Paramount Pictures continues to be a key element to the Viacom turnaround plan, delivering another quarter of operating income growth in the second quarter despite flat revenue and modest box office thus far in 2019.
During a conference call with Wall Street analysts, Viacom CEO Bob Bakish said the studio has improved its profitability by more than $500 million in the past three years. Jim Gianopulos took the helm in March 2017, and Bakish noted that the final titles green-lit by his predecessor, Brad Grey, have all passed into memory after the March release of Wonder Park.
“Under Jim’s leadership, this is again an iconic studio where people are bringing projects first,” Bakish said. “the slate going forward is strong. It’s really coming together.”
The year is off to a modest start for Paramount, which is in fifth place in the domestic market-share race. Wonder Park, Pet Sematary and What Men Want have grossed between $45 million and $55 million domestically. The upcoming slate features a promising roster, Bakish emphasized, including Rocketman, Terminator: Dark Fate, Gemini Man, Sonic the Hedgehog, Top Gun and Dora and the Lost City of Gold.
Adjusted operating income at Paramount rose from $9 million in the second quarter of 2018 to $29 million this year, marking the ninth straight quarter of gains in operating income. With $730 million in revenue, the studio unit accounts for just 25% of the company’s overall total, but its performance has lately been steadier than that of Media Networks, which saw more declines in domestic ad sales and affiliate revenue in the quarter.
Positive results on Paramount’s bottom line came largely through expense management and cost-cutting, as some top-line indicators declined in the period. Worldwide licensing revenue fell 34%, to $315 million, which the company blamed on difficult comparisons with the year-ago period, when The Cloverfield Paradox sold to Netflix and Paramount Television’s The Alienist went to TNT. Paramount Television has continued to be an engine of growth, with 22 series in production or on order.
CFO Wade Davis noted Viacom’s strategic decision to dial back on co-financing, a risk-mitigation approach Paramount pioneered for two decades, sometimes to the detriment of the studio during the Grey era. “As we’ve evolved our slate strategy to have a mix of really big franchise films, co-branded films with our flagship brands and smaller-budgeted, targeted films, we’ve decided to really look on a picture-by-picture basis at co-finance opportunities,” Davis said. “The place where you really want to share risk is on the bigger-budgeted films, and there’s no shortage of demand for any of the big franchise films to bring in co-finance partners.” Skydance is a primary co-financier but the fiscal 2020 slate features a number of co-financed films with other partners, Davis added.
The conference call also covered a range of other topics, including progress at Pluto TV and the impact of the U.S.-China trade war on Viacom’s business. Unlike in recent quarters, Bakish and Davis were not joined by other business leaders and did not use the occasion of the quarterly release to make noteworthy announcements.
As to the China situation, Bakish acknowledged there is “clearly a lot of noise in the broader market today” given the rising tensions with the U.S. While that creates “some uncertainty,” Bakish said there is “huge demand underlying for film product in China.” Because “Chinese consumers love American film product, I don’t anticipate any kind of long-term problem here. But of course we we will have to see how this trade negotiation plays out exactly.”
Pluto, the free, ad-supported streaming service which Viacom bought for $340 million ($323 million of which was recorded in the quarter, with the remainer considered ongoing integration cost), now has 16 million monthly active users. That’s up 31% from the roughly 12 million Viacom reported upon announcing the acquisition in January.
On May 1, programming from Viacom was deployed across 14 new Pluto channels, though Bakish emphasized that the “freshest” Viacom fare remains within the pay-TV bundle.
“The real opportunity with Pluto is taking advantage of increasing the monetization of it by just selling more of it,” Davis said. “The rate at which it’s scaling, and the audience is engaging with the product, it has billions of monthly impressions and the significant majority of those impressions are going unsold today.”
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