After more than a decade of operating as independent companies, Viacom and CBS finalised a merger deal this week to reunite and become a global media giant that hopes to compete with online competition with a mixed model that’s supported by multi-billion dollar content spend.
The newly formed single entity, which still has to get regulatory approval, will be called ViacomCBS and will be headed up by current Viacom CEO Bob Bakish. CBS CEO Joe Ianniello will serve as chairman and CEO of the CBS unit.
The merger is pertinent as it comes at a time when traditional media players are competing with not only online streaming giants such as Netflix and Amazon, but also new entrants to the market that are working on their own value proposition, such as Apple and Disney. Scale, content and cash for investment are necessary to catch up with both changing viewer trends and a quickly moving market.
Other traditional media organisations are also looking to either cooperation or M&A as a mechanism to compete. For example, in the US AT&T bought Time Warner, whilst in the UK the BBC and ITV have worked together to create a newly formed ‘BritBox’ streaming service.
Speaking to investors about the deal, ViacomCBS CEO Bob Bakish said:
Simply put, the combined company will be one of the only few with the breadth and depth of content and platforms, and the global reach, to shape the future of the industry. Our premium content scale, our global leadership positions, our financial strength and our powerful strategy for growth.
True content scale that can feed all platforms. In fact, we will be one of the biggest content spenders in the industry with $13 billion spent in the last 12 months.
Interestingly, ViacomCBS believes that it has a stronger proposition than the internet pure-plays, as it is able to go to market with a mixed model. And by this, it means that it won’t just be relying on direct to consumer streaming services and subscribers, such as its CBS All Access or Showtime OTT. It will also continue to offer ad-supported streaming services such as CBSN or Pluto. The two models will complement each other, providing options for users to switch between the two. In addition, ViacomCBS intends to licence its content to third party platforms, which will include social channels and international brands.
In other words, it’s hoping that it can scale its current offerings, which will now benefit from Viacom and CBS integrating content, and drive its international growth internationally through third party offerings. Bakish said:
From the start we will have a compelling portfolio of streaming products that will include subscription and ad-based offerings. This mix creates a powerful ecosystem that will allow us to serve consumers at different price points, while enabling portfolio cross-selling. This includes using our free ad-supported offerings as a traffic funnel, a consumer entry point to upsell from, as well as a place we can catch and continue to create value from when consumers take a pause from subscription services.
Can Netflix chill?
All eyes are obviously on Netflix, given that it led the online subscription market for content and is now facing unprecedented competition. Whilst Netflix has the first mover advantage, which has enabled it to reach global scale and build an impressive subscriber base, that doesn’t necessarily mean it can relax.
And Netflix CEO Reed Hastings is all too aware of this. The company’s most recent second quarter results suggested that its growth is slowing - both across revenue, profit and new subscribers.
Whilst revenues rose 26% to $4.92 billion, this was below analyst expectations, and profit stood at $271 million, which was down from $384 million in the same quarter last year. However, what’s more interesting is that the company said that it had 130,000 fewer domestic subscribers at the end of the second quarter compared with the end of the first. It added 2.7 million subscribers in the quarter, which was less than the 5 million it had forecast and well below the 5.5 million it added in the second quarter of 2018.
CEO Hastings noted that Netflix is having to deal with more competition now. He said:
If you look over the past 12 years that we've been streaming, in the beginning, there was Hulu and Amazon and YouTube and Netflix - we've all been growing at tremendous rates over the last 12 years.
There's a real battle for who will pay for content around the world, but it's not a zero-sum competition. I think everybody gets that people will subscribe to multiple shows. Most Netflix employees are HBO subscribers. We love the content they do and that spurs us on to want to be even better. So it's a great competition that helps grow the industry. And the advantage of having something catchy like ‘the streaming wars’, is it draws more attention. And because of that, people, consumers shift more quickly from linear TV to the streaming TV.
So if investors believe in Internet television, which I think is an easy one to get there, then our position in that market is very strong. And all of the key things are coming our way in terms of, again, stronger content and a stronger service.
As Hastings notes, this isn’t a zero sum game. And a lot of consumers have multiple subscriptions to varying streaming providers (I have four, myself). That being said it’s the content that will win and it’s those with the cash to invest in it and the understanding of what consumers want that will win big in this race. We await offerings from Apple and Disney, which both have a lot of catching up to do, but have some big brands under their belt. It’s going to be an interesting one to watch, but ultimately it’s all good news for the consumer.