decision to merge last summer, at least in the near term. ViacomCBS' overall market capitalization is now $18.2 billion. When the companies announced they would merge in August, the combined companies had a total market value of about $30 billion, with Viacom valued at about $12 billion. In other words, ViacomCBS has lost the entire market value of Viacom just six months after the merger's announcement.
The loss in value is particularly notable because CBS is counting on renewing NFL rights later this year -- a contract that will cost the company billions of dollars in the years to come. Its competition could include Comcast and Disney, companies with market values of more than $200 billion.
"Our strategy is to maximize the value of content by reaching the largest addressable audience," Bakish said. He noted that executives will make decisions on whether to keep content in-house versus licensing on a case-by-case basis, typically keeping strong owned brands such as "Star Trek" while renting others. Bakish also noted that ViacomCBS' new "house of brands" strategy will shift programming but won't add to the company's overall spending, suggesting the new service could be light on new original content. ViacomCBS already spends about $13 billion annually on content.
Still, prior decisions to license "South Park" and "Yellowstone" to NBCUniversal's streaming service Peacock confuse the strategy, said Greenfield. ViacomCBS brought in $1.6 billion in streaming revenue in 2019 and expects growth of 35% to 40% in 2020, or about $2.2 billion. Those figures largely don't account for the new streaming service, which will only start to provide new revenue in 2021.
Fourth-quarter revenue fell 3% to $6.87 billion from the prior year. The company posted a quarterly net loss of $258 million, or 42 cents a share, compared with a profit of $887 million, or $1.44 a share, a year earlier.
ViacomCBS must balance keeping some of its programming on linear TV to avoid being dropped entirely by pay-TV distributors such as Dish Network, Greenfield said. Dish has a carriage renewal agreement with ViacomCBS later this year.
"If all the good stuff is streaming, either on their own service or on third party platforms, why should Dish Network carry Viacom channels?" Greenfield said. "That's why the stock is at $30. The starting point financially is far worse for the combined company versus competition, but they are saying, 'don't worry, it will get better, we promise.'"
Disclosure: Comcast owns NBCUniversal, which is the parent company of CNBC.
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