ViacomCBS CEO Bob Bakish Speaks Cash Flow with CNBC [Full Transcript]

The following is the unofficial transcript of a CNBC EXCLUSIVE interview with ViacomCBS President and CEO Bob Bakish and CNBC’s David Faber on CNBC’s “The Exchange” (M-F 1PM – 2PM) today, Monday, December 9th. The following is a link to video of the interview on CNBC.com:

Bob Bakish

Image source: CNBC Video Screenshot

TYLER MATHISEN: It’s been a long and winding road to get there, but Viacom and CBS are officially one company again, since completing their merger last week. Shares of the new company down more than 3% since they began trading as a consolidated enterprise on Thursday. So, what’s next for the company known as ViacomCBS and how well-positioned is it in the streaming and content wars? Let’s go straight to the man in charge, ViacomCBS President and CEO Bob Bakish, who is live with David Faber. David, it’s all yours.

DAVID FABER: Tyler, thank you. Yeah, you raised a lot of the great questions. And Bob Bakish, as you said, is our guest, CEO of ViacomCBS. First time I’ve introduced you that way.

BOB BAKISH: ViacomCBS. That’s right. It’s great to be here.

DAVID FABER: Good to have you, as well. And congrats on getting the deal done relatively quickly, in terms of once it was announced. But, it did take a while to get there. Let’s get to your presentation which just took place here at the UBS Conference. Key news items, a couple you, mentioned that you are looking to potentially sell BlackRock, which is thought of as the former headquarters of CBS. Why?

BOB BAKISH: Look, ViacomCBS is a tremendously exciting opportunity for shareholders. You look where the stock is trading, one of the lowest multiples in the S&P 500. Clear discount versus intrinsic value versus our peer groups, et cetera. A lot of value here. And there’s no question we’re going to go and unlock the value as we move forward operating, whether that’s stuff we’re doing on the content side, the commercial side, ad sales, distribution, licensing, or on the streaming side. But in the short-term, there’s also an opportunity to demonstrate that there’s value left untapped. And so today, we talked about two things related to that. One is, you know, we’ve looked at non-core assets inside the company. And most of the assets are clearly core. But you look at some of the real estate assets, as an example, BlackRock.

You say, “Do you really need to own that?” The answer is “No.” That is a very valuable asset in terms of an iconic office building. And so, we made the decision that we’re better off divesting it. So, this morning I announced we’re retaining CBRE to do actually a comprehensive real estate review, but also, to begin the process of divesting that office building. We think —

DAVID FABER: Do you have any idea what it is worth?

BOB BAKISH: We have some ideas. I don’t want to put it out there, but it is very material. And we believe we can do that, take the cash, flow it through our waterfall of how we use cash, including potentially using it for buyback, which is the second thing I talked about today. That, you know, both companies haven’t been in the buyback business for a while. And if you look at the valuation of the company again, and you look at the use of capital, we think it is a tremendous opportunity.

And so, we also announced today that under a program existing at CBS, because remember, CBS is the shell company, the surviving company of ViacomCBS. They have a 2 and a half billion-dollar authorization. We are going to restart it in the near future.

DAVID FABER: Right. I guess not a surprise, obviously. Both companies had been — suspended their buyback, at that point. You’re not increasing it, though, at this point. I mean, you do have some leverage on your balance sheet, obviously.

BOB BAKISH: Yeah. Well, what we announced today is we’re resuming – we’re soon to resume purchases under the existing $2.5 billion authorization.

DAVID FABER: You mentioned, of course, you said yourself, the stock is cheap. Many would agree with you. Although, you know, it is interesting, Bob. On an unleveraged free cash flow basis, when you look at the multiples, you’re trading at about 11.5 times 2020 levered free cash flow and 14.4 times unlevered free cash flow. It is actually a little more expensive than Discovery, right around where Fox is. And people focus on the lack of free cash flow given the overall profits. Is that something you’re focused on?

BOB BAKISH: Absolutely. We’re focused on shareholder value creation, we’re focused on cash flow. Now, remember, the free cash flow numbers you’re talking about, relatively speaking, are the result of two separate companies operating. The CBS company in particular hasn’t been a significant producer of free cash flow, primarily because they were investing in content.

Now, we look at the combined company. The larger platform base, the larger content asset base. And one of the things — and we’re in the late innings of the 2020 budget process as we speak, because we’re shifting to a calendar fiscal as a combined company. CBS was calendar, Viacom wasn’t. We will be calendar going forward. We are looking at all of that.

And we believe there is an opportunity to get an improved ROI out of our content investments. And that’s by looking across the company. So, yeah, I believe there is an opportunity to improve free cash flow generation at the company. And that’s certainly one of the things we’re focused on.

DAVID FABER: One of the keys, of course, in doing that would be getting everybody to cooperate. The integration becomes very important there. And I wanted to ask about that specifically. Because, I think it was Barclay’s piece, and I’m looking through it right here, which said: ViacomCBS’ digital leadership is divided among power silos, making integration difficult. I’d love you to respond to that. They point out that, for example, Marc DeBevoise will be responsible for the al -digital assets. But he’s going to report to you for the digital assets but Ianniello for CBS Interactive. That doesn’t sound like an efficient way to go about trying to extract synergies and the growth that you need.

BOB BAKISH: Well, look, here’s what I’ll tell you. There’s a lot of stuff written. Factually, you can say these companies were together before, what’s the difference? When they were together before, they were really run as portfolios. The things I talked about as one ad salesforce–didn’t exist, one content distribution force–didn’t exist. And so on and so forth. So, there’s a tremendous opportunity, and we are moving very quickly down that path. We have a named senior executives for all those functions and more. And we’re in the middle of going down the organization. So, we absolutely are going to operate as one ViacomCBS.

DAVID FABER: That is hard sometimes to do though. You know that. Culturally. Even though the companies were together. And I’ve had the same conversation with some of your peers. For example, AT&T, Time Warner. Different cultures, to be sure. I understand that. But, integration can be hard. You know that.

BOB BAKISH: Without question, getting people to work together is harder than it sounds. But I can tell you, when I took over Viacom International in 2007, it was a confederation of independent nations. Today, it is a multi-national division of a company. When I became CEO of Viacom in the end of 2016, we had a very siloed company. Paramount was an island. It did its own thing. The media networks were multiple groups, not much transfer. And we took the last three years and we really aligned that. We created one Viacom. Including, by the way, Shared Services, we created the Viacom Digital Services group, et cetera. So, now, we’re on the path of creating one ViacomCBS.

What I can tell you is, people fundamentally understand. When I said there would be one U.S. affiliate salesforce run by Ray Hopkins, nobody debated it. When I said there was going to be one domestic ad salesforce, and then I picked Jo Ann Ross to lead that, who is an outstanding executive, great relationships in the industry, and I paired her with John Halley, who ran the Advanced Marketing Solutions for Viacom, everyone got it, and they were tremendously excited about it. So, I think people understand the opportunity associated with ViacomCBS.

Do we have to get some culture change? One of the things I talked about in there, as part of it is we have to create one combined company culture. That’s front and center on the agenda. And we’re going to work hard to do it. And we’re going to get it done.

DAVID FABER: Right. Talking about efficiencies, and we’ve talked in previous interviews of course, about your strategy, in terms of a hybrid approach. But Direct to Consumer is important. Streaming is important, certainly, to the future of the company. You have CBS All Access, which many people know. Showtime SVOD. You’ve got, as well, a Smithsonian SVOD. You’ve got Pluto TV, which is free. Ad supported streaming. You’ve got Noggin. BET Plus, which you just launched, as well. Would you be better sort of combining everything under the CBS All Access brand and perhaps having Pluto as a free entrant to that?

BOB BAKISH: So, look. We have — what we have today is the result of two independent companies with two different strategies. And one skewed overwhelmingly free. That’s Viacom with Pluto TV. Although we have some pay products. One’s skewed overly subscription, that’s CBS, CBS All Access, Showtime OTT. Although they too have some free products, CBS and ET Live, etcetera. What we’re in the middle of now, just like everything else ViacomCBS, is putting together one integrated company with one integrated strategy. We will do that in the streaming space, as well.

What I can tell you is the strategy will be differentiated. How will it do it? It’ll span free and pay. If you want the widest accessible consumer base, you have to do that. Today, in pay, you’ve got 10 million subs in SVOD in the U.S. In free, you’ve got 20 million MAUs at Pluto. High growth, by the way. That’s part of, we’ve got almost 200 million digital users. And we reached well over a billion through our broader business. So, think of that as a funnel you can bring people in–

DAVID FABER: Right.

BOB BAKISH: –ultimately to a pay product. Will the configuration of our product evolve as it goes forward? Absolutely it will. We believe it is a tremendous opportunity. Again, we’re deep in that now. And you should expect to hear more into 2020.

DAVID FABER: On those Direct-to-Consumer numbers, the 10 or 10.5 million that you cite, some of people say, ‘Well, a lot of that’s promotional.’  They don’t think it is sustainable over time. You know, I’m curious, in terms of actually looking at the revenue that comes from it, some say it should be a higher number if it wasn’t so promotional. Is that a concern?

BOB BAKISH: Well, first of all, very little of it is promotional. So, anyone saying a lot is promotional, that’s flat out wrong. The second thing is, we don’t disclose revenue yet. As we get into 2020 and we give our guidance for 2020, we’re, of course, going to give annual guidance, revenues, OI, cash flow, et cetera. We’re also going to guide additional metrics. You should expect some additional transparency in the streaming space, beyond – essentially the only thing that combined companies give out are Pluto MAUs. So, you should expect that to broaden. And then we are going to come back later in the Spring and do an investor day. We’ll provide a multi-year view. So, yeah, there will be more disclosure.

But what I can tell you is, just like ViacomCBS writ large, in the streaming space we have a tremendous opportunity. We’re the only — CBS All Access is the streaming platform, SVOD platform I know of, that is not only entertainment but also live news and sports, including local. That is not easy to do. That’s been in the market for a number of years now. It works, technically. And we look forward to building on that.

DAVID FABER: Bob, we look forward to sitting you with you in the future and seeing how the progress is going. Unfortunately, for now we have to stop it there. Thank you.

BOB BAKISH: Thanks, David. We appreciate it. Good seeing it.

DAVID FABER: Always appreciate you, as well, coming on, as the CEO of ViacomCBS. First time I’ve been able to say that. Tyler, back to you.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver