Jan 24, 2019

By Nicole Bitette
Capitalizing on the growing ad-supported streaming market to create more value from existing IP.

In the ever-shifting ecosystem of streaming video, ad-supported platforms offer content creators and audiences something new: premium content for free. Of course, it’s a model pioneered by television broadcasters ages ago, but in the streaming economy, it’s a relatively rare alternative to the subscription model.

The most recent indication of this trend was Viacom’s agreement to acquire Pluto TV, the leading free service in the U.S. The deal marks a significant moment in Viacom’s evolution. At $340 million, it’s the company’s largest digital deal to-date and will expand Viacom’s distribution and advanced advertising capabilities with a direct-to-consumer platform that’s already operating at scale and is known for delivering quality programming and a “lean-back,” TV-like channel-surfing experience. It also makes Viacom a player in the $8 billion ad-supported streaming market, which is expected to double in size in the next five years.

“Our strategy is fundamentally to grow the presence of our IP into as many places as possible to create value,” said Viacom President and CEO Bob Bakish in an interview with Bloomberg Television on Wednesday morning. “We’re tremendously excited about Pluto TV.  It's a differentiated asset in the marketplace, it supports Viacom’s strategy on multiple levels, and, when we look at the deal, we think it’s a tremendously attractive financial expression …  This company is worth multiples of what we paid. That's the type of M&A we are focused on, and we think it is extremely value-creating.”

 

Ad-supported video-on-demand (AVOD) services give consumers a no-cost alternative to OTT subscription services and cable bundles. It’s a fast-growing corner of the streaming market, especially as content creators work to find new ways to reach audiences across devices without cannibalizing their audiences on other platforms. Earlier this year Amazon launched an ad-supported video channel, IMDb Freedive, and Comcast announced plans to launch a free streaming service for its pay-TV subscribers in 2020.

"While peers are fiercely going head-to-head in the OTT/DTC subscription space, [Viacom] is jumping into a white space on the ad-supported side – and this is the only comprehensive free service where people are actually watching on big screen TV sets," wrote media analyst Marci Ryvicker of Wolfe Research in a note to clients. "Bottom line, Pluto is another means of moving [Viacom]’s innovative strategy forward – with collective incremental revenue streams becoming a needle-mover."

“In some respects, we're zigging as everyone is zagging,” said Bakish during an interview with CNBC. “The market is segmenting. The vast majority of subscribers continue to be at the mid-to-high price point in the basic cable sector. You have more mid-pricepoint $40-45 segments. You’ve got SVOD players now in the teens, and of course, then you’ve got free … From a Viacom strategy standpoint, we love how this fits in.”

For Viacom, free streaming TV is a way to reach a broader audience in a way that will provide more value to its advertising partners. The acquisition means that Viacom will have a direct connection to Pluto TV’s 12 million monthly active users and will be able to monetize billions of high-quality addressable advertising impressions. Viacom can sell this new ad inventory to external advertisers and agencies, as well as use it to market its subscription products and content. As Adweek reported, the acquisition could draw additional consumers to NOGGIN and Comedy Central Now, and also segue into distributing content from Viacom Digital Studios.

According to The Wall Street Journal, “acquiring Pluto TV will allow Viacom to increase the digital audience for its programming, while giving the owner of networks such as Nickelodeon and MTV instant scale for its online advertising business.”

 

"This is an ad-supported platform that can work with [distributors'] broadband-only subscribers … We think that’s tremendously exciting and the next leg in our distribution strategy."

Bob Bakish

President and CEO, Viacom

The deal should also be a boon to Viacom's relationships with MVPDs like Comcast and AT&T. "Pluto offers Viacom another avenue to expand their carriage negotiation conversations with distributors," as BTIG media and tech analyst Rich Greenfield pointed out in a recent blog post.

“We not only license them linear content and on-demand content, we now have advanced advertising partnerships with the biggest distributors in the country and, in some cases, have entered into co-production,” said Bakish during his CNBC interview. “Now you bring Pluto to the table. This is an ad-supported platform that can work with their broadband-only subscribers … We think that's tremendously exciting and the next leg in our distribution strategy.”

Another notable aspect of Pluto TV: its audience is young, valuable, and increasingly hard-to-reach. “Over half of [Pluto TV’s user base] is 18 to 34. That's a very attractive audience,” Bakish said during his CNBC appearance. “It is clearly supplemental and incremental to the viewership” of cable.

More than half of Pluto TV’s active users watch on connected TVs, a user base that grew 70% in the last quarter of 2018. It’s also available on desktop, mobile, gaming consoles, and streaming players. (It’s the #2 free app on Roku.) Its content library, which already features Paramount Pictures films and an AwesomenessTV channel, includes more than 100 channels and an on-demand library of more than 5,000 hours.

Viacom doesn’t plan to create original content for Pluto TV; instead, it will distribute content from its library. Viacom began limiting the library content licensed to subscription streaming services a couple of years ago, leaving plenty of content to put in the Pluto TV pipeline. Its current cable programming will remain in the pay-TV ecosystem on its branded networks.

As well, Viacom will continue to develop global episodic and first-run content for subscription streaming platforms, which Bakish has outlined as part of the company’s continued turnaround strategy. "The company has also rebooted its TV production business to take advantage of the growing appetite for more content ... helping it add $400 million in revenue last year,” according to The New York Times report on the Pluto TV acquisition.

The Pluto TV app will continue to evolve, with planned ad-free subscription and Spanish-language versions, enhanced personalization and content feeds, and expansion into new markets. “Viacom’s portfolio of global, iconic brands and IP, advanced advertising leadership and international reach will enable Pluto TV to grow even faster and become a major force in streaming TV worldwide,” said Pluto TV CEO and co-founder Tom Ryan in a statement.

The purchase of Pluto is the latest in a string of strategic acquisitions that have expanded Viacom’s business in areas such as influence marketing (WHOSAY), streaming video production (AwesomenessTV), and live events (Vidcon).

Additional reporting contributed by Stuart Winchester.