Forward: In the summer of 2016, Matt wrote a piece on the erosion of Viacom. Over the preceding years, its time watched had fallen a third, its share price was down nearly twice as much, and morale felt even lower. Even though we felt many criticisms of Viacom were unfair (and fair), there was no need to further reiterate its hardships and mistakes (and my views on the leadership of then-CEO Philippe Dauman were particularly well known). And so we ultimately decided not to publish – and returned to writing about how various players can succeed. With this in mind, the Viacom of 2019 feels very different. There is new management, a new mission, and renewed sense of enthusiasm. I’ve been to the 1515 Broadway HQ in the last year and you can feel it on every floor. So after a three year wait and with the newly combined ViacomCBS now announced, I wanted to finally release this piece with some minor updates. Here, you’ll understand what happened, why, and why we’re optimistic about the future. It’s an uphill battle, but doable. – Jason Hirschhorn, CEO – REDEF. (Disclaimer: I sold my company to Viacom in March 2000 and was their Chief Digital Officer until 2006).
For the two decades leading up to 2006, there were few places an aspiring media executive or creative would want to join more than Viacom. It had the hippest viewers, the coolest brands, and the most unique content in the industry. There was one clear reason why: the people. The company was able to lead in both pop culture and counterculture not just because its people lived and loved both, but because they wanted to disrupt the stodgy programming and oligopoly of the big three broadcast networks. They wanted to entertain, to surprise, and to shock. And the advent of cable meant new voices and formats could finally be expressed on television – ones that never aspired to reach one in three TV viewers in primetime, or to entertain the entire nuclear family, but instead excite the most skeptical of teenagers.
There’s no better example of Viacom’s contrarian experimentation than MTV. The love of “music videos” and related coverage is universal today, but in 1981, many thought a channel dedicated to this sort of content would fail. It didn’t. Within years, the network showed that, as with sports and news, there was more than enough content and demand for round-the-clock programming. In fact, this once derided opportunity turned out to be so large that it spawned several offshoots, such as VH1 and CMT (later bought by Viacom). And, of course, the kids TV powerhouse, Nickelodeon. Viacom’s leaders knew this opportunity was real, not just because of research, but because they themselves lived this culture. They wanted the very content they produced and couldn’t get elsewhere.
This is why Viacom’s stumbles are so significant and so tragic: because they happened to Viacom.
The Digital Tidal Wave
What’s often overlooked by Viacom’s critics is that its television networks were bound to be hit hardest by digital. It had the youngest audiences in an age where the younger the viewer, the more rapid the disengagement from Pay TV; the most networks at a time when the bundle was ready to burst; and the largest audiences in an era of rapid fragmentation.
(Ed – This chart has been revised to 2019 data)
In addition, Viacom had historically focused on content that’s simply better served online: music and music videos (YouTube, Vevo, Spotify) and music culture (Pitchfork, Stereogum, Compex, Fader), babysit entertainment (Netflix, Amazon, YouTube), pop culture and counter culture (Facebook, Vice, TMZ), and so on.
Every media conglomerate has had to struggle with Internet. But no company saw its core advantages so quickly and so clearly contested by the World Wide Web as Viacom. As a point of contrast, consider sister company CBS. Its titular broadcast network catered not just to the largest and most consumptive audience demographic (viewers 50+), but the only one that hasn’t cut back its time spent watching “traditional TV”. And with only four networks, compared to Viacom’s 24+, it was better positioned to sustain carriage and large audiences during a period of widespread ratings declines and backlash to 200+ channel bundles. What’s more, one of CBS’ networks, Showtime, had thirty years of experience operating under the very business model that the OTT era ended up valuing most: a la carte subscription fees.
Despite these challenges, it’s important to remember that Viacom’s empire was built on non-traditional, genre-specific and youth-focused networks that were at the vanguard of the last new delivery model: cable. Though the premise of many of these channels (MTV, BET, BET Gospel, CMT, VH1, etc.) drew skepticism at the time, they showed exactly how cable could be used to better meet audience needs and interests. This mentality even extended into the digital era. MTV Networks was arguably the most aggressive of the major media companies when it came to creating “owned & operated” digital video portals. This included JackassWorld and SouthPark, which made the entirety of each series’ library available online and without authentication, as well as MTV Overdrive, which included (what was then) high budget online exclusives and originals.
And so, while Viacom faced the greatest exposure to digital disruption, it’s heritage should have best prepared it for the experimentation, changes and risk taking needed to thrive in an over-the-top world. The internet was the new cable. This never happened. Instead, Viacom quickly lost share to exactly what it had once been – a portfolio of new, non-traditional, genre-specific and youth-focused media brands. Making matters worse, Viacom ended up the media conglomerate least interested in digital storytelling, technologies or experimentation. As Viacom’s competitors snatched up many of the digital brands that were chipping away at its core business and building massive reach among young audiences, it did little more than standby and watch.
This digital reluctance did not stem from a lack of operational ability or talent. Today, Viacom alumni are everywhere leading new/digital media companies: Jason Hirschhorn (MySpace, Slingbox, REDEF), Judy McGrath (Board of Amazon, Founder of Astronauts Wanted), Van Toffler (Co-Founder and CEO of Gunpowder & Sky), Courtney Holt (Maker Studios, then Spotify Studios), Susanne Daniels (Head of Original Series at YouTube), Michael Bloom (President of First Look Media), Tom Freston (Vice), Ocean MacAdams (Thrillist), Jeff Lucas (Snapchat), De Juan Wilson (SoundCloud), Fred Seibert (Frederator, Next New Networks, YouTube), and Brian Wright (Netflix). Accordingly, it is clear that for many Viacom employees, the company no longer felt like the right place for experimentation, especially in the digital era and under then CEO Dauman’s leadership. Many left to do the exact things they had pitched and been rejected on.
And for good reason. Not only had Viacom largely ignored digital M&A and investing, it actively sold or shutdown the few digital assets it had, including Vice (which ultimately counted competitors 21st Century Fox, A+E and Disney among its investors) and MTV’s Urge, an on-demand music subscription launched a year before Spotify to good reviews. According to Billboard, Urge was shuttered following leadership’s belief that “it would take too long [for the service] to reach profitability”. To be fair, this observation wasn’t without merit: Spotify didn’t come out until the following year and is still unprofitable today. Even still, public markets value its equity at $28B (as at 12 August 2019), more than twice Viacom’s $11B and almost as much as the combined ViacomCBS. And, of course, Viacom was the most vocal – and litigious – opponent of YouTube, spending eight years suing the service (and only coming to a non-cash settlement in 2015). Arguably, the platform they should have embraced the most as their audiences flocked there.
Experimentation in new mediums has always been the industry’s lifeblood, not just Viacom’s. Every company needs to try new formats, new models, new production levels and bet on new talent. To lead audiences or quickly follow where they go.
For decades Viacom knew this – and indeed, its employees still did. But its CEO at the the time disagreed. Instead of investing in digital experimentation, OTT subscription services or the largest video platform the world have ever seen, Viacom plowed more $15B into share buybacks – a sum greater than the remaining equity value of Viacom (having been “invested” at a share price more than 50% higher than the current value) and nearly as much as Disney spent on Pixar, Marvel and LucasArts combined.
The results were severe. Dividends were paid, but they came at a cost. Media is in the business of selling minutes. And Viacom’s volumes plummeted most of all.
To compensate for this reduced viewing, Viacom cranked up ad loads. While the company wasn’t alone in this practice (and has since reverted course), it was by far the most aggressive. As Bernstein’s Todd Juenger reported in 2015, Viacom’s ad cramming was so significant that many of its programming schedules are perpetually off of traditional half-hour to hour blocks (i.e. programming ends at 9:02, starts at 9:37 etc.) as a result. As if linear weren’t inconvenient enough.
In an era characterized by the ongoing rejection of advertising (both in terms of load, duration and necessity), Viacom’s answer to declining millennial relevance was to force more ads in the face of those they still have – and then complain when ad-free competitors cannibalize their views. With some commercial breaks lasting as long as ten minutes, it’s little surprise that viewers of Nickelodeon, MTV or BET are moving to digital alternatives – if just to pass the time between breaks.
In aggregate this has meant the loss of Viacom’s leadership position. In 2011, Viacom was the 2nd largest provider of video entertainment in the United States. By 2016, and despite owning more TV channels than any other company in the United State, it was 7th.
CEO’s have three jobs. Set the right direction for their company, ensure the right talent is in place, and make sure the business has cash in the bank. From 2006-2016, Viacom’s CEO seemed concerned with only the last. And the harm was great.
But it wasn’t fatal. Viacom still had – and has – tremendous talent within it. It also remains a phenomenal platform for talent development (in the last decade, Comedy Central helped launch the likes of Jordan Peele & Keegan-Michael Key, Ilana Glazer and Abbi Jacobson, Amy Schumer, and Nathan Fielder). And after replacing its CEO and much of its Board, the company’s performance rapidly improved. After ten straight quarters of growth, Paramount has turned its $400MM+ in annual losses into eight-figure annual profits. Cable network advertising revenues are now growing on a quarterly basis after nearly 20 quarters of stagnation or decline, and even the ratings at Viacom’s core television networks have rebounded.
Which brings us to today: Viacom is merging with CBS, reuniting two companies that many believe should never have split from in the first place. Much has been said about how this merger will help with “scale”. And certainly, their combined might is an advantage. The new “ViacomCBS” has a larger store of content and IP for audiences, an expanded production capability, more bargaining power with video distributors, more ad inventory for advertisers, better leverage over fixed costs, and so on.
But “scale” as a strategy is rather vapid. Everyone in media is doing it and these advantages aren’t unique to any player that absorbs another. It’s also akin to saying that with more chess pieces on the board, a given chess player will win. Having more pieces is often (though not necessarily) helpful, but what really matters is which pieces you hold, where they’re placed, and how they’re played. Or if you want a more modern metaphor, the “scale strategy” assumes that the problem with the first, second and third Death Stars was that they weren’t big enough.
To point, ViacomCBS’s great advantage is how its asset base, programming strategies and culture differ from its competitors (new and old). In 2019, the rest of Big Media is effectively targeting the same audiences (everyone), with the same sorts of content (high budget premium scripted series), under the same business models (i.e. bundle-driven subscriptions), with leadership teams that could easily we swapped, and who hold the same ambitions (evermore scale). This is why they fight over the same showrunners, the same IP, and the same hot new projects (even though some two thirds of primetime TV viewing is unscripted and reality TV).
And so if ViacomCBS’s plan is to replicate the digital-era models and slates of WarnerMedia, or Netflix, or Disney, or Hulu, or Amazon… it certainly lacks the “scale” required. But this doesn’t seem to be the strategy, nor should it be. And this isn’t because it still need to acquire more competitors, or because it’s too late to market, or lacks the balance sheet of existing market leaders. It’s because Viacom’s empire was never built by following the roadmaps or culture of its competitors. And it isn’t designed to do so today (as it’s mid-2010s failures in high budget scripted dramas demonstrated). It can’t and shouldn’t go after the same audience, with the same content, under the same business models, teams and ambitions as everyone else.
That doesn’t mean the future is clear or simple, or just about being different. ViacomCBS will ultimately need to decide whether it’s in the network TV business, the OTT D2C video business, or the content supplier (or “arms dealer”) business. It can’t prioritize three different channels with three different business models, especially when they will often want the same (and ViacomCBS’ most valuable) content (e.g. Star Trek: Discovery, the Jack Ryan TV series, the Mission Impossible films). The combined company will also needs to rationalize (and bundle) its ever-expanding roster of OTT video assets, which now includes Showtime, CBS All Access, MTV, Noggin, BET+, and PlutoTV. In 2022, CBS’s most important rights deal (NFL) will also come up for renewal. And fending off tech giants like Amazon will take more than money – CBS will likely need to offer the NFL a fundamentally overhauled digital viewing experience (not Twitch exactly, but something that looks more like it than CBS via antenna).
But to chart a path forward, Viacom will need to look back at its history. It always thrived by programming for “who”, by experimenting with different content formats and models, and asking itself what does a new delivery model allow us to do that we could never do before. It still has this heritage. And it now has more tools, talent and assets through which it can reinvent itself. And if we’re lucky, the media industry too.