English Entertainment
Viacom net earnings plummet on restructuring & programming charges
BENGALURU: Viacom Inc (Viacom) reported a steep decline of 60.1 percent in net earnings for the quarter ended 31 March 2017 (Q2-17, current quarter) as compared to the corresponding year ago quarter – year-on-year (y-o-y). Operating income decreased 43.3 percent y-o-y in the current quarter. The company in its earnings release says that reported operating income reflects restructuring and programming charges of $280 million resulting from the execution of new strategic initiatives, including the prioritization of six flagship brands: BET, Comedy Central, MTV, Nickelodeon, Nick Jr. and Paramount.
Net earnings attributable to Viacom for Q2-17 were $121 million as compared to $309 million in Q2-16. Operating income for Q2-17 was $332 million as compared to $586 million in the corresponding year ago quarter.
Viacom reported 8.5 percent y-o-y increase in revenue for Q2-17 at $3,256 million as compared to $3,001 million reported for the corresponding year ago quarter.
Viacom president and CEO Bob Bakish said, “In the second quarter, Viacom delivered continued top-line improvement, with growth in affiliate revenues, international media networks and across every business segment of Paramount Pictures. Additionally, we executed quickly on our strategic plan, making significant organizational changes to better focus and align Viacom’s brand portfolio and ensure strong leadership, including the appointment of Jim
Gianopulos to chart a new course at Paramount. We are working diligently to cement Viacom as a partner of choice in the industry, presenting new and reinvigorated brand strategies for our advertisers, producing creative and flexible new opportunities with our distributors and recommitting ourselves to be the home for the world’s best talent.”
“Viacom also took significant steps forward on our plan to strengthen our balance sheet, improve our leverage profile and enhance liquidity. Since the end of our first fiscal quarter, we completed a successful hybrid debt offering, redeemed outstanding debt and executed on the sale of non-core assets, including the pending sale of our stake in EPIX. There is a lot of work still to do, but we are making important changes at Viacom, taking substantial strides towards revitalizing our portfolio of brands and returning the company to consistent top-line growth,” Bakish added.
The company has two major segments – Media Networks and Filmed Entertainment.
Media Networks
Media Networks revenue for the current quarter increased y-o-y by a marginal 0.5 percent despite a 1.2 percent decline in advertising sales. The segment reported revenue of $2,394 million for Q2-17 as compared to $2,381 million in Q2-16. Adjusted operating income declined 7.2 percent to $747 million from $845 million in the year ago quarter.
Media Networks advertising revenue declined 1.2 percent y-o-y in Q2-17 to $1,109 million from $1,123 million. Worldwide advertising revenues increased 1 percent, excluding a 2-percentage point unfavourable impact from foreign exchange. Domestic advertising revenues decreased 4 percent, driven by higher pricing more than offset by lower impressions. International advertising revenues increased 11 percent. Excluding foreign exchange, which had an 11-percentage point unfavourable impact, international advertising revenues grew 22 percent. The gains in international advertising were driven by the acquisition of Telefe, which had a 17- percentage point favourable impact, and continued growth in Europe says Viacom.
Affiliate revenue in the current quarter increased 2.4 percent y-o-y to $1,156 million from $1,129 million. Domestic and international affiliate revenues increased 1 percent to $975 million and 10 percent to $181 million, respectively. The growth in domestic revenues principally reflects rate increases, partially offset by a modest decline in subscribers and a decline in revenues from SVOD and other OTT agreements. Excluding foreign exchange, which had a 4-percentage point unfavourable impact, international affiliate revenues increased 14 percent. The increase in international revenues reflected the impact of rate increases, subscriber growth and new channel launches, as well as higher revenues from SVOD and other OTT agreements. International affiliate growth included a 4-percentage point favourable impact from the acquisition of Telefe.
Ancillary revenue was flat y-o-y t $129 million. Domestic ancillary revenues decreased 8 percent to $70 million while international ancillary revenues increased 11 percent to $59 million.
Filmed Entertainment
Filmed Entertainment revenues grew 36.6 percent to $895 million in Q2-17 from $655 million, reflecting gains in theatrical, licensing, home entertainment and ancillary revenues. Domestic revenues increased 25 percent to $458 million in the quarter, while international revenues increased 51 percent to $437 million.
Filmed Entertainment segment’s adjusted operating loss narrowed to less than half $66 million from an operating loss of $136 million in Q2-16. The company says that the improvement principally reflected the various revenue increases, partially offset by higher operating expenses.
Theatrical revenues rose 10 percent to $238 million, with revenues from current quarter releases up 73 percent compared to releases from Q2-16. Domestic theatrical revenues decreased 45 percent, while international theatrical revenues grew 98 percent, reflecting the strong international performance of xXx: Return of Xander Cage. Foreign exchange had a 3-percentage point favourable impact on international theatrical revenues.
Licensing revenues increased 45 percent to $347 million in the quarter, primarily driven by Paramount Television production, as well as higher revenues from licensing arrangements with pay television and SVOD distributors. Domestic licensing revenues grew 85 percent, while international licensing revenues increased 24 percent.
Home entertainment revenues increased 29 percent to $198 million in the quarter, reflecting the number and mix of current quarter releases. Domestic and international home entertainment revenues increased 23 percent and 49 percent respectively. Foreign exchange had a 5-percentage point unfavourable impact on international home entertainment revenues.
Ancillary revenues increased 149 percent to $112 million, primarily driven by the sale of a partial copyright interest in certain current year releases related to a film slate financing arrangement. Domestic ancillary revenues increased 158 percent to $93 million while international ancillary revenues increased 111 percent to $19 million.
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UK: The aerial is losing its grip. As broadband becomes the default way Britons watch television, the UK is edging towards a decisive, and divisive, question: should Freeview be switched off by 2034? The issue, highlighted in reporting by The Guardian, has exposed deep fault lines over access, affordability and the future of public service broadcasting.
For nearly 25 years, Freeview has delivered free-to-air television from the BBC, ITV, Channel 4 and Channel 5 to almost every corner of the country. Even now, it remains the UK’s largest TV platform, used in more than 16m homes and on around 10m main household sets. Yet the same broadcasters that built it are now pressing for its closure within eight years.
Their case rests on a structural shift in viewing. Smart TVs, superfast broadband and the Netflix-led streaming boom have pulled audiences online. Advertising economics have followed. By 2034, the number of homes using Freeview as their main TV set is forecast to fall from a peak of almost 12m in 2012 to fewer than 2m, making digital terrestrial television, or DTT, increasingly costly to sustain.
But critics say the rush to switch off risks abandoning those least able, or least willing, to move online.
“I don’t want to be choosing apps and making new accounts,” says Lynette, 80, from Kent. “It is time-consuming and irritating trying to work out where I want to be, to remember the sequence of clicks, with hieroglyphics instead of words. If I make a mistake I have to start again.”
Lynette is among nearly 100,000 people who have signed a “save Freeview” petition launched by campaign group Silver Voices. She fears the government is about to “take [Freeview] away from me and others who either don’t like, can’t afford, or can’t use online versions”.
Official figures underline the fault lines. A report commissioned by the Department for Culture, Media and Sport estimates that by 2035, 1.8m homes will still depend on Freeview. Ofcom’s analysis shows those households are more likely to be disabled, older, living alone, female, and based in the north of England, Wales, Scotland and Northern Ireland.
Freeview is owned by the public service broadcasters through Everyone TV, which also operates Freesat and the newer streaming platform Freely. After two years of review, DCMS is expected to set out its position soon, drawing on three options proposed by Ofcom: a costly upgrade of Freeview’s ageing technology; maintaining a bare-bones service with only core PSB channels; or a full switch-off during the 2030s.
The broadcasters have rallied behind the third option. They argue that 2034 is the logical cut-off, when transmission contracts with network operator Arqiva expire. By then, they say, the cost of broadcasting to a dwindling audience will far outweigh the returns from TV advertising.
Ofcom agrees a crunch point is approaching. In July, the regulator warned of a “tipping point” within the next few years, after which it will no longer be commercially viable for broadcasters to carry the costs of DTT.
Others see risks beyond economics. Questions remain over whether internet TV can reliably deliver emergency broadcasts, such as the daily Covid updates, in the way that universally available DTT can. The UK radio industry has also warned that an internet-only future for TV could push up distribution costs and force some radio stations off air if PSBs no longer share Arqiva’s mast network.
“It is a political hot potato,” says Dennis Reed, founder of Silver Voices, who says he has “dissociated” his organisation from the government’s stakeholder forum, which he believes is “heavily biased” towards streaming.
The Future TV Taskforce, representing the PSBs, counters that moving online could “close the digital divide once and for all”. “We want to be able to plan to ensure that no one is left behind,” a spokesperson says, adding that rising DTT costs could otherwise mean cuts to programme budgets.
The numbers show the scale of the challenge. Of the 1.8m Freeview-dependent homes projected for 2035, around 1.1m are expected to have broadband but not use it for TV. The remaining 700,000 are forecast to lack a broadband connection altogether.
Veterans of the analogue switch-off, completed in 2012 after 76 years, recall similar fears of “TV blackout chaos”. Around 6 per cent of households were labelled “digital refuseniks”, yet a targeted help scheme and a national campaign, fronted by a robot called Digit Al voiced by Matt Lucas, delivered a largely smooth transition.
This time, the BBC is less keen to foot the bill. Tim Davie, the outgoing director general, has said the corporation should not fund a comparable support programme for a Freeview switch-off.
Research for Sky by Oliver & Ohlbaum suggests that with early awareness campaigns and digital inclusion measures, only about 330,000 households would ultimately need hands-on help ahead of a 2034 shutdown.
Meanwhile, viewing habits continue to fragment. Audience body Barb says 7 per cent of UK households no longer own a TV set, choosing to watch on other devices. In December, YouTube overtook the BBC’s combined channels in total UK viewing across TVs, smartphones and tablets, albeit measured at a minimum of three minutes.
That shift may accelerate. YouTube has recently blocked Barb and its partner Kantar from accessing viewing session data, limiting transparency just as online platforms consolidate power.
“When the government chose British Satellite Broadcasting as the ‘winner’ in satellite TV it was Rupert Murdoch’s Sky instead that came out on top,” says a senior TV executive quoted by The Guardian. “There already is such an outsider ready to be the winner in the transition to internet TV; it is YouTube.”
Freeview’s future now hangs on a familiar British dilemma: modernise fast and risk exclusion, or protect universality and pay the price. Either way, the aerial’s days as king of the living room look numbered.
