Good day, everyone, and welcome to the Viacom 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, and thank you for taking the time to join us for our second quarter 2021 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. I want to 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. Some of today's financial remarks will focus on adjusted results. Reconciliations of these non-GAAP financial measures can be found in our earnings release or in our trending schedules, which contain supplemental information and in each case, can be found in the Investor Relations section of our website. Now I will turn the call over to Bob.

Good morning and thank you for joining us today. I am pleased to report that ViacomCBS once again delivered in the second quarter of 2021. The company’s continued momentum is evident from robust revenue growth in advertising and affiliate sales to a phenomenal content driven trajectory of our flagship streaming services Paramount Plus, SHOWTIME OTT and Pluto TV, which clearly demonstrates of our streaming strategy across pay, premium and free is working. And we expect this momentum to continue in the second half of the year. On today's call, I'll cover three topics. First, I'll briefly discuss ViacomCBS’s strong Q2 results, where we’ve reported operating strength and year-over-year revenue improvement. Second, I'll highlight the company's momentum in streaming and the underlying content drivers. And finally, I'll discuss our go-forward global streaming expansion. Then I'll hand it over to Naveen to provide additional financial and operational details before opening it up for Q&A. Let me start with the company's second quarter results, where we achieved another quarter of solid performance as total company revenue grew 8% year-over-year to $6.6 billion. Here I want to highlight a few important items from an operating standpoint. In advertising, which remember exclude streaming, revenue grew 24% benefiting from the return of a range of sports programming, material improvement in the ad market and strong execution. Q2, 2021 obviously looked very different than Q2 of 2020. And we were happy with our ability to convert this into strong revenue performance. Speaking of advertising, I'm pleased to say we saw very strong demand in the upfront, which led to historic levels of linear price increases, plus an ability to drive a significant volume towards our premium digital video inventory. The upfront was a perfect platform for ViacomCBS to unlock value from its leadership position, a position underpinned…

Thank you, Bob. And good morning, everyone. As Bob mentioned, our second quarter results were highlighted by robust growth in streaming, where we had another quarter of record subscriber additions. Growth rates for both streaming subscription and streaming advertising revenue accelerated from their already strong Q1 levels, taking overall streaming revenue to 92% year-on-year growth. Q2 also benefited from strong performance in advertising and affiliate revenue. I’ll unpack our streaming results by sharing additional color on audience growth, engagement and monetization. Starting with our subscription businesses, and then moving to our ad supported services. We added $6.5 million global streaming subscribers in the quarter, taking us to more than $42 million global streaming subscribers. SHOWTIMEOTT enjoyed one of its best quarters ever in terms of new signups. But like last quarter, the significant majority of our new subscribers are from Paramount Plus, including a mix of both domestic and international subscribers. In fact, we were increasingly bullish about the international market opportunity for Paramount Plus, as evidenced by our Q2 results, and our newly announced partnership with Sky. Financially speaking, this type of deal provides a capital efficient way for us to quickly build scale and awareness in new markets. Bundles with international partners bring low churn and highly efficient acquisition costs. Moreover, as Bob pointed out, ARPUs are meaningfully accretive to the linear affiliate revenue we are replacing. In addition to strong subscriber growth, we also saw continued improvement in customer engagement and retention, as the breadth of our content portfolio continues to expand. For example, for Paramount Plus domestic trial that pay conversion, monthly hours per active and monthly churn all improve measurably in Q2 on both a sequential basis and year-over-year. In terms of monetization, we saw healthy streaming subscription ARPU growth of 4% in Q2, versus…

Operator, we'll take our first question.

We can’t hear the question?

Operator. Brett Feldman do you live? If so, go ahead with your question.

We're not getting?

Operator? Operator, we heard a little bit of noise. Are you there? Guys, we're trying to resolve problem -- technical problem with the operator. So hopefully you can hear us the operator is working on it. Just hang with us. Thank you. [Technical Difficulty]..

Gentlemen, thank you for standing-by. Mr. Feldman, Mr. Feldman. Your line is open, sir. Please give us your question.

Great. Can you guys hear me?

Yes.

Yes, we can. Sorry about that.

Outstanding. All right. Two questions. If you don't mind. The first one is for Bob. Obviously seeing continued M&A. And your company has been cited as a potential merger partner in a lot of these media reports. So my first question for you is, do you need more scale? And how do you think about the metrics gaining it via M&A or partnerships? And then the second question is for Naveen, I was hoping you can give us a little bit of insight on the uptake that you've seen in the new ad light tier ParamountPlus, was it meaningful to the net ads you had in the quarter, and any insight you can give them where the ARPU is trending there would be appreciated? Thank you.

Yes, sure. Brett, let me take the first part. So look, we continue to be extremely excited about the momentum and go-forward potential of our organic strategy, as we leverage the assets of ViacomCBS to create value overall. And certainly with respect to streaming. The Q2 metrics clearly point to this strength, and the ongoing potential of our organic approach. Now, the fact is the merger of Viacom and CBS was a transformative transaction, and we continue to successfully create value from it. We believe organic execution continues to be the right path for ViacomCBS and our shareholders. But of course, we will always evaluate any opportunities through a shareholder value creation lens.

Yes, and regarding the essential plan, we're very excited about being able to launch that this quarter, we think it expands the Paramount Plus proposition to an even greater set of different customers. And from our perspective, we're actually very happy for people to sign up for either our premium or essential tier, we want them in the plan, that's going to be the stickiest for them. Because in the long run, we know that we maximize lifetime value based on the expected life of our customers. It's also important to recognize that the ARPUs between each of those tiers are actually not as different as you might think, because of the advertising contribution from the essential tier. And those ARPUs actually, both the subscription and the combined advertising and subscription in the essential tier are growing both domestically and internationally. And we think that they have material future upside potential, both through evolution of pricing, and also significant upside in the ad monetization. So we'd like how essentials is progressing. And we think it's going to be very additive to our strategy.

Thanks a lot, Brett. Operator, let's go to the next analysts.

As the next analyst is Michael Morris with Guggenheim. Please go ahead sir.

Thank you. Good morning, guys. I have two questions as well. My first maybe for Bob is if you could share some more detail on this Sky partnership that was announced? I know there can be a lot of complexity in these agreements. So any additional thoughts on your timing within 2022 your promotional plans, affiliate admix, things like that, to help us understand the go-to-market would be great. And my second question is for Naveen, looking for maybe a little more detail on the domestic trends at Paramount Plus, curious how churn has trended engagement, maybe compared to all access just to give us some historical precedent or anything else you can share there? And how you're thinking about the cadence of the drivers for the balance of the year? Thanks.

Yes, sure, Michael. So just to frame it, our streaming strategy overall is to access the largest total addressable market, and do so by leveraging the full power of ViacomCBS. That obviously means global so international is a key component including critical scale markets like the U.K., Germany and Italy. The good news is we have a long mutually productive value creating history with Sky. And to that end, we saw a compelling opportunity to use renewables in the U.K., Italy and Germany, to both elongate and continue to transform our business, and specifically accelerate our streaming strategy. On streaming, you’ll see us launch Paramount Plus in 2022, to the subscriber base on the Sky cinema tier, and that'll be albacore on top of that, in all of those markets, which will be a very meaningful sub catalyst in 2022. And as I said, in my prepared remarks, part of this deal was unlocking some previous exclusive to Sky content. So, in addition to the distribution boost, it really makes our product even more compelling. All that said, and I'm not going to comment on real contract specifics, I will tell you, we're happy with the economics. We see this deal as a meaningful, predictable Paramount Plus subscriber accelerant in all those markets, and one with a compelling churn reduction dynamic. And importantly, the deal does not prevent us from pursuing the broader DTC opportunity in these markets. So this is an awesome deal for us. And it's an example of leveraging the full power of ViacomCBS, including existing relationships, to accelerate our streaming business. And that's something we're going to look to continue to do. Naveen?

Yes, and going to the engagement question. As we mentioned on the call, so the metrics on that front for Paramount Plus are improving very nicely. And I think it's all content driven, as the diversity of content available on the service continues to evolve. And that's been driving, as I highlighted, improvements in conversion, improvements in hours per active improvements in monthly churn. And we continue to focus on optimizing all of those going forward, and it will be very much content driven. We think about our content. through three different dimensions, we think about what drives acquisition, what drives engagement, and what drives consumption, it is time spent watching. And different content performs differently, kids and family content, as an example is a big acquisition driver. And theatrical movies drive a lot of engagement and things with large libraries, well known titles, think something like a survivor can be a top consumption driver. So we're going to continue to press on all of those dimensions, you got to nail acquisition, engagement and consumption to have a healthy subscription business. And we think we're in a very strong position to be able to continue doing that. And the metrics from Q2 prove we're moving in the right direction.

Great. Thanks, Mike. Operator, next question, please.

Next question is from Alexia Quadrani with JP Morgan.

Hi, thank you. My question is really on your film strategy. Your thoughts on the health of the box office as a profit driver for Paramount long return? Do you still see it as the big driver of growth longer term? And then sort of staying on your film business? I think you've recently made some changes. I think he pulled Clifford from the film play because the Delta variant I assume and putting Paw Patrol daily. I guess I'm curious if you see the 45-day close to window eventually for all your major films or will be decided basis. I guess I'm trying to get a sense that this is so COVID related changes or you'll kind of go back and forth longer term depending on what your thoughts on the outlook?

Yes, sure Alexia. So the film business is strategically important ViacomCBS, movies work well on multiple platforms including, of course, streaming, where early experience with Paramount Plus, and you heard some remarks on that already is strong. One of the things that we have today is more optionality with how we use films, we have more ways to use them than ever, which better leverages our investment. And you see that in us putting the product to use in a multifaceted way. Some product like a quiet place two with its 45-day window is a fast follow on Paramount Plus, we like that some product is Paramount Plus, exclusive, like what we did with Infinite and in a lower budget way, like what we'll do with the upcoming Paranormal Activity film. Some will be day-in-date with streaming and theatrical like the upcoming Paw Patrol movie. And it's really this mix of approaches that's intended to optimize the use of our product, including driving both subscribers and box office and provide learnings which we can use to continue to shape our future mix. Importantly, as we do all this, we do consider the impact on all constituents. As we look at individual titles. On your COVID question, look, we obviously track the market very carefully and the situation is a bit fluid. As a general principle, we do like the 45-day fast follow theatrical to PayOne. And that is the overall direction. We'd like to go over time. But we got to look at each title in this pandemic and figure out what is the right strategy at this point in time, and that resulting us delaying some titles moving forward to the traditional theatrical release, doing something exclusively on streaming or doing it day-to-day and again, there's obviously a lot of considerations on that. But we like films are strategically important. We see tremendous value and we have more levers to pull than ever.

Next question comes from Ben Swinburne with Morgan Stanley.

Hey, good morning, guys. Two questions. ARPU on streaming was quite strong, as you guys highlighted is up nicely Q-on-Q and year-on-year. Can you talk about the outlook there as you move more international? And it sounded like you're incrementally bullish internationally. Does that put any pressure on it? Or do you feeling like ARPU continues to sort of grind higher over time, just give us a little sense of the drivers there and how you're thinking about it. And then Naveen on free cash flow $1.7 billion first half of the year, I think the expectations out there that will be less than that for the full year. Just any update on free cash flow expectations?

Yes. Hey, Ben. So I'll start with your question on ARPU, and then touch on free cash flow. So as you pointed out, subscription, ARPU in Q2 saw some very nice sequential improvement. And I point out that that improvement happened both with respect to domestic ARPU and international ARPU. And I think going forward, it's important to think about those two things somewhat independently. Because the drivers are a little different. Domestic ARPU will benefit from continued conversion of trial subs into pay subs. And it will also be influenced by the mix of subs between our essential and premium tiers. But as I said earlier, it's important to remember that the real ARPU coming out of our essential tier includes both subscription and advertising revenue. So in the long-term, we think that the essential tier can actually be accretive to overall ARPUs on Paramount Plus. On the international side. The next wave of countries that we're going to be launching which are primarily in Europe and Australia are higher ARPU markets then where we've been today, which has been primarily Latin America. So that should be accretive to ARPU. And in fact, the deal we announced with Sky today is a great example of that. Would that deal we will quickly add millions of subscribers in the U.K. when it launches. And those subs would be accretive to both our current international streaming ARPU and the ARPU that we generate on the linear affiliate side today. In terms of free cash flow, I'd say a couple things. Number one, as we said before, we are increasing streaming investment for content. You've heard me mentioned before that we expect that investment to more than double this year relative to 2020. Again, not all of it is incremental on a total company basis, because there's a lot of remixing between linear and streaming. And we've got content that does double duty. But we're also doing well in terms of being ahead of our plan on revenue and subs and continuing to find ways to drive operating leverage out of the business. So the result of all that, I think in terms of free cash flow, obviously, that will mean that there's some working capital needs going forward, both to scale that production on the streaming side. And also just generally, as we transition out of COVID. Some of the tailwinds that we've had from a cash flow perspective, in 2020, in the first half of this year, probably start to dissipate.

Our next question is from Rich Greenfield with Light Shed Partners.

Hi, thanks for taking the questions. I just want to follow up on Alexia’s question, just as you think about sort of things like Snake Eyes, which, obviously, you're struggling at the box office, just given the health of U.S. box office. I mean, even the two biggest films to-date, I think have only done domestically $170 million or $175 million sort of looks like the peak and so it just doesn't seem like box office dollars are there the way they used to? And I guess, Bob you sort of alluded to other strategies, but I'm just wondering, you've got two other companies, one in Disney doing sort of a $30 day-in-date, premium access, and you've got Warner Brothers sort of throwing them in at no extra cost Netflix Style and HBO Max. We just sort of love your view, given that it looks like things are getting worse again, rather than better from an attendance standpoint, is there one of those that you prefer, or one of those that you think makes more sense for Paramount? And then just, I guess for Bob, specifically, to me, Nick seems like one of the most important assets, when I think about creation of franchises, and what it's doing for your streaming service, I was wondering, sort of how you think about the IP creation -- new IP and creation at Nickelodeon over the past year, and what you see coming over the course of the next year that we should keep our eye on?

Yes, sure. Rich. So look, on the film side, I will say at this point in time, on a macro basis, we think the fast follow from theatrical the 45-day window 30 to 45-day window that we did our first implementation with a quiet place 2 is the sweet spot of the model because it provides a theatrical opportunity for consumers that lets us benefit from that market. And then it quickly moves the product to streaming, in this case, Paramount Plus, to drive subscribers there. And again, we only have one film we've done it with, and it hasn't gone through the life of the title yet, but we like what we're seeing. So I found a macro level, we like that. That said, to your point, we continue to be in COVID. That situation is a bit fluid. And so we are looking title-by-title. And it's part of the reason we looked at, we're doing a day-in-date with Paw Patrol, as we said, for that audience, i.e. families with young children. Right now in the middle of COVID or at least partially still in COVID. We wanted to provide both choices for consumers, because that's we think gets it to the largest potential consumer base, which is not only good for that movie, but also good for the for the consumer products business that wraps around it. And by the way, if you've been inside a Wal-Mart or Target or whatever, you'll see strong Paw Patrol, the movie marketing available in theaters, or Paramount Plus or an Paramount Plus, as part of that signage. So we really like that strategy for that title. And, we'll make decisions, title-by-title going forward as we continue to be in this COVID influenced market. Now, with respect to Nick and IP, let…

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

Thank you. My question is advertising related, I guess a couple of parts to it. Given Naveen’s comment about ad light ARPU upside, I'm wondering why don't you push that more or can you push that more? Is there any difference in contribution margin? I was just seems like the ARPU from that product could be higher than subscription. And then on more generally, on advertising, overall, and then historically strong upfront that we just saw, can you give us like deeper color across all of your assets, national and local and international in terms of where you see advertising going over the next few quarters?

Yes, sure, Jessica, let's do it in reverse order. Let me talk about advertising, big picture, and then and then have Naveen, add some color around your question of ARPU, etcetera. So, to your point, and our remarks, we're very happy with what we're seeing in the ad market. We're clearly benefiting from our leadership position, they're in. The upfront, as expected was particularly strong this year. Part of that, of course, was a function of supply and demand at the market level supply, particularly on linear being tight, and demand strong, given the ongoing ramp out of COVID. That obviously set the stage for very strong and arguably historic linear prices increases. And those increases were what we delivered, and those will largely kick in Q4. But it's not just market, there are also real ViacomCBS elements in play here. We obviously benefit from a portfolio which includes premium content, both in the mass market and targeted spaces, including with young and diverse audiences. We have leadership both on the linear side, and with IQ on the digital video side. IQ in particular, on a long-term basis, and in this upfront is really important because it provides a large volume of high quality impressions, which more than offset the linear supply dynamics and drive overall advertising revenue. And critical to all of that is our executing as a single sales organization that allows clients and their agencies really turnkey access to the portfolio through a single point of contact. So very pleased with what we're seeing in the ad market. Very pleased with the upfront really a case study of the strength of ViacomCBS, and our ability to differentiate ourselves and grow on an ongoing basis. Naveen? A – Naveen Chopra: Yes, so as it relates to the interplay between the essentials tier and the premium tier and sort of steering customers to one or the other, I would reiterate that we are focused on maximizing the lifetime value of each of our subscribers. And given what I noted earlier about the fact that the ARPU and the contribution margin of each of those tiers is not that different and likely, will converge over time. Ultimately, what matters in that lifetime value equation is the expected life of our customers. So we want the customer in whichever tier they are going to be the most sticky in. And that's how we're operating those services today.

Next question is from Vijay Jayant with Evercore.

Hi. Good morning. So Bob you talked about the candidates deal the downs with Charter Cops and now with Sky. And one of the fieldsthat are mentioned, your deals are sort of the modern era deals. Can you sort of talk about, what’s the evolution there in terms of economics, so flexibility that has to happen to make this sort of a win-win situation? And really, how key is these legacy MVPD relationships to grow Paramount Plus going forward? Thanks.

Yes, sure, Vijay. So let me start by saying we're extremely pleased with where we are from an affiliate perspective. And see this multi quarter track record that we've put on the boards of affiliate renewal after affiliate renewal as overwhelming evidence of the strength of ViacomCBS. ViacomCBS really is a cornerstone provider to the distribution community. And yes, that started way back when, with the provision of linear feeds, probably five or six years ago that expanded to include advanced advertising partnerships, which were mutually beneficial. And now it's incorporating streaming as a fundamental element. And so we are working with MVPDs to advance our streaming benefit for both of ours benefit. And we're doing that across free and pay. We're doing that across set-top box and broadband only. And the reason examples of that are Charter and Cox, were streaming with certainly additive and mutually beneficial. And then today's announcement Sky, same thing. So it really is a modernization of broadening and making these partnerships even stronger as we together transform the benefit and provide the business and for ViacomCBS really accelerate the growth of our streaming portfolio. So we're feeling great about it Vijay.

Next question is from John Janedis with Wolfe Research.

Thank you, Bob, maybe one for you with your comments on Paramount Plus and coming out of the upfront. Can you give us more of an update on your digital advertising strategy? I don't know if you separate the dollars between Paramount Plus PTV and Pluto, but maybe even directionally, what are you targeting for digital as a percent of the total? And do the CPM increases and TBS provides some form of a tailwind or upside for price increases? Or do you go for volume in the short-term? And then maybe a quickie on Pluto? With the growth they're still really strong? Have you seen any changes in either the economics of the business or content availability?

Yes, sure. So John, so on the ad side, and in particular, the role of digital, what we believe it's fundamental, we made that decision at Viacom legacy a number of years ago, among other things that drove us to do the Pluto acquisition, which by the way, has turned out to be a total home run, I would point out that when we acquired Pluto at the beginning of ‘19, it came-off a 2018 revenue base of $70 million. This in this third year of owning it, it'll do over a billion. That sounds like a very robust growth to me. So we're thrilled we have it. Pluto is part of what we call IQ, which is our overall digital video advertising portfolio. It is proven to be a great source of high quality impressions in high quality environments. In a world where there's, I mean, that's compelling on a standalone basis. But also in a world where there is linear supply constraints, it's really in combination, that it has turned out to be extremely powerful. Over time, the videos, the digital video side, will continue to increase as a percentage of our overall mix. As we package and in some cases transition advertisers from scarce high priced linear to more available high quality digital, but by the way, do it in a way where we're very careful in delivering the right mix of reach and frequency. And among other things, we went to a unified ad server in the last couple months, which really helps us with that. So very excited about where we are today with digital video advertising as a component of ViacomCBS, and believe it has long legs for growth going forward. On the Pluto side, let me just briefly say, again, the overall trajectory of Pluto is amazing. We have as I mentioned, continued to add quality, high quality content to Pluto in the last year, in the U.S., we've doubled the number of hours from 100,000 hours to 200,000 hours. A chunk of that is certainly ViacomCBS, but a bunch of that is third-party as well. And the third-parties are really seeing the power of the Pluto platform too because it is a very effective reach and importantly monetization because ultimately people are in it to make money monetization vehicle for them, which is why you see us continue to add to the product across a full range of joiners. So Pluto TV continues to be on an amazing trajectory, obviously expanding all around the world half of its number one fast service in the U.S. position, and that one too has a long positive growth road ahead of it.

Yes, that question is from one and Robert Fishman with Moffett Nathanson.

Thank you and good morning. Can you expand on how sports at Paramount Plus has driven subscriber additions and engagement and whether you think that will impact future sports rights deals going exclusively to streaming? And then just as a quick follow up on Pluto, do you see this as a winner take all type of market or will viewers just jump around to the different services define the different original and exclusive content? Thank you.

Yes, so in that order, so sports are fundamental, the Paramount Plus. Again, we think the Paramount Plus as live sports, breaking news and a mountain of entertainment. If you look at our experience in Q1 and Q2 it clearly points to the value of sports, there's no question the NFL makes a difference. And part of our long-term renewal with the NFL, some months ago was of course, insuring rights for Paramount Plus, by the way, both a 999 and the 499 product 499 product doesn't have the linear feet. So, we had to do some work with the NFL and we did. Soccer is making a difference. And you see us growing our collection there, I'm really looking forward to see what Syria does. Very shortly, that'll be our first season with that as the Italian league. Golf to makes a difference. They all contribute to ParamountPlus, they all broaden its appeal to specific market sectors. But I think also importantly, they work in what we would call a conjoint way with entertainment. There are sports fans out there and they also love entertainment. And so as we ensure that the product is sticky as we optimize monetization having a strong entertaining offering to go with the sports offering is very important. And again, while early days, we're seeing really clear value there. And it's obviously a critical extension of CBS Sports and a modernization of that into the streaming world. So we like that a lot. The Pluto question what -- sorry, can you just restate your Pluto question, Rob?

Of course. Do you see this as a winner take all type of market as a whole as you're growing really quickly or -- well viewers just kind of jumped around to the different services?

Right, thank you. Look, we are privileged to be in a leadership position with Pluto. That's partially because we saw the opportunity early and then added first Viacom and now ViacomCBS assets and capabilities to it in the form of content, in the form of distribution, in the form of advertising sales. I don't think it's a winner take to all market. But clearly, having a leadership position is exceptionally valuable. And we are certainly focused on continuing to press the gas pedal there and building a leadership position worldwide. And I would point out that as you have this scale, it really is a flywheel of Talking Tom, Ryan, he'll talk about the Pluto flywheel. And what he means by that is, the scale is self reinforcing. Because as the platform gets bigger, as you have more MAUs, your monetization increases to the example of $70 million to a billion this year. That means that the people who have content on the platform make more money, which in turn means your platform is more attractive, which in turn means you get better content. So the good news is that the trajectory Pluto's on and again, we couldn't be happier.

So, look, thanks, everyone for joining. In closing, clearly, I think you can hear it. These are very exciting times at ViacomCBS. We have really strong operating momentum. We have amazing content. And we have a streaming strategy that is really delivering. You see that in our second quarter. And we're feeling great about the outlook for the year ahead. So thank you for your time and support. We look forward to delivering for all of you on the ViacomCBS growth opportunity. And finally, I'd like to thank all the ViacomCBS employees for all they do every day to drive the company forward. Stay well, everyone and we'll talk to you soon.

This concludes today's conference. You may disconnect your lines. Thank you for your participation.