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ViacomCBS's Secret Weapon
ViacomCBS has had a weird year. On March 22, 2021, $VIAC closed at over $100 per share — a remarkable climb for a stock that touched a low of around $11 during the Covid sell-off twelve months earlier. By the end of March 2021, though, ViacomCBS had crashed back down to earth, thanks to the recklessness of Bill Hwang and Archegos Capital Management.
Quick refresher: Hwang severely over-leveraged his Archegos fund by trading on margin with some of the biggest banks in the world. In late March, after some of Hwang’s bets didn’t come off, Archegos could not cover the resulting margin calls and the banks started liquidating the fund’s positions. One of which was ViacomCBS. Huge lots of $VIAC hit the market all at once, causing the price to plummet into the low $40s practically overnight.
The rest of 2021 didn’t get much better, either. ViacomCBS now trades around $33. That’s just 6.5x earnings for a mass media communications company that owns CBS, Paramount Pictures, Nickelodeon, MTV, Showtime, Paramount+, and much more. That includes NFL football1 on CBS, hit series Yellowstone and the rest of the Taylor Sheridan EU, and money-printing family franchises like Paw Patrol and SpongeBob SquarePants.
And it’s all being valued like the company’s got one foot in the grave.
Even if the broader market currently disagrees, there’s a lot to like about ViacomCBS2. A crazy low valuation. Strong streaming growth from Paramount+. A 3% dividend. Upcoming post-Covid box office receipts for blockbusters like Top Gun: Maverick and Mission: Impossible 7.
But, for my money, ViacomCBS’s secret weapon is a little-talked-about facet of the company called Pluto TV.
Pluto TV is a free, ad-supported (that means commercials) streaming service that closely mimics the traditional television experience with distinct channels and scheduled programming. Contrarian, to say the least. Pluto TV is swimming against the tide as every other media company ramps up subscriber-based streaming services.
Some channels focus on movie genres like action, comedy, and drama; others are dedicated to single shows like Star Trek, CSI, Baywatch, Three’s Company, and The Andy Griffith Show; and there’s even a Slow TV option that features long videos of train trips across Europe. Pluto TV also gets into the cross-promotion game with channels for Paramount+ Picks and Showtime Selections, in hopes of whetting users’ appetites for these pay services.
With a concept as seemingly backwards and old-fashioned as ad-supported television in the streaming age, it’s no wonder that most analysts raised an eyebrow when Viacom bought Pluto TV in 2019 for $340 million. No one’s laughing now, though.
Back in November, ViacomCBS reported 48% growth in streaming advertising revenue, which was “largely driven by Pluto TV”. Pluto TV itself grew revenue by 99% year over year as it climbed to more than 54 million monthly active users. Average revenue per user was up, too. And, although ViacomCBS doesn’t report Q4 earnings until February 15, the company expects Pluto TV to add even more monthly users than it did last quarter.
No matter how you slice it, Pluto TV is growing like crazy.
Pluto TV is now on track to surpass $1 billion in U.S. advertising revenue in 2022. To put that in perspective, its revenue was only $70 million in 2018. That’s good for 94% annual growth. Even better, ViacomCBS revealed that Pluto TV is already profitable in the United States. So many other streaming services take years and years to reach profitability — and Pluto TV already beat them there.
The format has proven so popular that even Paramount+, ViacomCBS’s “normal” streaming service, is giving it a whirl. Late last year, P+ launched eighteen “live” channels3 that functioned just like Pluto TV, albeit with no ads. Tom Ryan, who co-founded Pluto TV and now serves as ViacomCBS’s president and CEO of streaming, believes that offering curated channels can help ease decision fatigue in users overwhelmed by the seemingly-endless options found on most services.
In another cool twist, Pluto TV also preserves the (business) legacy of both CBS and Viacom. The famous William S. Paley bought the CBS radio network back in 1927 after observing the success of radio advertisements for his family’s cigar business. From that point on, as CBS grew its radio network and eventually transitioned into broadcast television, advertising was the name of the game.
Viacom, originally formed to handle syndication rights for CBS shows, branched out into cable television after an FCC-enforced spinoff. It, too, relied on advertising revenue to pay the bills — in addition to cable subscriber fees.
Now, Pluto TV takes up the mantle of ad-supported entertainment from its forebears. Think of it as the perfect vehicle for ViacomCBS to immortalize its TV advertising acumen, while still moving forward into the streaming future. And all without jeopardizing the company’s flagship streamer, Paramount+.
The gold standard of television programming.
Obligatory disclaimer: This is not financial advice. I am not a financial advisor. Do your own research before making any investment decisions.
With themes like Kids & Family Fun, Crime & Justice, and Reality TV.