Viacom Inc. (NASDAQ: VIAB, VIA), the parent company of the Nickelodeon brand, today reported financial results for the quarter and fiscal year ended September 30, 2016.
Tom Dooley, interim President and CEO, said, "Viacom ended the 2016 fiscal year well into our transition, as the company’s industry-leading data program increased in size and sophistication, ratings stabilized at several of our key networks and Paramount has begun to rebuild a full, dynamic slate of films. In addition, our international media networks business is stronger than ever, and we will continue to broaden our footprint and apply our successful strategies to additional territories in attractive markets. With new leadership across the company, continued investments in new content, technologies and targeted acquisitions, and an expanded Board of Directors, I have great confidence in Viacom’s next phase, as the company explores the exciting possibilities ahead."
Quarterly revenues declined 15% to $3.23 billion. Media Networks revenues declined 11% to $2.48 billion, resulting from declines in affiliate and advertising revenues that were partially offset by higher ancillary revenues. Domestic and worldwide affiliate revenues decreased 19% and 16%, respectively, reflecting significantly higher revenues from SVOD arrangements in the prior year quarter. International affiliate revenues increased 7%. Excluding an unfavorable 8% impact of foreign exchange, international affiliate revenues increased 15%, driven by new channel launches, increased subscribers, rate increases and the completion of certain SVOD and other OTT arrangements. Domestic advertising revenues declined 8%, reflecting a decline in television ratings at select networks, partially offset by higher pricing. Worldwide advertising revenues also decreased 8%, reflecting the domestic decline and a 7% decrease in international advertising revenues. Excluding an unfavorable 13% impact of foreign exchange, international advertising revenues increased 6%, resulting from continued growth in Europe.
Filmed Entertainment revenues declined 24% to $774 million, driven by lower theatrical revenues due to the strong international performance of Mission: Impossible - Rogue Nation in the fourth quarter of 2015. Overall, theatrical revenues declined 55% to $203 million. Licensing revenues were $326 million and home entertainment revenues increased 23% to $199 million.
Full-year revenues were $12.49 billion, a decline of 6% from the prior fiscal year. Media Networks revenues decreased 5% to $9.94 billion, reflecting a 4% decline in worldwide advertising revenues, as well as a 7% decrease in affiliate revenues. Filmed Entertainment revenues decreased 8%, principally due to lower theatrical and home entertainment revenues partially offset by a 12% increase in licensing revenues. Excluding an unfavorable 1% and 2% impact of foreign exchange, Media Networks and Filmed Entertainment revenues declined 4% and 6%, respectively.
Quarterly operating income was $332 million, and adjusted operating income was $538 million. Reported operating income reflects restructuring costs related to executive severance incurred in the fiscal fourth quarter. Media Networks adjusted operating income decreased 27% to $750 million primarily due to the decline in revenues. The Filmed Entertainment adjusted quarterly operating loss was $137 million, compared to adjusted operating income of $122 million in the prior year, resulting from a decline in revenues and a previously-disclosed $115 million programming impairment charge.
Full-year operating income declined to $2.53 billion, and full-year adjusted operating income declined to $2.73 billion. Media Networks adjusted operating income decreased 16% to $3.48 billion, primarily due to the decline in revenues. Filmed Entertainment adjusted operating loss was $445 million.
Quarterly net earnings from continuing operations attributable to Viacom declined to $252 million, and adjusted quarterly net earnings from continuing operations declined to $273 million, driven by the decline in operating income. Diluted earnings per share from continuing operations for the quarter declined to $0.63, and quarterly adjusted diluted earnings per share were $0.69.
Full-year net earnings from continuing operations attributable to Viacom were $1.44 billion, and adjusted full-year net earnings declined to $1.47 billion. Diluted earnings per share from continuing operations for the year declined to $3.61, and full-year adjusted diluted earnings per share were $3.68.
Debt
At September 30, 2016, total debt outstanding was $11.91 billion, compared with $12.29 billion at September 30, 2015. In October 2016, the Company issued $400 million in aggregate principal amount of 2.250% senior notes due 2022 and $900 million in aggregate principal amount of 3.450% senior notes due 2026. A portion of the proceeds will be utilized in November 2016 for the redemption of all $400 million of the Company's outstanding 2.500% senior notes due December 2016 and all $500 million of the Company's outstanding 3.500% senior notes due April 2017. The Company’s cash balances were $379 million at September 30, 2016, a decrease from $506 million at September 30, 2015.
About Viacom
Viacom is home to premier global media brands that create compelling television programs, motion pictures, short-form content, applications ("apps"), games, consumer products, social media experiences, and other entertainment content for audiences in more than 180 countries. Viacom's media networks, including Nickelodeon, Comedy Central, MTV, VH1, Spike, BET, CMT, TV Land, Nick at Nite, Nick Jr., Channel 5 (UK), Logo, Nicktoons, TeenNick and Paramount Channel, reach over 3.9 billion cumulative television subscribers worldwide. Paramount Pictures is a major global producer and distributor of filmed entertainment.
For more information about Viacom and its businesses, visit www.viacom.com. Viacom may also use social media channels to communicate with its investors and the public about the company, its brands and other matters, and those communications could be deemed to be material information. Investors and others are encouraged to review posts on Viacom’s company blog (blog.viacom.com), Twitter feed (twitter.com/viacom) and Facebook page (facebook.com/viacom).
Cautionary Statement Concerning Forward-Looking Statements
This news release contains both historical and forward-looking statements. All statements that are not statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements reflect our current expectations concerning future results, objectives, plans and goals, and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause future results, performance or achievements to differ. These risks, uncertainties and other factors include, among others: the effect of uncertainty stemming from ongoing transitions involving our board of directors and management and related changes in strategy, including a potential business combination with CBS Corporation; the public acceptance of our brands, programs, motion pictures and other entertainment content on the various platforms on which they are distributed; the impact of inadequate audience measurement on our program ratings and advertising and affiliate revenues; technological developments and their effect in our markets and on consumer behavior; competition for content, audiences, advertising and distribution; the impact of piracy; economic fluctuations in advertising and retail markets, and economic conditions generally; fluctuations in our results due to the timing, mix, number and availability of our motion pictures and other programming; the potential for loss of carriage or other reduction in the distribution of our content; changes in the Federal communications or other laws and regulations; evolving cybersecurity and similar risks; other domestic and global economic, business, competitive and/or regulatory factors affecting our businesses generally; and other factors described in our news releases and filings with the Securities and Exchange Commission, including but not limited to our 2016 Annual Report on Form 10-K and reports on Form 10-Q and Form 8-K. The forward-looking statements included in this document are made only as of the date of this document, and we do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. If applicable, reconciliations for any non-GAAP financial information contained in this news release are included in this news release or available on our website at http://www.viacom.com.
Below is Viacom's Q4 2016 Results Earnings Call Transcript, in which Viacom Management discusses the company's Q4 2016 Results, featuring the bits about Nickelodeon, from Seeking Alpha:
Viacom's (VIAB) CEO Tom Dooley on Q4 2016 Results - Earnings Call Transcript
[...]
And now I'll turn the call over to Tom.
Tom Dooley
Thanks, Jim. Good morning everyone. We have got a lot to cover today and along with Wade I am pleased to welcome Kern Schireson who will provide an overview and an update on our industry-leading data strategy. Kern has worked at Viacom for several years to develop and then expand Viacom's capabilities in this area. It's an exciting and quickly growing part of our core business.
You will also be hearing from Bob Bakish who will discuss the recent achievements coming out of our International Media Networks business and his views on the Company overall. As you know, Bob has been selected to lead the Company as CEO and I believe that there is nobody better suited for that role. Not only has he built critical scale in our complex international businesses, but he has driven technological and strategic innovation while consistently increasing profitability.
With that track record, his deep knowledge of our overall business and his appreciation of the people and culture that have made Viacom great he is exactly the right leader for Viacom's next chapter.
The special committee of our Board of Directors is continuing to work with its financial and legal advisors to explore the merits of a combination with CBS. While we will not have an update for you today on that process but we want to be very clear that Viacom will continue to operate for the long term with the strategy of driving growth, building our core businesses and positioning the Company for success in the years ahead.
We released our financials earlier today which were towards the higher end of the guidance we provided in September. On the Media Network side of the business ratings headwinds and our strategic decision to reduce unit loads at some of our networks put pressure on advertising growth in the quarter.
However, reinvigorated high-performing networks like Nickelodeon and VH1 have shown that we can generate ad revenue quickly as ratings rebound. And we have brought new management to MTV and Comedy Central to kick start rating recoveries at those properties. In addition, we're significantly increasing our incremental revenues driven by next-generation ad products that are not defined by the traditional currencies.
And we're working with the MVPDs on further expanding addressable digital ad insertion at scale. Bob will talk in great detail about our international business but we're seeing solid strength in those ad markets. Outside the U.S., our ad revenues increased 6% in the quarter excluding the impact of foreign exchange driven primarily by strong growth in Europe.
On a macro level the advertising marketplace is very good right now leading to high demand for inventory across all of our networks. Our upfront was strong and scatter in the December quarter continues to look good. We're seeing spending come out of digital and back into the TV marketplace which is absorbing inventory and driving price improvements.
All of these factors give us confidence in our Q1 results. And we expect to deliver an approximate 500 basis points improvement over the year-over-year decline in Q4. On the affiliate side, we faced challenging comps in the quarter related to a large contribution from an SVOD deal that we accounted for in Q4 2015. Absent the impact of SVOD on our core traditional affiliate revenue growth it was essentially flat. However, we're looking ahead with confidence with most of our distribution partners committed to long-term deals at attractive rates and our continued growth in cable share in the quarter.
As OTT options continue to grow we're extremely optimistic about the particular value of Viacom's younger-skewing networks in those offerings. We're approaching each of those opportunities very strategically with the view to driving the most long-term value for the portfolio overall. The popularity of these services makes it increasingly difficult to measure consumption.
So we've been working to fine-tune our internal metrics to capture all points of monetization and monetizable viewing including linear, cable VOD and SVOD. Based on this analysis the consumption of Viacom Media Networks content across all the domestic linear and digital platforms is increasing on an absolute basis and up 3% in the quarter year over year.
One of the offerings we're very enthusiastic about is DIRECTV Now. It delivers a robust bundle with 11 Viacom networks in its 100 network portfolio. We view it as a complementary offering due to the marketplace opening up new options for a generation of young consumers who love our programming but have a resistance to signing up with the traditional cable-delivered bundle.
We're also working with other existing distribution partners to define new ways to make content available to them on an increasing number of platforms. Looking ahead to the first quarter we expect to see an increase in our domestic affiliate growth to low single digits which assumes the impact of a low single-digit decline in the overall cable subscriber universe.
Moving on to quickly touch upon some of our key networks. Nickelodeon continues to thrive, extending its winning streak to five straight quarters at number one total day with kids 2 to 11 and kids 2 to 5 with a double-digit lead against its two largest competitors. Nick's success can't be overstated. The network owned the top six shows on TV for kids 2 to 11 in the quarter including the overall number one program The Thundermans.
The quarter's top animated program for this demo, The Loud House, is one of the fastest-growing kids hits, having launched in May at number one and stayed on top since. We're in season two already and to meet the audience's demand for this homegrown Nickelodeon show we have already announced a pickup of season three. It's a great example of our commitment to quick, assertive investments to keep our most popular content on the air and fresh which has been - which we have been applying more and more aggressively to our growing number of Nickelodeon hits.
Moving offscreen, Nick is actively expanding its recreation offerings to serve the whole family with initiatives like the five-star luxury Nick Resort in Punta Cana, Dominican Republic and the fast-selling family show Paw Patrol Live based on this year's top preschool show. In consumer products Nickelodeon continues to have great success with lines based on Teenage Mutant Ninja Turtles and Paw Patrol. Products for Blaze and the Monster Machines and Simmer and Shine just hit shelves this summer and the demand is rising fast, particularly for Shimmer and Shine which was the Halloween custom favorite this year, a traditional indicator of a property's growing popularity.
VH1 continues to build on its upward momentum, closing out the quarter with three of the top non-sports cable shows and number one rated reality show Love & Hip Hop Atlanta. For the fiscal year VH1 boasts the fastest-growing growth among cable's top 20 and has delivered ratings increases in five consecutive quarters.
Chris McCarthy has done an incredible job of driving success at VH1 and last month we added oversight of MTV to his portfolio. He is fired up about the turnaround opportunities there and we're expecting big things from him.
A quick note about Comedy Central which has been a key focus of ours. South Park has opened its 20th season with the highest ratings it's had for several years. The episodes that aired in the fourth quarter were up 27% over the previous season and the season premiere was the show's highest-rated episode in a decade. We're also seeing more and more momentum behind Trevor Noah as his audience continues to build. The election has put The Daily Show front and center again as Trevor has delivered his highest monthly ratings in October and was the highest-rated and most-watched daily late-night talkshow among millennial men. We're projecting that fiscal Q1 is going to be his best-rated quarter ever.
Finally, the upcoming film slate from Paramount Pictures includes an incredible lineup of filmmakers and stars. This November the studio will release the critically acclaimed film Arrival starring Amy Adams and Jeremy Renner as well as Allied starring Brad Pitt and Marion Cotillard. In December the studio will release the comedy Office Christmas Party starring Jennifer Aniston along with Denzel Washington's Fences and Martin Scorsese's highly anticipated Silence based on the acclaimed novel. It's a very strong slate.
At Paramount TV, Berlin Station is already in production on seasons 2 and 3 for EPIX. And Shooter starring Ryan Phillippe and executive produced by Mark Wahlberg premieres November 15 on U.S.A. It's a quickly growing business and currently Paramount has 30 shows in development.
[...]
Thank you, Kern. Before I begin I have to say a few words of appreciation. Tom Dooley has dedicated 35 years of his life to this Company as a driving force behind many of its biggest wins and a steady hand during times of transition and most recently provided assured excellent leadership throughout the changes this year. I'm honored to be taking the handoff from him and I'm grateful for his wisdom and counsel.
I'd also like to say thank you to Sumner, Shari, Tom May and the entire Viacom Board for this amazing opportunity but even more so for their tireless drive to do right by Viacom. And while the Board and its special committee consider whether a CBS transaction makes sense they have asked me to maximize Viacom's potential as an independent Company and I'm committed to doing just that. I'm very excited about this new role and the many opportunities at hand for us.
I've already pulled together the senior team across the Company and we're at work identifying near-term opportunities to accelerate our evolution while building a long-term vision for the future. At the same time, I'm re-immersing myself in the domestic business with a focus on how we can strengthen MTV, Comedy Central and Paramount.
While we have our challenges we also have an incredibly strong foundation from which to build. It is important to remember that Viacom has the highest share of viewing in the U.S. among all cable groups in every demo in which we compete and worldwide Viacom is the largest global media Company by reach. We have a very strong footing and I look forward to sharing more detailed plans on how we can build off it as soon as I can.
But today I want to take the opportunity to give you a bit of a window on how I think and how I operate. The best way to do that is to look at how we've transformed Viacom International Media Networks.
I joined Viacom's international business in 2007. It was at a crossroads. Too focused on MTV, too dependent on the U.S. for content, too disconnected from market to market around the world.
In the past decade our team has addressed these issues and built a true multinational organization. We've diversified dramatically to a portfolio that includes widely distributed MTVs, Nickelodeons and Comedy Centrals, the growing Spike brand and a Paramount channel, now the largest ad-supported movie channel in the world and two key local players in the UK's Channel 5 and India's Colors.
In 2006 MTV accounted for over 80% of our business. Today no brand accounts for even 30%. We have become a global producer of original content, not just an exporter.
We have 2,700 hours of original programming planned for 2017 and much of that consists of highly exportable formats with modest cost per episode. And we've built an organization that is interconnected across brands, businesses and geographies while fostering a culture that prides itself on entrepreneurship, innovation and adaptability. As a result, Viacom International Media Networks just closed its best year ever.
Looking ahead we continue to be hugely focused on scale, brands, content and products. First, scale. Our number one priority in international is to get bigger. We've done this through organic expansion of Nickelodeon and Comedy Central globally and through the more recent international launches of paramount Channel, Spike and Nick Jr. And we've done very well with big mass-market general entertainment networks in priority markets.
Channel 5 in the UK is driving. It just delivered its most profitable year ever and it gives Viacom the highest share of any international media company in the biggest market outside the U.S.. We also have a leading position in India through our Viacom 18 joint venture home to the Colors brand which is now the fastest growing media company in the fastest growing media market in the world.
Second, on brands, the keyword is focus. Rather than launching additional U.S. brands internationally we focus on international core six: MTV, Nickelodeon, Nick Jr., Comedy Central, Paramount Channel and Spike. We're investing to grow these brands while maintaining a lean, powerful portfolio that will be attractive to both pay-TV and emerging distributors, particularly virtual MVPDs.
And within that footprint we have plenty of room to grow. Comedy Central and Paramount Channel remain far less penetrated then MTV. In 2017 we already have launches planned in Central and Eastern Europe, the Middle East, Russia, Benelux, Asia and more.
Third, on the creative side Viacom International Media Networks emergence as a global content engine has energized our team and strengthened our ability to localize formats. We shoot multiple versions of our biggest hits concurrently with great economics at our new studio in Miami, channel 5 in London and production hubs in Amsterdam and Madrid.
It's a formula that works. Our UK version of Jersey Shore, Geordie Shore, regularly beat Game of Thrones in the demo in its premier timeslot. Yes, you heard that right. Audience share for MTV, Nickelodeon and Nick Jr. is up as we localize more formats and increase international production for global use. Meanwhile, we continue to export a lot of U.S. programming, particularly Nickelodeon which does very well.
Fourth and finally, products. Redefining what it means to be a branded TV network across platforms through product innovation is a huge priority for us. Pay-TV penetration outside the U.S. is well under 50%, meaning broadband growth across fixed and mobile platforms has the potential to more than double our distribution by the end of the decade.
I believe this is the single biggest opportunity for our business internationally. And while the economics of digital distribution still trail linear, we believe incremental expansion of our reach will pay big returns in the long run for our brands and businesses.
Last year's launch of our Viacom Play Plex suite of apps for our international brands was a big step forward in this regard. Each app features full episodes, clips on demand along with a live linear feed. We tailor distribution market by market to reach well beyond our linear footprint. For example, we have authenticated deals with pay-TV partners in Mexico, mobile distribution with partners in Asia, our over-the-top and direct to consumer as we've done with BET Play in more than 100 markets worldwide where BET doesn't have a linear feed. Further, we're proving that product innovation can exist within a traditional TV environment with our personalized, interactive, linear channels My Nick Jr. and My MTV.
I believe a lot of our successful international approach can be brought home to the domestic market. I've seen it work and it's a big reason that I'm truly optimistic about Viacom.
As I said earlier, I'm working with the senior management across the Company to identify short-term opportunities while building on a long-term strategy. MTV is clearly a priority for me. We have had a lot of success in evolving and strengthening that brand internationally and I'm very pleased with the recent leadership change here in the U.S..
I will seek more collaborative and forward-thinking partnerships with our long-standing domestic distributors. And I will also be working closely with Paramount.
Finally, I will make sure we have a structure that supports speed, sharing of resources and a global outlook. It's imperative that we operate more globally. The opportunity is there. Viacom is home to some of the world's most iconic and internationally resonant brands. I've seen what those brands and our phenomenal people can do when equipped with a focused forward-looking strategy and a strong organization for which to create and connect with millions.
I want to thank our shareholders for their continued support and commitment to Viacom. I look forward to keeping you informed of our plans and progress and thank you for joining today's call. I also look forward to an open dialogue.
[...]
Operator
We will take our final question from Vasily Karasyov with CLSA.
Vasily Karasyov
I think it's for Bob and Tom. I just wanted to drill into the Paramount situation a little more. If I am hearing you correctly, you think that the slate, upcoming slate will lead to profitability late in fiscal 2017. But I was wondering if you look back at what happened over the past several years, the deterioration in earnings there, do you think there needs to be a change in how the greenlighting process probably works? Because the industry press says that the studio management says that there was under investment which is hard to believe when you look at production budgets. So I was wondering if you could reconcile those for us.
Tom Dooley
I think that the pictures that we've put into production over the past several years, we had several big pictures that underperformed dramatically relative to what we had thought they would do. A good example of that is Zoolander and another example of that is Teenage Mutant Ninja Turtles. Those films really had losses that were outsized and really created a hole in the bucket that we had in the previous year, a consequential hole in the bucket.
I think we have looked at the greenlight process. I think Brad Grey and his team, he's made changes on his team and is focused on putting in place the kind of movies that we think will result in a significant turnaround and refocused on bottom-line profitability and the type of movies that he's putting into production.
And as I said as we look down the road here and I think as we get through the end of this quarter you will see Paramount having much better performance in the pictures that it is putting into the marketplace. And I think the most important thing to look for is how they perform relative to the competition. And I think you will see Paramount beginning to stand up and distinguish itself in that regard.
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