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Viacom's $100M Game-Changer

5/03/2008 2:00 AM Eastern

Viacom plans to invest as much as $100 million in the “premium entertainment service” it will launch in conjunction with three major movie studios next year, and said it is in talks with possible distributors and additional partners.

The joint venture between Viacom's Paramount Pictures, Metro-Goldwyn-Mayer and Lionsgate has been able “to speak freely to potential distributors across many, many platforms,” Viacom CEO Philippe Dauman said during the company's first-quarter earnings call Friday.

Viacom will be the lead investor, but not a majority owner, of the yet-to-be-named pay TV network and on-demand service that is set to launch in fall 2009, Dauman said. Viacom will put in up to $100 million “over the life of the venture,” according to chief financial officer Thomas Dooley.

The three Hollywood studios announced April 20 they were not renewing their output deals for first-run movies with Showtime, instead opting to bring their movies to their own premium outlet.

Cable-industry executives and Wall Street analysts have questioned whether the new premium service will get any traction if it doesn't get a distributor on board as a partner.

“We labeled this originally as either brilliant or reckless, and I'm still very much confused as to how this strategy is going to make sense,” Pali Research analyst Rich Greenfield said last week. “Unless it's Verizon [Communications] or AT&T, I'm really struggling to figure out how this network gets distribution, as I don't think average consumers are going to want to pay for this.”

An unexpected ally could be Blockbuster, the online and storefront movie-rental company. Published reports indicated Blockbuster was in talks to invest in the Viacom-led premium network and get digital rights to its programming. Blockbuster characterized the reports as “rumors” and said it is “exploring lots of options.”

Dauman didn't cite any specific companies that could be distributors of the venture's content.

“We are exploring multiple distribution platforms and partnerships that also contemplate emerging forms of content delivery,” he said. “We believe that there is significant revenue opportunity here, as we will be able to better serve our audiences across platforms and derive greater value from our own product.”

Viacom officials were asked if the media company will tie affiliation renewals for its MTV Networks cable channels to carriage of the new premium service. Dauman said that while the new premium network has contracted with MTVN to handle its affiliate sales, distribution for the new outlet will be handled separately and not bundled with deals for MTVN properties.

“The affiliate services are being provided for the joint venture, separate and apart from MTV Networks,” Dauman said. “The joint venture has an agreement with MTV Networks to provide, wholly apart from the Viacom efforts, affiliate services and other services.”

There has been a lot of interest in the unnamed premium network since it was announced, according to Dauman.

“The level of interest, and in many cases, enthusiasm, has been extremely encouraging to us,” he said. “We believe this is another example of how we can take our content, look at the world in new, different and innovative ways and create more value for Viacom.”

Dauman reiterated his prior comment that the new premium network will be “a game changer,” in terms of allowing the three movie studios more flexibility in how they can offer their films during the pay TV window. The new service, for instance, could make its movies available online during the pay TV window.

“This joint venture is feasible because we find ourselves at a unique point in time when there is product available from multiple studios for the pay-television window, an opportunity that will not be replicated for many years,” Dauman said.

“We now have the chance to reinvent this window, and we intend to do so, no longer encumbered by the restrictions previously placed on us and our partners,” he said. “We will determine our own destiny, controlling our content, and how that content is distributed and marketed.”

The Paramount-MGM-Lionsgate joint venture will have more announcements in the coming weeks and months, according to Dauman.

Viacom has not yet announced a CEO for the venture.

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