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Viacom Inc. (NASDAQ:VIAB)

March 04, 2013 12:45 pm ET

Executives

Philippe P. Dauman - Chief Executive Officer, President and Not Independent Director

Analysts

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

All right. So I hope everybody's enjoying their lunch. Now while you are all finishing up, we're going to get started with our next presentation. Very pleased to have with us today Philippe Dauman, President and CEO of Viacom. And very pleased to have Philippe with us today. And we're on the clock so we're going to jump right in.

Question-and-Answer Session

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Philippe, the question we've been starting off with this conference is how is management trying to create value at their companies? And when you think about Viacom and your leadership there, how are you trying to drive value at Viacom?

Philippe P. Dauman

Well, first of all, Doug, it's great to be here. We drive value at Viacom in the same way we've been doing for the last several years. We focus first and foremost on creating more and more great content, increasingly more and more original content. We continue to drive our main revenue sources, affiliate revenues. We -- as our ratings are improving, we're going to drive ad revenues in a much stronger way than we did last -- in the past year. We're going to expand our international footprint and grow international profitability as we're investing in more and more networks around the world. We're going to invest in multiplatform deployment of our content, and we're excited about all those possibilities. And we're creating some original content for new platforms. And mobile, in particular, I think, is an exciting avenue for the future. We are driving expansion of other revenues like consumer products revenues, and that's why we are creating more and more animation content. Paramount has been very steady-state for us, and we're using Paramount to create asset value in different ways like the Paramount Channels we're launching around the world, like EPIX and the animation effort at Paramount will help us drive consumer products. And all the while, we're doing that while maintaining a strong balance sheet, driving free cash flow and returning capital to shareholders in a very strong way, a very accretive way for our shareholders. And as we go forward, I'm very excited about the prospects we have.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So as your stock has moved higher, has there been any reconsideration of the stock buyback, perhaps refocusing resources more on acquiring growth versus repurchasing shares?

Philippe P. Dauman

Well, we're investing for growth. We are investing in international networks. We are investing in more content. We are investing in animation. We're investing in multiplatform distribution. So we're making all the investments we need to make, and we still have a lot of money left over. So I would say today, we are still -- even though our stock has done well relative to the S&P, we still have a ways to go, and I would say we're priced to imperfection. We're not priced to perfection; we're priced to imperfection. So the buyback for us is very accretive. And if anything, as our operating results look to improve, I would say the pace of that will pick up as we get into next fiscal year.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So I think we'll circle back to each of the operating items you started with, but I did want to walk through a few questions with TV [ph], ecosystem [ph]. You've been consistently indicating the full year revenue growth, high single to low double digits. You've been saying that for a couple of years now. Can you maintain that pace as we look forward to next few years?

Philippe P. Dauman

Yes. We have a -- we've been -- if you look back over the last many years, we've been growing affiliate revenues on a compounded basis at double digits. We're putting up, getting high single digits to low double digits. We -- it's predictable, given the fact that we have a well spaced out series of renewals. So we have a lot of existing deals that go forward into the next several years. So we're very comfortable with that continuing for the foreseeable future.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So a little topical, right? Cablevision recently filed a lawsuit against Viacom. I think they alleged antitrust violations for tying channels together in a bundle. I'd expect investors would be interested in any comments you might have on that.

Philippe P. Dauman

Well, you won't be surprised to hear me say that the lawsuit Cablevision filed is ill-advised and frivolous. Just a few points on it. We negotiated a new multiyear affiliate agreement 2 months ago with Cablevision. It was the result of a vigorous negotiation in which we made a number of concessions. We lowered the price from the ask. We offered a lot of additional terms relating to TV Everywhere and other consumer-friendly concessions to Cablevision to help drive its business. We even gave them more term than we offered on this deal that they now say they don't like. They wanted a longer term than we offered, and we gave them additional term. So as a result of the negotiation, which, as always, we give a discount for taking our networks -- and by the way, Cablevision is now carrying the exact same networks they carried under the prior deal that it agreed to years ago. So we don't have one single additional network being distributed by Cablevision as a result of this deal. So having done this deal, I guess the theory is -- their theory would be, "Okay, we got the discount. We got the 3 suits for the price of 2, but now we want just one suit for the same price". It doesn't happen in our business. It doesn't -- in any industry. That's the nature of providing a discount for getting all these services. And then one last point. Our networks in the aggregate, based on Nielsen information, has roughly 20% of all viewing on ad-supported cable in Cablevision. The percentage of programming spent we represent for Cablevision is in the single digits. So we provide great value. In fact, 11 of our networks have higher ratings than MSG network in 2012 on a year round basis, 11. That includes TeenNick, which is in the suite that they're complaining about. TeenNick has higher ratings than MSG. Nick Jr. has vastly higher ratings. But the MSG family of networks charges a lot more than all of our networks combined. And it's common practice for networks, families of networks, to provide a discount if you carry their networks. For example, AMC presumably provides a discount for people to carry along with AMC, WE channel, IFC and IFC Film. Presumably, MSG offers a discount for people to carry MSG2, MSG PLUS and Fuse. So the bottom line is, I guess, the lawyers will get rich on this. And the tens of millions of dollars that Cablevision will spend over the next many years, if they pursue this lawsuit, would be better spent to provide better customer service for Cablevision customers.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Probably you should let them win and reopen that deal and see if you can get a fair price. So I mean, it does play into sort of a recurring theme that we have on the investment side, right, on -- in media, which is the concern that pay-TV bundle is getting too pricey. Do you share that concern that pay-TV bundle is getting too pricey? And if so, what might the solution be?

Philippe P. Dauman

Well, Doug, we don't get involved with distributors

[Audio Gap]

As you know, distributors, they bundle the television programming with broadband, with telephony, and the ecosystem is doing well. The distributors are doing well. Their stocks have been performing well. They generate a lot of cash flow. And as I've said before, over this last several years when we've had economic issues, the cable subscriptions in the overall market -- there have been market share shifts among the players, but they've held pretty steady. We just completed, based on a year in which MVPD subscribers, at least the ones we get paid for, rose just a little bit, but they rose. So I don't doubt that there are issues, but from the standpoint of our family of networks -- I'm not speaking for all families of networks, as I mentioned before, we provide great value, great value for the rates we charge.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Where do you stand on TV Everywhere deals?

Philippe P. Dauman

We have TV Everywhere agreements in place with several major distributors, including Cablevision, including DIRECTV, Time Warner Cable, Comcast and Verizon FiOS, AT&T, and we're in discussions with everybody else. So we -- I think the obstacle to it being completely useful for our customers is to get measurement and to get -- there's some technical issues still with certain distributors so that you can -- but I think the day where you can get television available -- folding [ph] your television available on any device inside and outside the home will be great for everybody. It would be great for the distributors and really great for us because once it's measured, it will just add more time spent viewing our channels and accordingly will lead to more advertising revenues. So we're beginning -- we're seeing some early steps in moving that direction on the part of Nielsen, primarily right now. There still a ways to go in order for that to fully kick in. So in many cases, TV Everywhere means authentication to, basically, video-on-demand sites and the like, but it's encouraging to see there is some progress. So we're very much in favor of it. I think it will be good for everybody and especially consumers.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I think Viacom has particular expertise in younger viewers. I know you guys do an awful lot of research and have been over a long period of time. And so I was curious if you had any commentary around how younger people are using media differently from previous generations. Does that suggest as they...

[Audio Gap]

They could just subscribe to the pay-TV bundle, maybe watch television less? Any concerns from your end on how younger people use media?

Philippe P. Dauman

Well, viewership on linear television's still holding up well, including in the younger demos. There's a lot more time spent consuming media. There's -- we are programming more and more to what we call the second screen, which is the personal device that -- it can be a pad, it can be a smaller device that younger viewers are -- have with them as they're watching television, so we're programming to that. They will be consuming more content on mobile devices, and we are either adapting existing content and creating new short form content for that, and that will expand significantly in the years to come. So we view it as an opportunity. We are working on innovative apps. We put out a Nickelodeon app. We're going to add others and we've gotten a lot of downloads there. It's a free app with a lot of original content in it, not just our linear television content, although linear television content is available for authenticated subscribers. So for us, we view it as an opportunity, and we are -- because of our research and because of the nature of our networks, we're at the forefront of it.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

The -- and when you sort of think about that path, because you're focused on increased usage on different platforms, are you concerned at all about the trajectory for where the pay-TV bundle's going to be in the future?

Philippe P. Dauman

Well, however the world evolves in the future, however technology evolves, you'll always need great content. That's why we always start with having great content, building our brands. And to the extent that there are more outlets out there, it's good for us and it's historically proven to be good for us. It was good when you had new technologies through satellite, when you had telephone companies getting in there and when you have online distributors and mobile distributors. Those are just more avenues for content.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So another area of online...

Philippe P. Dauman

And particularly, it will fuel growth internationally. We're finding technology is enabling content to be distributed in places and in ways and being able to be monetized in ways that were not available before. And that will really help accelerate our international development.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Another area that investors are focused on, which could be helpful in the long run but disruptive in the short term, is the concept of online distribution of the pay-TV bundle, an over-the-top provider. Would you consider sort of breaking ranks with the pack and licensing your channels to an over-the-top provider?

Philippe P. Dauman

I don't know if it's breaking ranks with the pack to the extent -- we're agnostic on means of distribution. So it's really what the economic model is. We were happy to go with up in the air and it's no different going what you call over the top. It's a question of what's the model, what is the neighborhood we're going to be in, what do we get paid, do we have it measured so we can sell advertising, all of those factors. It's all -- we're about driving incremental revenues. But in general, having more competition and distribution is good for content companies.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So you mentioned ad revenues. We'll go back, as I said, with advertising first, then we'll get back to the programming that actually drives the advertising. On the domestic side, it appears you're -- turn the corner, turning the corner. When does domestic advertising return to growth for Viacom?

Philippe P. Dauman

Well, we're still on track with what I said in our earnings call a few weeks ago. We expect to be -- to get close to flat, year-on-year, in this quarter that we're completing this month, and we're going to be turning it to growth next quarter. And we -- our last quarter, we were actually up across our network portfolio, x the Nickelodeon group, as Nickelodeon has been improving. The month of February, the range for Nickelodeon were up 9% year-on-year. So as Nickelodeon improves, that is -- and as we continue to drive the positive ad sales trajectory of our other networks, I think we can have a good time going forward.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I know a lot of focus on advertising for you has been around ratings delivery. Is there anything as well that you're seeing in terms of the tone of the marketplace? Is there any change, positive or negative, that you've been seeing?

Philippe P. Dauman

Tone of the marketplace for us has been good. The pricing held up. We're in -- the scatter market pricing is up in the teens over the upfront. It's mid-single digits, scatter to scatter. The -- for us, endemic category like movies are getting better with the kind of movies that are coming out and going to come out over the next several months. Non-endemics like autos and financials and retail are -- we've seen strong demand there. So for us, it's more the side of the equation that is helping us in addition to the tone of the marketplace...

[Audio Gap]

improving ratings at our key networks, notably Nickelodeon.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So how does that position you for the upfront when you sort of look at the landscape right now?

Philippe P. Dauman

We feel good about it. We had our -- we actually had our Nickelodeon Upfront presentation last week. It was very well received. We were able to showcase all the new content coming onboard. The new -- we have 6 new animated series being released for the end of our fiscal year. We talked about the development, the new accelerated development process we have in Nickelodeon. It was very well received so that we were very pleased. And our other networks are well positioned, whether it's COMEDY CENTRAL, the MTV pipeline, so we're feeling good about it. And again, the tone of the market is good as we head into the upfront. So we're quite optimistic.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Why don't we stick with Nickelodeon since you were talking to the programming there? I still think it's pretty remarkable that 30% of viewers disappeared over a relatively brief period of time and then it completely stabilized and even began to grow again. But now you're back to year-over-year growth. So obviously encouraging, the last year's performance. But when you look back, what would you say were the efforts that you took to shore up Nickelodeon? And what's worked and what hasn't worked?

Philippe P. Dauman

Well, we really took a very hard look at what we were doing, and we recognized that we had to do better. And part of the issue was competitive response that we had to make against primarily Disney at the time. And we revamped our whole programming department. We unified it. We unified the whole development process, which really brought a lot more talent from outside, as well as developing the talent inside. We put in one leader of programming for all forms of programming across all of our Nickelodeon networks. And we accelerated both the development and the production process. And we put a singular focus on having more animated content and getting it out there more quickly. And it's resulting in a lot of success and we have an extremely vibrant pipeline. We've brought in a lot of new talent into the tent. And so we have a lot more quantity of original programming coming out of Nickelodeon by a significant amount, and we'll continue to do so. And the quality and variety is also improving. So we were very -- we had that overarching strategy and then we looked at all the day parts and how we could build the day parts. And we focused on programming for the new kids coming up. And our research informed us about the post-millennial kids generation and what they're interested in, and the results are coming through. So we're doing better in the morning, morning or early afternoon segment for young kids. And by the way, we're also -- if you look at 18 to 49 viewership of Nickelodeon, that's also picking up. Looking -- and then we also -- it's not talked about very much, but as we have improved Nickelodeon, the Nick...

[Audio Gap]

time periods that Nickelodeon feeds into have significantly improved. So the ratings there are up double digits. And of course, we get very good monetization on Nick At Nite. So it's really helped our whole lineup and that will be a driver for us. It is already a driver of improvement and will continue to drive us as we go forward.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So what are the post-millennials going to be called?

Philippe P. Dauman

Well, we'll run a contest, try to figure it out.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

The -- yes, on the last earnings call, you did mention greater focus on the preschool children. And what we were trying to understand is you have NOGGIN and Nick Jr. already. So on Nick, what's the opportunity for preschool? Is it covered already?

Philippe P. Dauman

Well, we did -- we had moved some preschool programming off of main Nickelodeon onto Nick Jr. In part, that was a response to Disney Junior coming out. We overdid it. So we moved back some programming to main Nickelodeon, which of course generates advertising revenue, and then stepped up the production of animated content, which has the derivative benefit, as we're developing new animated content, of creating opportunities for new consumer products. Opportunities because that's also a major strategic initiative for us because that's a form of revenue that's very high margin, that is steady state and can grow and it's very global. Animated content generally travels very well. It drives consumer products revenues around the world. So it's a multiyear continuing growth process. Teenage Mutant Ninja Turtles, for example, is a property that we had developed for Nickelodeon, and the consumer products trajectory at this very early stage of Turtles is really strong everywhere. It's a true global property. And it will be lifted even more. It's back -- the new season is back on air right now. And we are looking forward to the beginning of production of the movie, which will be a Michael Bay-produced movie. So it will be different from what we have on television but it will just continue to grow the overall franchise and, again, consumer products. So we think that Turtles will be a major arm of our consumer products initiative, to add to SpongeBob and Dora. And as we announced at the Upfront, we have another Dora and Friends show, which makes Dora a little older than Dora and Friends and there will be another branch of the Dora franchise for consumer products. So a lot of that development is also tied into our consumer products initiatives.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So let's move a little bit older, talk about MTV a little bit. You're programming more nights of the week, right? So typically you were Tuesday-Thursday. Now you've got Washington Heights on Wednesday. Is that working? What's the outlook for MTV?

Philippe P. Dauman

Yes, in terms of original shows, we're programming Monday through Thursday. And we have much more diversity of programming. Of course -- look, we have the Jersey Shore monster show that drove MTV for several seasons and now we have a much better balance across several days, which is healthier. It's healthier for the network. It's healthier from an ad sales standpoint. So we're very pleased. Teen Mom 2 has had a great season on Mondays. And we are -- we're cutting back with Awkward in the next quarter. Actually, I think it's the end of this quarter, early next quarter. And we're going to launch a couple of new shows on the back of Awkward on Tuesdays in the next quarter. And we're going to be bringing back Teen Wolf and then we're going to launch a couple of other shows on Thursday night, including a Jersey Shore spinoff with Vinny from Jersey Shore. So yes, this -- it provides a lot -- again, it's the same theme: more programming, more original programming across different genres. And at the Upfront that MTV will have next month, it'll announce a lot of the fruits of development from the new programming team, which will start rolling out on top of all that this summer and, of course, into next year. So MTV is in a very good place. We -- 2 of the shows that we launched recently turned out to be significant hits. And we've -- they're coming back the next season in this fiscal year, and that's Catfish and Buck Wild. And again, we'll use the new seasons of those shows to launch even more shows. So it's a very healthy cycle that we're in right now in MTV development.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And so from our perspective, obviously, we have some Jersey Shore comps here and there, and so from an investor standpoint, we see some declines in the ratings. And I think what you described is, if you sort of look through that and look at the other end, health and breadth of the original programming, you feel pretty good about the trajectory that MTV is on now.

Philippe P. Dauman

Yes, we do.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

You also have the strategy that you mentioned earlier, shifting more to original programming on networks like TV Land and Nick and SPIKE. Can you walk through sort of how your programming strategy is evolving sort of for the rest of the network, and whether that increased emphasis on originals is paying dividends?

Philippe P. Dauman

Very much so. Yes, it's good for all of our brands to have signature original shows. And if you just take the TV Land example -- because we started doing that just a few years ago with Hot in Cleveland as our first entry. And having Hot in Cleveland, which turned out to be a great hit, it creates content that we own, that we can, by the way, syndicate and derive revenues from as opposed to just renting programming from a third party. And it lifts the aura of the entire network. It helps our ad sales force to be able to sell Hot in Cleveland at the same time as it's selling the third-party program, which TV Land will continue to carry. TV Land will continue to have acquired programming as part of its mix. So it's truly enhanced the image of TV Land with consumers and with our affiliates and advertisers. And the same thing with Nick at Nite where we have shows like See Dad Run and Wendell & Vinnie and some original made-for-television product, again, to add to that mix. And it results in higher CPMs for our overall lineup. So that's a direction you'll see us go to. SPIKE was very dependent on a single acquired series of programming than maybe UFC and we transitioned from that to reality programming that's done really well, from Auction Hunters to Bar Rescue to Ink Master. And we acquired Bellator mixed martial arts league, which has been doing very well. We're very happy. It just launched in January and we're going to build on it. And again, it will have a lot of ancillary revenues for us. We're going to build the pay-per-view business. It has -- it's very international in scope, given that everybody understands fighting, whether you're in India or Brazil or Russia or the U.S. And so we will be not relying on that one sport but it will be part of our lineup, and it will be something that we own and create value for us as an entity unto itself.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

You've talked -- you sort of mentioned some of the programming management changes across the company. Is -- are there further shifts in programming strategies coming as a result of having all of these new folks onboard, or is what we're really seeing is this current slate of the result of all the work that they've been doing?

Philippe P. Dauman

Well, there's more to come. We're always looking to have more and more great programming talent in our organization, programming for traditional linear TV. We need people to program the phones and other devices. We've unified development. We used to have the people who are doing "digital", different floor doing their own thing and now they're working hand in glove with the so-called traditional programmers. So you're going to see more -- the strategy is not changing. It's the execution. It's the breadth of talent and output that we're going to have. So some of the teams that we've put in have been put in recently, and you're going to see more and more of the content that they have. We've hired some of the best people that were out there at other companies. And that is the lifeblood of our company, it's to invest in content and the people who produce content. And that's true across our networks and it's true at our movie studio.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So I know you've been talking about sort of driving growth through investing in programming. The flip side of that is there's programming costs. And so, how should sort of this audience think about programming expense growth over the next few years as you sort of think about the programming strategies you've been talking about?

Philippe P. Dauman

I think the increase in our programming spend will be in the same neighborhood it's been for the last several years. It's really -- we have a big budget for programming. We grow it steadily. We grew it when -- in bad times and we grow it at good times at a predictable rate. We allocate it differently. There's certainly been a shift where we are -- as some of the licensed deals, the expensive license programming deals expire, we don't put it all back in to acquired programming. A portion of that money is reallocated to original programming. The mix -- we always produce a lot of original programming but the mix is tilting a little more heavily toward original programming, so it's a reallocation of dollars. And we keep all of our other costs down. But even in the programming area, we look for ways to produce programming more efficiently. So we have -- for example, we have moved some programming from other areas, the actual production, to places like Atlanta where you get some incentives to do it there. And costs tend to be lower in places like that. So we want to put as much as possible on the screen and do that as efficiently as possible. So we're getting a lot more for our money than we used to get.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And I know it's sort of a less exciting part of the story, but when you talk about controlling all the non-programming costs, we've lived through pretty nasty recessions, sort of an aftermath of the tepid economy. You've been sort of rebuilding some programming momentum. When do you run out of the ability to control the non-programming costs?

Philippe P. Dauman

I think we've proven that we're completely focused on that and that there are always opportunities. And our objective is to grow our margins over time. And even where we've had some hiccups there on the ad sales side, we've done a good job of maintaining our margins and improving our margins and we will continue to do that.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I was hoping you can sort of outline the international growth opportunity from here. And you talked about it up front as one of the drivers. And I guess the reason is we're all trying to understand how much of the upside you've had from international last year has just come from margins and shifting how that business is run versus sustainable longer-term growth. So how do you drive international from here?

Philippe P. Dauman

Well, it's been a great time of opportunity, where it's an opportunity to build our international business. It's a -- we've been launching a lot of new networks around the world. We've been expanding Nickelodeon. We've been adding more Nickelodeon networks within countries. We've -- adding Nick Jr. and Nick Toons and other Nickelodeon brands. We've made COMEDY CENTRAL now a global brand. We launched the Paramount Channel and we're going to be announcing -- there are several launches that will be announced over the next several months and continuing into the next few years. We've invested in a big way in India, which has a lot of promise for us. And we think we are building a significant asset and platform in India. A lot of opportunity across Latin America. And a lot of opportunity in the countries we were already in. And we're spending a lot of time in discussions with parties in a lot of emerging markets and other markets to grow our business or establish our business there. So we're really setting up -- right now, it's a very exciting time. I'm spending a lot of time, I, myself, to build a platform that will grow at very good rates for a long time. And I view it as my mission to really drive our international business.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Care to throw any long-term targets for the size of the international business?

Philippe P. Dauman

It will just -- it'll grow. We're going to grow our domestic business, but the international business will grow a lot faster just because there's a lot more opportunity. We're starting from a smaller base, of course, and we're going to have multiple strands of revenues, including what I mentioned before, consumer products. The opportunity there is pretty significant as you have a growing middle class around the world. When you go to places like India or parts of Europe, notwithstanding the difficulties currently experienced in Western Europe, you're still, over the longer term, going to have developing middle class. Latin America, where you have really a growing middle class that is consuming entertainment, consuming branded consumer goods, there's just a lot of opportunity there.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Paramount? Growth opportunity for Viacom?

Philippe P. Dauman

Paramount, it's been very solid, steady-state performance for us, a lot of great franchises. We have really good lineup coming up over the next few months with G.I. Joe 2; with Pain & Gain, which is another Michael Bay project with Mark Wahlberg; with Star Trek, which is amazing; World War Z, which is amazing. And again, for Paramount, the international opportunity is big. We're also going to put our toe in the water of television production at Paramount. So we're going to be announcing shortly -- and again doing it very judiciously, very small investment. But we have a very exciting project based on one of our film properties that we'll be announcing shortly. And then we'll look for other discrete opportunities. And over time, I think Paramount can get back with very little investment into the television production business and maybe work with some of our other networks. So that's an opportunity there. And as I said earlier, Paramount is really helping us create value throughout Viacom. The animation effort, starting with the SpongeBob movie next year, and at least one movie every year after that is good for Paramount.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

One animated movie, not one [indiscernible]?

Philippe P. Dauman

One animated movie, yes, SpongeBob being the first animated movie. The second one will be an actually original IP, and will also be consumer -- have consumer products possibilities. So it's good not just for Paramount, but it's also good for the Nickelodeon brand. And one of the elements of our channel development around the world is the Paramount Channel, which is based on a library. It's not a pay channel, it's a library and it's ad-supported, ad and affiliate revenue-supported around the world, and there's tremendous receptivity of that channel everywhere I go.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So I've got a couple of more questions. We can also take a couple from the audience. We should have time. So let me just ask one more first. There's always a lot of discussion around EPIX, right? The pay window continues to evolve. How do you drive EPIX from here? How do you get more traditional distributors interested?

Philippe P. Dauman

Well, this is doing really well, particularly now that we have, not just Paramount, but Lionsgate kicking in with titles like Hunger Games, and MGM with the Bond franchise, which is on EPIX. So EPIX has a particularly strong lineup of films over the next several years. That, of course, helps a lot. It helps with consumers where we have traditional distribution. Its penetration is increasing, so we're going to continue to increase profitability at EPIX. As you know, EPIX became profitable within a year of launch, so it's nicely profitable for the partners. We added Amazon as a distributor not too long ago. So the digital distribution stream is healthy, and we're in discussions with other distributors. And as time goes on, we'll add more distribution and the profitability will grow. So we're very pleased with EPIX and where it is, the current stage of development.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Any questions at all from the audience? One in the back. John [ph]?

Unknown Analyst

Yes. Philippe, where are we in the margin objectives for outside the U.S. I think you had said something like 20% OI margin. You said that 3 years ago. Are we almost there?

Philippe P. Dauman

Yes, we're -- we should be there this year, as I indicated. And our objective -- yes, at the same time, we're getting there, while, as I mentioned before, we are investing in launching new networks. So we're achieving those margins despite the cost of launching new networks. And as new networks kick in, and become individually profitable over time, the overall margin should grow. So having -- once we cross the 20% threshold, our intention is to continue to build from that.

Unknown Analyst

Also, Philippe, your advertiser base, in general, looks different than other media companies. Are we making any progress with financial service companies and even auto manufacturers?

Philippe P. Dauman

Yes, we're making great progress there. Yes, those -- you've identified a couple of categories where traditionally we had pretty low market share. And automotive has been growing at a very rapid rate for us. And I expect that to continue because if you look at the remodeled car companies, they're putting out a lot of more economically priced cars for younger consumers. And that's right in our wheelhouse. So we've really been building our relationships with GM and Ford and Chrysler, Toyota and Honda and all the others. And that's a big opportunity that we've been working on and the same thing with financial services. So our strategy as far as that goes is to hold the endemic categories, which we have had traditional strength, and to increase our market share in others. And the other way we want to do that is to build our strength in somewhat older demos. So that's why we, going back to the -- Doug's question about original programming on networks like TV Land and Nick at Nite and SPIKE, and we want to also invest in development of CMT. We view that as an opportunity to grow our older demos and, therefore, cap categories of advertisers that are not traditionally associated with our younger viewing demos.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Any more? So I'll wrap up with one last one, which should be just about perfect on time. So you put it all together, and I guess I'm really thinking more about the cable networks than the total company with Paramount but you could throw that in there if you want to. I think investors are trying to figure out whether Viacom is a low single-digit grower, mid-single-digit grower, high single-digit grower. And I think during a structurated [ph] softness at Nickelodeon, it's been a low single-digit grower. And folks are trying to figure out if that's going to shift and where it's going to end up.

Philippe P. Dauman

What metric are you using?

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So this is the EBITDA metric, yes.

Philippe P. Dauman

Well, look, we -- our business, the networks business, is roughly straightforward to what the sources, the ins and outs are. The source of revenues are affiliate revenues. We've talked about that. Ad revenues, we had a negative year. Now we're going back toward growth. We contain our expenses and accordingly, that will -- the math of it should indicate improved performance. We're using a lot of our free cash flow generation to buy back our stock. We also pay a dividend, a nice dividend on our stock, returning a lot of capital to shareholders. And that's just driving our bottom line, our earnings per share. And the -- you can make whatever assumptions you want to make on the future and what that should result in, but we feel very good about our prospects right now.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Philippe, thank you very much.

Philippe P. Dauman

Very welcome, Doug.

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