Good day everyone, and welcome to the ViacomCBS Third Quarter 2020 Earnings Conference Call. Today’s call is being recorded. At this time, I’d like to turn the call over to Executive Vice President of Investor Relations. Mr. Anthony DiClemente. Please go ahead, sir.

Good morning, everyone. Thank you for taking the time to be with us for our third quarter 2020 earnings call. Joining me for today’s discussion are Bob Bakish, our President and CEO; and Naveen Chopra, our CFO. Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website. We also have a slide presentation for you to follow along with our remarks. I want to refer you to the second slide in the presentation and remind you that certain statements made on this call are forward-looking statements that involve risks and uncertainties. These risks and uncertainties are discussed in more detail in our filings with the SEC. Today’s remarks will focus on adjusted results. Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website. Now, I will turn the call over to Bob.

Good morning, and thank you for joining us today. On today’s call, I’ll cover three key topics: First, how we’ve unlocked the power of a combined ViacomCBS in the year since we’ve merged; second, our third quarter results demonstrate the Company’s building momentum; and third, how we’re focused on achieving growth in the short and long term by aggressively leaning into streaming. I’ll then hand it over to the Naveen Chopra, who I’m pleased to welcome to his first earnings call as ViacomCBS’ as CFO. Naveen will give you his early perspective on the Company, as well as a detailed financial commentary on Q3. Following that, we’ll take your questions. Okay. So first off, it’s been almost a year since the ViacomCBS merger closed. And I’m thrilled with the way our organization has come together to create value from the combined asset base. In fact, despite the challenges presented by the world around us, our Company’s transformation is ahead of schedule, and we’ve moved quickly to realize the power of the ViacomCBS combination by establishing a best-in-class management team, including most recently through the creation of a new consolidated streaming organization, by accelerating our strategy and execution across pay and free streaming, driving growth and subscribers, monthly active users and revenue. We’re also unlocking more value in distribution by expanding our footprint through cross-company renewals and new deals, and simultaneously strengthening our positioning in advertising by bringing to bear the power of our combined portfolio and capabilities, all while improving operational efficiency and exceeding the cost synergies we promised when we announced the transaction. We’ve accomplished a lot in a short amount of time. And we’re just getting going. Second, let me turn to the quarter’s financial and operating results. ViacomCBS’ Q3 reflects the continuation and acceleration of a strategy…

Thank you, Bob, and good morning, everyone. I’m excited to be here for my first ViacomCBS earnings call. It has now been three months since I joined the Company. I was initially drawn to ViacomCBS because of its strong position in the media industry. Having now had some time to listen and learn, I find myself even more bullish about our future and our ability to create long-term value for ViacomCBS shareholders by leveraging the scale of our brands, content and distribution. Thus far, ViacomCBS has exceeded my expectations in several respects. The Company has moved quickly and effectively to capture synergies from the merger, has successfully found ways to enhance both, the financial and strategic value of its traditional media businesses and has an even stronger presence in streaming than people recognize, all of which are demonstrated in our Q3 results. I am particularly inspired by the opportunities we have in streaming, where the addressable market is expansive and growing, both domestically and globally. In addition, the value of the users of our largest pay streaming services continues to increase, driven in part by favorable trends in underlying churn and growth in engagement. Similarly, in free ad-supported streaming, Pluto TV is not only rapidly growing MAUs and total viewing hours, but it is seeing a significant mix shift to consumption on higher-value connected TV platforms and material growth in monetization with plenty of room to grow in sell-through and CPM. I’m also emboldened by the fact that we have the rare DNA to produce world-class content at scale, including for the streaming generation, from original programming like Billions or Yellowstone; to unscripted like MTV’s The Challenge; to kids programming like PAW Patrol or SpongeBob; and of course, iconic movie franchises such as Top Gun and The Godfather, ViacomCBS content…

[Operator Instructions] Our first question will be coming from the line of Brett Feldman with Goldman Sachs. Please proceed with your question.

Yes. Thanks for taking the question. A two-part question, if you don’t mind, about Paramount Plus, and these are questions we’ve been getting a lot. First is, when you think about -- or how should we think about the content that’s really going to be the foundation of driving the reacceleration? And another way we get asked that question is, more simply, how do you think about how many original hours you need to really draw and attract users to the service? And then, secondly, what ultimately is going to be the [Technical Difficulty] to determine whether the rebranding has been a success? I’d assume we’d be looking at subs. And I don’t know if you’re willing to put a target out there right now, but if there’s another way we should be looking at it, that would be very helpful.

Yes. Sure, Brett. Look, I’m incredibly excited about the launch of Paramount Plus in early ‘21. It’s going to be a truly differentiated and compelling offering that’s unlike anything that’s really out there today. And look, as a reminder, Paramount Plus is building on CBS All Access, a product that already has strong momentum, as you’ve seen in the metrics in the third quarter. That said, Paramount Plus is going to be live sports, breaking news and a mountain of entertainment. Look at live sports, includes the NFL, the SEC, UEFA, PGA Golf, the NCAA and more. The breaking news side, it will be live CBS News anytime from CBSN, live local news from CBS stations, key new shows like 60 Minutes and more to be announced. And then there’s the mountain of entertainment from our flagship brands, which are Paramount, CBS, Nickelodeon, MTV, BET, Comedy Central, Smithsonian. It really provides us strength in a whole set of key genres, reality, crime procedurals, kids, films and more. It will appeal across demographics, everything from preschoolers to 50 plus. Of course, it’s going to be available on demand but has some live elements. And, it’s going to have a very strong original slate, many based on franchises that come from across the brands that are represented in the service. I’d also point out that the consumer response from our preview launch -- and remember, in late July, we added 3,500 episodes from Viacom brands as well as about 190 Paramount films. That consumer response was strong and really served as proof-of-concept that’s given us the confidence to lean in. The response includes growing subscribers and a significant decrease in the average age. The average age of new subs came down by almost 10 years and was more diverse. We saw material increase in time spent. That included more than doubling time spent with film, and Viacom content becoming a strong double-digit part of overall consumption. So, no question, the product is working. The plan now is to continue to add content. That will be about 10,000 additional hours. Of course, rebrand CBS All Access to Paramount Plus in early ‘21, and that will be the time when the original slate also has expanded further to encompass the flagship brands. The last thing I’d say is the response to us selecting Paramount Plus as a brand has been overwhelmingly positive. So, lots to be excited about here around Paramount Plus, and we see substantial incremental growth ahead.

The next question is from the line of Michael Morris with Guggenheim.

Hi. Thanks, guys. Good morning. I’m hoping you can go into a little bit more detail on the cable networks affiliate strength in the quarter. It certainly came in ahead of what we were expecting. And, there is a few moving parts in there with the strength in streaming. What you’re seeing sort of in the kind of core traditional cable universe? Also, you had a couple of new agreements with YouTube, I think, maybe one with another major distributor. Can you help us at all with those different components that contributed to the acceleration? And maybe whether we need to consider any that might not be recurring going forward? And then if I could, just real quickly, you talked a bit about cash flow into the coming year. And I’m curious if you can share a little more about how Paramount Plus might impact free cash flow. Like how much of your investment in that business is sort of a repurposing or a shifting of sort of existing run rate, and how much will be incremental?

Yes. Sure, Michael. I’ll take the affiliate piece, and I’ll flip it to Naveen for the cash flow piece. So, the affiliate -- I’m really happy with the state of our affiliate business. We clearly had a very strong dynamic in the quarter, and that dynamic was driven both, by unit and by rate. So, if you look at the unit side of the equation, subscriber declines were less than expected from an industry perspective. We saw that too in our remits. And we had the benefit of incremental carriage in the form of Viacom networks being added to YouTube TV in July. And then, on top of that, you overlay rate. And the rate story is very strong. We had renewal activity that benefited retrans and reverse comp as well as our premium services. And that’s in addition to the built-in escalators we have in all our network deals. I’d also remind you that on the reverse comp side, deals are priced in absolute dollars, and therefore, insulated from subscriber declines. So, that’s effectively another driver of rate. And then, of course, as you mentioned, our affiliate growth is also being driven by the strong momentum we have in streaming. And as I indicated in my prepared remarks, subscription streaming revenue growth accelerated to 78% in the quarter. So, you put all that together, and we had a very strong affiliate story. And importantly, we expect the growth we experienced in Q3 will continue at a similar rate in Q4. And then, more broadly, I really like our position. Our product line positions us very well to respond to changing consumer behavior. We have compelling offerings in pay and free streaming apps, plus an industry-leading linear bundle. And we know how to work with a broad range of distribution partners. We know how to get deals done, and we have a legacy of creating mutually beneficial value. So, feel great about affiliate. On the cash flow side, Naveen?

Yes. In terms of the streaming investment piece, we’re not going to provide any specific guidance for ‘21 at this point. But, what I can share is that as we think about the magnitude and the composition of our content investments, we’re very-focused on thinking about it relative to the growth opportunities we see. And what I mean by that is, look, streaming is obviously a big opportunity. It’s one where we’ve got several years of experience and increasing momentum. So, it’s not a greenfield investment. Remember, our domestic streaming and digital video revenue is growing 50% on an annual run rate of $2.5 billion. So, we see that as a really compelling case for investing to continue to support the growth. And as I mentioned in my earlier remarks, we do intend to do that in 2021. Some of that investment will be funded by the growth itself, and some of it will be funded by incremental cost synergies. And so, unlike a pure-play streaming company, I think our content investments have a lot of leverage, meaning that every dollar we spend on content can benefit us across the entire company, from streaming to linear to film and adjacent businesses like consumer products. So, we spend a lot of time thinking about how to allocate and reallocate that spend to optimize that leverage across all of those different distribution channels.

The next question is from the line of Jessica Reif Ehrlich with Bank of America Securities.

Bob, you touched on this in your prepared remarks but -- on the streaming reorganization. Can you talk -- give us a little more color about how you’re better positioned to compete in a world that’s quickly shifting more towards direct-to-consumer driven business models? What can you do now under this new organizational structure that you couldn’t do before? Do you need to reorganize any other parts of the Company? And then, just a separate topic, but could you touch on the upfront and how it turned out?

Yes. Sure, Jessica. So, first, in terms of the streaming org, probably three things that I should highlight. First, as I mentioned in my remarks, we recently created this combined organization under Tom Ryan, to enhance our ability to create value from the combined asset base. Now look, and particularly, that’s really about maximizing the benefit of us operating in both, the pay and free space. I see that combination of having a range of benefits. It will advantage us in terms of increasing lifetime value, including helping manage SAC and churn, and integrated model also facilitates sharing of tech, data and analytics. And I believe an integrated model will facilitate a more sophisticated approach to windowing across our streaming services. The second thing you should know is that, as part of this change, Tom Ryan joins our Content Council, and that means he’s partnering with our content leadership as they execute on a multi-platform mandate. Our brand leads, you know them, Jessica, George Cheeks, Jim Gianopulos, Chris McCarthy, David Nevins, Brian Robbins, they are the best in the business. And they are now aligned with Tom to ensure we put the full weight of our Company behind our streaming aspirations. I believe that enables a stronger team and allows us also to extract benefits from outside streaming from which to drive streaming, things like traditional reach and our broader IP portfolio, including importantly, as related to key franchises. And by the way, we’re already seeing that benefit in terms of our plans for Paramount Plus and for Pluto TV. The last thing you should look -- you should look at this really in the context of our overall execution as one ViacomCBS. As you know, Jessica, since day one of the merger, I’ve been focused on harnessing the combined…

Next question is from the line of Alexia Quadrani with JP Morgan.

Just two questions. The first one is on your impressive performance that you’re seeing at Pluto. I’m curious if you’ve seen any impact on engagement from some other your competitors that seem to moving into the space, Roku, Peacock to just name a few. And then, just a follow-up, if I can. If you can discuss the licensing of Comedy Central content to HBO Max, just given your ownership over such an important comedy brand. I’m curious about the thought process of choosing to sell that to a third party rather than keeping it for Paramount Plus.

Yes. Sure, Alexia. So, let me start by saying, I couldn’t be happier with our decision to acquire Pluto in late 2018. It’s an amazing asset and it’s growing even faster than we had hoped, never mind planned, but hoped at the time. And look, you heard the message today. The momentum is unquestionable in both usage and monetization. If you recall, we closed on that deal in March of ‘19. And we quickly talked about it being a long-term opportunity of having $1 billion in revenue. I think, people thought we were crazy when we said that. But, given the growth we’ve experienced since then, our ambitions have actually grown from there. Why? Because as I said, really to my last answer, it’s an amazing thing, it’s a solution to the marketplace need for high-quality video reach, and it’s a solution to us needing more impressions to sell. It’s a great intersection. In terms of the category and competitors, look, the category is very strong, but the good news is we have the number one FAST service. So, are we feeling any pressure? No, not -- I mean look at the revenue growth rates, Pluto more than doubled in the quarter. And again, it’s got tremendous momentum. With respect to your question on Comedy Central and HBO Max, look, our content licensing strategy -- I think there’s really two things to think about here. One is content licensing is an important business; but two is, our strategy is clearly evolving, particularly with Paramount Plus. So, first, in terms of the content licensing business, we have a tremendous asset base in content, both from a library -- film library of 4,000 titles, TV library of 140,000 episodes, current series production of 750 series globally. We can’t keep all that for…

Next question is from Rich Greenfield with LightShed Partners.

Hi. Thanks for taking the questions. I’ve got two. First, I guess, if we look at Peacock and HBO Max, it’s pretty clear that SVOD, just as a business model, is really hard, and that you need sort of must watch and kind of only can get their type content. You’ve got things like Star Trek that are only available on All Access, I assume will only be available on Paramount Plus. But, when I look at things like the NFL, you can get those in other places. You don’t have to watch Paramount Plus to get the NFL. So, maybe just help investors understand, like what type -- what’s the content, can you give us any previews like what’s going to be the must have franchises that are going to be only available on Paramount Plus, to drive that product?

Yes. Sure, Rich. So look, we’re absolutely focused on creating a must-watch service in Paramount Plus. And we do believe that our positioning of live sports, breaking news and a mountain of entertainment is differentiated and compelling. Now, as part of that, there’s no question that franchises will be key to the success of Paramount Plus. And related to that, our strategy is to have new original variants of franchises to serve as subscription drivers. Those originals, in turn, much like my commentary to Alexia’s point in a way, will be linked to larger library assets that drive subscriber engagement. So, we’re very focused on this strategy. And I’d also note that one of our competitors has clearly demonstrated the value of that approach. So, Star Trek, you mentioned, arguably the original proof-of-concept for CBS All access. There are now multiple variants of it on All Access, it works well for us. Sports, which you also mentioned, they’re a bit different, but clearly powerful. We have UEFA. That is exclusive. And we’re very happy we got it. By the way, we’re super happy we got it early and now have it for a whole bunch of years going forward. But, look, the NFL, the SEC, the golf, even though they’re also available on CBS linear, they definitely work for All Access and will definitely work for Paramount Plus. In terms of Paramount Plus, we have announced some new entertainment franchises that we’re bringing to Plus, the Godfather, SpongeBob, the Criminal Minds spinout. But, under the covers, our preview launch showed that there’s other franchises that work too that have potential, things like MTV’s reality show, The Challenge; things like Nick’s animated library series, Avatar, and all this is really the tip of the iceberg. And we do have other franchises in the Company. So, you can safely assume that upcoming announcements will include new original variants of them for Paramount Plus. We will of course have some non-franchise-based new originals to keep things fresh. But, I’m not going to get ahead of things and reveal them until we get much closer to launch.

Next question is from the line of Ben Swinburne with Morgan Stanley.

Thanks. Good morning. Sticking on the direct-to-consumer theme, two questions. Bob, how do you think about the kids and family investment and opportunity in front of Paramount Plus, particularly around sort of the Nick brand and animated content? Some of the more general entertainment, broader services have kids content, but they’re not dedicated kids apps, so to speak. So, just wondering how you’re thinking about integrating Nick and animation and to make sure you get the most out of that inside of Paramount Plus. And then, for either you or Naveen, I’m just curious -- maybe Naveen, since from your Amazon days, when you look at how Viacom CBS is executing on like customer acquisition, retention, analytics, across kind of Pluto, Paramount Plus, Showtime, do you think there is opportunities to align those across the three services in a more effective way than what’s being done today? Obviously, they’ve had a lot of success. So, I’m not asking you to Monday morning quarterback then. But, just from your perspective, I’d be curious what you see as the big opportunities operationally there.

Yes. Sure, Ben. Let me go first, and then I’ll flip it to Naveen for the second part. So, look, the kids, and it’s really the kids and family space we believe is fundamentally important to us at Paramount Plus. We obviously believe that bringing the Nick brand and its incredible library of both shows and IP that can continue to go forward is an amazing advantage. If you look at the preview launch and what we’ve done with CBS All Access to date, we have added a bunch of Nickelodeon content. That content is definitely a significant contributor to what I characterize as a strong double-digit share of overall consumption that Viacom network content now represents on CBS All Access. As we get into Paramount Plus, we mentioned adding 10,000 additional hours. Certainly, a bunch of that will be from Nick. We mentioned a growing original slate. Certainly, that’s coming from Nick. We have mentioned one title that we are putting as new exclusive original on Paramount Plus that is Camp Coral, which is a SpongeBob spinout. That is getting dropped after we exclusively release the SpongeBob, Sponge on the Run movie in the domestic U.S. market on Paramount Plus. So, we think kids and family is very important, and we think we have real advantage in terms of content and capabilities here. By the way, we are also -- Naveen, I think, mentioned adding features and other things to Paramount Plus. One of the things we’re doing there is in the profile area, including setting it up to be a safe kids environment. We believe that’s important, particularly for the preschool side of the house but obviously older kids as well. So yes, that’s important part of the equation. And again, this is another place where ViacomCBS brings a tremendous advantage to the table. And having Brian Robbins, who, as I referenced, is on the Content Council, is working with Tom Ryan, is focused on moving this forward. In fact, he was the advocate for Kamp Koral debuting on Paramount Plus versus Nickelodeon linear, because he believed it was a key part of a franchise play. So, he’s totally in us making Paramount Plus a success, including, of course, in the kids space. Naveen?

Yes. Thanks, Bob. Ben, I think, in terms of the analytics and the metrics that go into making a subscription business highly successful, as I said in my remarks, I see a lot of encouraging trends. And I look at it through the lens of all the components that are required to maximize the overall lifetime of our viewers. So, whether you look at churn, whether you look at SAC, whether you look at engagement, I think, that we have great momentum in many of those dimensions. And we’re highly focused on continuing to optimize them. In particular, the fact that we have the linked ecosystem between subscription in Paramount Plus and Showtime, and Pluto TV as a free offering I think gives us tremendous opportunities to apply analytics and data and figure out the most optimal way to acquire subscribers and ways to maximize their lifetime, perhaps by moving them between those services, depending on their needs at any given point. And I would add to that that we can layer on top of those different services some really sophisticated analytics and we’ll be able to collect more data than we would have with a single service. So, I’m extremely excited about what we can do there. I think, there’s clearly momentum, but also a lot of opportunity that we can take that to the next level.

Next question is coming from the line of Doug Mitchelson with Credit Suisse.

Thanks so much. One for Bob and one for Naveen, if I could. Bob, you’ve talked in the past about steady content spending. If we look through the COVID impacts, and I guess I’d be curious how far back to normal the production of content is in 4Q. But, the question is whether that’s steady with 2019 content spending is the right way to think about 2021 or as you see all these opportunities in streaming, if you’re starting to take those content spending budgets higher. And for Naveen, depending how much Bob wants to spend on content in the future, how is the balance sheet position at this point in time? How should investors think about allocation of free cash flow, going forward? Thank you, both.

Yes. So, look, on the content side, obviously COVID interrupted a trajectory that was pretty well-understood because it did impact film and television production. But, I am happy to say that we’ve made very significant progress in a safe return to production with the health of our crews and talent top of mind. At this point, knock on wood, we’re almost back to normal volumes. If you look at our Viacom media networks, the cable side of the house, they’re probably at 95% of production relative to prior year. CBS essentially has all of the fall network series currently in production. By the way, we debuted a bunch of them recently, including Young Sheldon, Mom, NCIS, as well as a new comedy from Chuck, B Positive, and there’s more coming. Showtime’s back up in production in almost all of its series. And even Paramount on the film side, which obviously very location-based, is ramping up and expects to be back at full capacity in 2021. And, I also mentioned that our originals for Paramount Plus are on track. So again, from a production volume standpoint, we really have made extraordinary progress, particularly in the last quarter. And we’re currently in very good shape. And that means we’re ramping back to a more normal level of content spend. Obviously, that trajectory will continue into ‘21. And look, we’ll continue to work to remix it as we have been to optimize our return on investment, pushing towards growth areas, et cetera. But, the production side is actually in pretty good shape, again, knock on wood, at the moment. Naveen?

So, in relation to the balance sheet and cash, I feel very good about the current state of the balance sheet. As you heard, $3 billion of cash on the balance sheet today. That’s before counting any of the proceeds from CNET or other future noncore asset sales. And going forward, we think about three financial priorities. We want to be able to support our organic investment, principally in streaming. We want to fund our dividend, and we want to pay down debt. The first two are basically funded out of free cash flow. Debt paydown is accomplished through any excess free cash flow and then noncore asset sales. So, to the extent we do complete additional transactions in the future, I would expect the proceeds of those to primarily go to debt reduction. So, hopefully, that gives you some clarity.

Thanks, Doug. Operator, we have time for one last question.

So, that question will be coming from the line of John Hodulik with UBS.

Maybe just a couple of quick follow-ups, first, on the -- some housekeeping. Any update on those non-core asset sales in terms of -- what we can look for in terms of timing? And then, maybe for Bob on the paid streaming side. Net adds for the quarter slowed a bit versus the last two. Was there -- did the consolidation of the legacy D2C platforms impact the quarter, or was there some pull forward in maybe 2Q from COVID? And then, lastly, where is the distribution most effective? Did the Apple promo that you guys had out there perform as expected? Thanks.

Yes. So, I’ll take the first part on non-core asset sales. No specific timing updates to provide there other than to say that as we’ve announced previously, we do intend to divest Simon & Schuster, we do also intend to divest Black Rock. We will complete both of those transactions at a time and in a form where we think we can maximize value. Simon & Schuster particularly is one that we think has been performing extremely well of late and is a very valuable asset, though still not core for us. And so, we do look forward to completing that in the future.

Yes. And to your question really on, I would call it, mix of subscriber adds and what’s going on with subscribers. Again, Q3 on a pay subscriber growth basis, very strong. Q4, we didn’t take the number up as much as we did before. Remember, our year-end target for pay used to be 16 million, then we took it up to 18 million, now, we’re taking up to 19 million. It is true that in the fourth quarter, as I think Naveen referenced in his remarks, we are doing some sunsetting of smaller services, service like MTV Hits, as we prepare for the relaunch of Paramount Plus in early ‘21. And we’re also kind of focusing on marketing in ‘21 versus in the fourth quarter. So, I wouldn’t read too much into the fact that we only raised it to 19 million versus a higher number. We feel very good about our trajectory in ‘20, and we’re super excited about where this thing is going in ‘21. As to your question about kind of mix of ads and Apple TV+ versus others, the good news is we have broad and really ubiquitous distribution. It’s one of our, I believe, real advantages in this game. It’s partially because we don’t have an in-house distribution channel that we favor. And, we’re really seeing net adds come from a broad range of places, yes, including Apple TV+. But, by far, that’s not the only place they are coming from. So, we feel good about that. Look, we’re very pleased with our results for this quarter, including the accelerated transformation of our business that you’re seeing in less than a year. And despite the challenges of the pandemic, we brought together a single ViacomCBS that does have growing momentum and is creating value on multiple dimensions. You see that in our Q3 metrics, both on the traditional side, and importantly in streaming where our momentum is indisputable. And while we’re really pleased with Q3, it’s what’s to come that we’re really excited about. So, thank you for your time today. Thank you for your support. And finally, I’d like to thank all ViacomCBS employees for all they do every day to drive our Company forward. Stay well, everyone.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.