Viacom Management Discusses Q4 2013 Results - Earnings Call Transcript

Nov.14.13 | About: Viacom Inc. (VIAB)

Viacom (NASDAQ:VIAB)

Q4 2013 Earnings Call

November 14, 2013 8:30 am ET

Executives

James Bombassei - Senior Vice President of Investor Relations

Sumner M. Redstone - Founder and Executive Chairman

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

Wade Davis - Chief Financial Officer and Executive Vice President of Strategy & Corporate Development

Thomas E. Dooley - Chief Operating Officer, Senior Executive Vice President and Director

Analysts

Michael Nathanson - MoffettNathanson LLC

Brian W. Wieser - Pivotal Research Group LLC

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Barton E. Crockett - FBR Capital Markets & Co., Research Division

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

Vijay A. Jayant - ISI Group Inc., Research Division

John Janedis - UBS Investment Bank, Research Division

Alan S. Gould - Evercore Partners Inc., Research Division

Douglas Creutz - Cowen and Company, LLC, Research Division

Daniel Salmon - BMO Capital Markets U.S.

James G. Dix - Wedbush Securities Inc., Research Division

Operator

Good day, everyone, and welcome to the Viacom Fourth Quarter and Full Year 2013 Earnings Release Teleconference. Today's call is being recorded. At this time, I'd like to turn the conference over to Senior Vice President of Investor Relations, Mr. Jim Bombassei. Please go ahead, sir.

James Bombassei

Good morning, everyone, and thank you for taking the time to join us for our earnings call for the quarter and fiscal year ended September 30. Joining me for today's discussion are Sumner Redstone, our Chairman; Philippe Dauman, our President and CEO; Tom Dooley, our Chief Operating Officer; and Wade Davis, our CFO.

Please note that in addition to our press release, we have slides and trending schedules containing supplemental information available on our website. I want to refer you to Page #2 on the web presentation and 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. Today's remarks will focus on adjusted results. Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website.

Now I'll turn the call over to Sumner.

Sumner M. Redstone

Thank you, Jim. Good morning, and welcome to Viacom's fourth quarter conference call. Once again, we have reported outstanding results, with growth across the board in the quarter. Making great content is the heart of our business, and today, we are producing more creative and exciting entertainment than ever before in our history. Our creative leadership team, led by Philippe, is ensuring that our creative success results in solid returns and growing value for our shareholders.

Now I'd like to turn the call over to my good friend, one of the wisest men I have ever met, Philippe.

Philippe P. Dauman

Thank you so much, Sumner. And good morning, everyone. Thank you for joining us today. Let me start by briefly covering the company's financial performance for the quarter and the full fiscal year, and then Tom and Wade will go into greater detail.

In the fourth quarter, revenues increased 9% to $3.65 billion, and adjusted operating income rose 16% to set an all-time quarterly record of $1.21 billion. Adjusted net earnings from continuing operations attributable to Viacom increased 18% to $739 million. Adjusted diluted earnings per share were up 28% to $1.55, also an all-time record quarterly result.

For fiscal 2013, revenues were $13.79 billion, down 1% from the previous year, and adjusted operating income rose 1% to $3.94 billion. Full year adjusted net earnings from continuing operations rose 2% to $2.32 billion, while full year adjusted diluted earnings per share rose 11% to $4.68.

Our cash flow and balance sheet are strong, and we remain steadfastly committed to our dual objectives, investing in everything we need to grow our content business and returning capital to our shareholders. In fiscal 2013, we returned $5.4 billion to shareholders through share repurchases and dividends. That includes the repurchase of nearly 70 million shares or approximately 14% of our shares outstanding at the beginning of the fiscal year and more than $550 million in dividends paid.

On our last earnings call, we announced an increase in the size of our share repurchase program from $10 billion to $20 billion. As we noted at the time, we augmented the pace of our buyback with the purchase of an additional $2 billion of our stock completed in the September quarter, which resulted in an aggregate repurchase of $2.7 billion in stock for the quarter. In the current quarter, we plan to return to a normalized buyback pace and purchase $850 million in stock. For the current fiscal year, we plan to purchase at least $3 billion of our stock.

Our results for the quarter are the capstone to a remarkable fiscal 2013 for Viacom with steady improvement as the year progressed. As always, Viacom's unwavering strategic focus is on content. We invest consistently in bringing more and more original programming to more and more screens to connect with audiences and fuel growth.

A year ago, we pledged to redouble efforts to return ratings momentum, and we delivered on that promise, particularly at our flagship networks, Nickelodeon and MTV. We invested more than ever in programming to fuel new hits, but we also conducted a thoughtful evaluation and evolution of our development, installing new programming leadership, honing our brand filters, diversifying our producers and creative partners, refining our scheduling and leveraging our audience connections across platforms in innovative ways.

In the September quarter, ratings were up year-over-year at nearly every network in our portfolio, including Nickelodeon, MTV, Comedy Central, BET, SPIKE, CMT and Nick at Nite, among others. We made particular progress in growing range in those demos and dayparts where the opportunity for monetization is the greatest. On a revenue-weighted basis, ratings on our networks were up double digits. SPIKE notched its highest quarterly rating in nearly 3 years. MTV2 had its highest-rated quarter ever as it continues to evolve into much more than a flanker brand for MTV with successful originals including Guy Code and Wild 'N Out.

Nickelodeon achieved its greatest year-over-year ratings improvement in 16 years. In fact, October marked Nick's ninth straight month of year-over-year ratings growth. Nickelodeon's success is due to its balance of new original hits, including Sam and Cat, The Haunted Hathaways, Sanjay and Craig, Rabbids Invasion and the continued strength of established hits including SpongeBob and Teenage Mutant Ninja Turtles. A new Nickelodeon programming team has increased its output while maintaining a solid hit ratio.

Importantly, while we're seeing great ratings improvement, we've yet to see the full impact of this new generation of hits. As we launch more and more original episodes of these shows, we'll see even greater impact on our ratings across the schedule. And yet, Nickelodeon is keeping its foot on the programming pedal, aggressively green lighting a diverse new slate of series, increasing the volume in its content pipeline and building for the future.

At MTV, the network made a bold statement on the enduring power and cultural impact of its brand with the 2013 MTV Video Music Awards, which attracted 10.1 million viewers and created a Miley Cyrus moment that is still reverberating across the pop culture landscape. MTV continues to build out a balanced schedule of originals including scripted fare like Teen Wolf and Awkward, reality hits including Catfish and Teen Mom and cost-effective utility series such as Ridiculousness and Girl Code that comprise the kind of diverse offerings that the millennial audience demands and advertisers love.

In fiscal 2014, MTV is ramping up to introduce a new wave of original content developed by its new programming team, including Generation Cryo, House of Food, Virgin Territory, Jerks with Cameras, and new scripted series Faking It and Happyland, and look for a special Miley weekend this quarter.

In fiscal 2013, across our networks, we executed against strategic priorities with great results, whether it was continuing to implement new brand filters and increase programming investments at CMT and SPIKE to drive ratings growth, reinvesting the BET Awards through the usually successful BET Experience, building a great bench of new young talent at Comedy Central with Amy Schumer, Nick Kroll, Key & Peele and more, or even establishing a strong new format at VH1 in rock biographical films with CrazySexyCool. We deployed our $3 billion investment in content in more new episodes, formats and genres, and the result is portfolio-wide strengths in programming and development that gives us a great foundation as we enter a new fiscal year.

Of course, we are aggressively monetizing this strength. For the September quarter, we grew domestic advertising by 10%. This is not only attributable to our ratings improvement but also to the efforts of our ad sales organization to build one of the most client-centric, solutions-oriented teams in the business. And networks are leaders not only in creating connected content across screens for audiences but also for advertisers. And we continue to enhance our best-in-class integrated marketing capabilities to meet ever-growing advertiser demand for custom marketing solutions that leverage our creative capabilities. While we are only halfway through this quarter, we currently anticipate mid-single-digit growth in ad sales for the quarter. This will lay the foundation for significant improvement in full year ad sales growth built in our programming rollout across our networks, our upfront calendarization and a steadily improving economy.

On the distribution side, the highlight of fiscal 2013 was our landmark multiyear agreement with Amazon to stream library content through Prime Instant Video. The agreement demonstrated our ability to collect significant value for our content through a new growing distributor but also to smartly orchestrate our content windowing so that we can do additional deals as new entrants come to market. At the same time, our biggest priority is to work with our cable, satellite and telco distributors as they innovate and bring new products to market.

Creating hits and driving ratings remains a priority. We continue to build on the current success of our channels, but we're also actively preparing for the future. Our audiences are driving the changes in content consumption that are reshaping the media landscape. We're positioning ourselves to capitalize on these changes across multiple platforms and devices.

This year, we've successfully launched branded channel apps for Nickelodeon, MTV, and very recently, VH1 and CMT. And we're launching apps for Comedy Central and Logo in the coming months. The Nickelodeon app has attracted more than 5 million installs alone, and each of the apps is garnering significant time spent and commanding premium CPMs. We're also experimenting in how we deliver content on these apps. For example, MTV recently released the complete season of its new series, Wait Till Next Year, on its app in advance of its on-air premiere. Much of the video we're delivering via app is thanks to our TV Everywhere agreements. 10 distributors currently support our authenticated apps and websites, and we expect to reach additional agreements soon.

Despite challenging macroeconomic conditions in Europe, we made several strategic moves in fiscal 2013 to position ourselves well for the international growth. We aligned our cost structure while launching a number of new channels, including the Paramount Channel in France and Comedy Central Asia, and taking full operational ownership of our MTV channels in Brazil, Russia and Italy. More recently, the 2013 MTV European Music Awards in Amsterdam on Sunday grew ratings in its key demo by over 40%, including big growth in the U.K., Italy and the host country of the Netherlands. The show also rated highly on MTV in the U.S. We will continue to expand our channel presence into 2014. The stabilization we are seeing in the European economy, coupled with our strategic development, should return us to a path for substantial growth in our international results.

In Filmed Entertainment, Paramount began its fiscal year with a very successful run of our branded film, Jackass Presents: Bad Grandpa, which is well on its way to reaching $100 million in domestic box office. In fiscal 2013, the studio delivered strong performing new installments of its Star Trek, Paranormal Activity and G.I. Joe franchises and launched a new franchise in World War Z. We are very excited about Paramount's 2014 slate. It includes a diverse mix of films that underscores Paramount's commitment to serving all audiences. This includes established tent poles such as the upcoming Anchorman 2 and Transformers 4 next summer, as well as films this award season from Oscar-winning filmmakers including Alexander Payne's Nebraska and Marty Scorsese's The Wolf of Wall Street, and after that, our proprietary franchise films such as Jack Ryan: Shadow Recruit, Paranormal Activity: The Marked Ones and Michael Bay's Teenage Mutant Ninja Turtles. Paramount has also established a lean television production organization that, together with its existing digital unit, will intelligently take advantage of growing opportunities for quality original content on a wide range of platforms.

To close, a great fourth quarter of substantial top and bottom line growth concluded a strong fiscal 2013 for Viacom. A year marked by reinvention and renewed ratings and operating momentum. We also continue to restructure our operations to find operating efficiencies. Savings achieved will fund our investment in people and technologies to drive us to an even brighter future as we control the growth of our overall expenses.

As we enter a new fiscal year, we will maintain our laser-like focus on investing in content, the lifeblood of our company. We will continue to innovate in developing new content, new marketing initiatives and new ways to reach consumers in more places on more devices. As we transform our company to take advantage of all the new opportunities for our content and our brands, we will steadfastly continue to make good on our pledge to return substantial capital and value to our shareholders.

Thank you. And with that, I'll turn it over to Wade.

Wade Davis

Thanks, Philippe. Before I take you through our operating results, I want to note that our earnings release and web presentations summarizing the results for our September quarter are available on our website. Now let's take a look at our segment results.

At our Media Networks segment, revenue in the quarter were up 7% compared with the prior year with domestic revenues up 8% and international revenues up 2%. Foreign exchange had a 1-percentage-point unfavorable impact on international revenues. The increase in revenues in the quarter was principally driven by increases in advertising and affiliate revenues. Page 10 of our web deck provides a breakdown of our Media Networks revenue performance.

Domestic advertising revenues were up 10% in the quarter, and international revenues were up 3%. As Philippe mentioned, Europe is starting to show signs of stabilization. In terms of affiliate revenues, domestic revenues increased 6% in the quarter while international revenues were up 4%. Excluding the impact from the timing of product available under digital distribution agreements, domestic affiliate revenues grew high single digits. Growth in international revenues was due to rate and subscriber increases.

Expenses increased 5% in the quarter. Within expenses, programming expense grew 6% while SG&A expense increased 4%. The increase in SG&A expense was primarily due to higher incentive-based compensation.

Media Networks adjusted operating income was up 11%, and the adjusted operating income margin was 42%, an increase of 140 basis points compared to the prior year. The margin increase was driven by top line growth of 7%, partially offset by 5% growth in expenses.

Moving to Filmed Entertainment, revenues were up 11% in the quarter, principally due to higher home entertainment and ancillary revenues. Page 12 of the web presentation provides a breakdown of Filmed Entertainment revenues.

Theatrical revenues increased 31%, primarily due to higher carryover revenues from the June quarter release of World War Z. Home entertainment revenues were up 24%, reflecting the strong mix of titles released in the quarter, including Star Trek Into Darkness, G.I. Joe: Retaliation and World War Z. TV license fees were down 17%, driven by the number and mix of titles available. Ancillary revenues increased 54%, primarily reflecting the Marvel distribution rights sales, as well as growth in the proportion of digital distribution revenues for key entertainment titles released in the quarter.

Filmed Entertainment generated adjusted operating income of $291 million in the quarter as compared to $195 million last year. The increase principally reflects the profitability of home entertainment titles, as well as profits from ancillary revenues.

Now touching on corporate. Expenses increased $32 million in the quarter. The increase relates to higher deferred compensation costs related to the appreciation in our stock price, as well as higher incentive-based compensation cost. For fiscal year 2013, the adjusted effective tax rate was 32.9%, reflecting a 110-basis-point improvement over the prior fiscal year's adjusted rate. The reduction in the effective tax rate was primarily driven by the mix of international versus domestic income.

And with that, I would like to turn the call over to Tom.

Thomas E. Dooley

Thanks, Wade, and good morning, everyone. Let me talk about our cash flow, our debt profile and the return of capital to our shareholders. I'll also cover the seasonal factors impacting our 2014 fiscal year.

For the quarter, we generated approximately $1.1 billion in operating free cash flow and exceeded $3 billion in free cash flow for the full year. Page 5 of the web deck presentation provides the components of free cash flow. The increase in operating free cash flow for the quarter was principally due to lower cash taxes and higher operating income. Cash taxes benefited from provisions allowing for accelerated deductions related to domestic film and TV production expenses, as well as from the timing of cash tax payments.

Now turning to our debt. For the most part, it is fixed rate with an average cost at quarter end of 4.6%. On our last call, we indicated that we were comfortable returning to our target leverage ratio to the pre-recession range of 2.75 to 3.0x. Accordingly, during the September quarter, we issued a total of $3 billion in senior notes and debentures in a combination of 5-, 10- and 30-year maturities. We were able to issue the new debt at a rate commensurate with our overall cost of debt while at the same time extending our weighted average maturity.

In terms of our short-term funding, to the extent we have incremental borrowings, we are funding this in the commercial paper marketplace at an annual rate of approximately 25 basis points. We had no variable rate borrowings outstanding at quarter end.

As for our leverage, we ended the quarter with $11.9 billion of debt and capital leases outstanding. We had $2.4 billion of cash and cash equivalents, some of which will be deployed towards our buyback program. Our leverage ratio at the end of the quarter was 2.8x. At September 30, our $2.5 billion bank revolver was undrawn.

Our return of capital to shareholders continued in the September quarter. Between our buyback and dividend programs, we returned a total of approximately $2.8 billion of capital back to our shareholders. Looking ahead, we are on pace to purchase approximately $850 million of our stock in the December quarter. Our capital return has been consistent. If you look back 3 years to when we started our current share repurchase program, our stock was trading at approximately $36. Since then, between buybacks and dividends, we have returned a total of $12 billion to our shareholders or approximately $20 for each share outstanding at the start of the current program.

If you go back to 2006, when the 2 companies split, we have bought back an aggregate of 336 million shares in the open market at an average share price of $47. At the end of September, we had 449 million shares outstanding. At our current buyback rate, we will purchase more than 10 million shares in the December quarter based on our current stock price. If you exclude the shares owned by National Amusements, we will have less than 400 million shares outstanding at the end of December.

Now let's turn to some of the factors impacting our 2014 fiscal year. In terms of our affiliate revenue, we continue to see growth in the high single-digit to low double-digit range. However, quarterly affiliate revenue will fluctuate given the timing of transactions and the recognition of revenue related to some digital agreements which are tied to product availability.

For the full year, we expect the growth rate for Media Networks programming expense to be in the high single digits. In terms of programming expense -- in terms of nonprogramming expense, we will continue to drive efficiencies throughout the organization in order to preserve and enhance our margins.

For 2014, we are forecasting a book tax rate of 34.5%. We will refinance as we go through the year and get a better sense of domestic versus international profitability mix.

Looking ahead at the studio's production and development pipeline, we are currently in production in partnership with Warner Bros. on Interstellar, which is directed by Chris Nolan. Paramount has a number of animation projects in the pipeline with SpongeBob and Monster Trucks scheduled as the first films to be released under their animation label. And we are in development on a number of sequels including Mission: Impossible, Star Trek, G.I. Joe, as well as World War Z.

In summary, 2013 marked a year of accomplishments on several fronts. As we reinvigorated a number of our programming and development teams and increased our investment in original programming, we saw a turnaround in ratings at many of our networks. Our ad sales performance rebounded, and we achieved double-digit growth in our domestic affiliate revenue for the seventh year in a row. We leveraged this improved operational performance to return a record amount of capital to our shareholders.

As we look forward, our focus continues to be on creating content and experiences that engage our audiences on every screen. We are investing in our organization and our infrastructure in order to monetize our audiences as they embrace new platforms and new technologies. These investments are enabling us to create unique opportunities and additional value for our advertising and distribution partners.

With that, I will turn the call over to your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Michael Nathanson of MoffettNathanson.

Michael Nathanson - MoffettNathanson LLC

I just have quick one for Tom and one for Philippe. Tom, just going back to what you said on affiliates for your guidance, what are you assuming for SVOD in this fiscal year? So you expect it to grow, stay the same or come on down?

Philippe P. Dauman

I'll take that question, Michael. The way we -- we don't break it out in a way we discuss our affiliate revenues. We have -- in order to get to our high single digit, low double digit, we have a lot of business in the house. So we have run rate of existing deals, both traditional -- so-called traditional and SVOD and other. And we obviously have renewals along the way. We make certain reasonable assumptions and new business that we are in discussions on. So we're very comfortable with the continuation of our high single-digit, low double-digit growth rate this year and actually in the years to come.

Michael Nathanson - MoffettNathanson LLC

Okay. And then I will go to you, Philippe, on international. This quarter was pretty good for international advertising growth. You talked about Europe improving. Was that one of the factors -- how important was Europe in driving this quarter's improvement and sustainability? We've heard a lot about easy Olympic [ph] compares on the continent. So when you look at the year ahead and kind of the trends you've seen in this current quarter, sustainability of advertising growth internationally, how do you feel about that?

Philippe P. Dauman

I feel that with the stabilization of the European economy and particularly in Continental Europe, the U.K. has actually held up reasonably well for us. We're seeing improvement. So we expect to see high single-digit growth in this quarter and international ad sales, and we expect to have a solid year for the full year and especially as a result of our continuing to expand our footprint in different parts of the world. So that will drive our growth not just this year but in the years to come.

Operator

[Operator Instructions] And we'll take our next question from Brian Wieser of Pivotal Research.

Brian W. Wieser - Pivotal Research Group LLC

I was wondering if you could talk through the role of digital advertising in the current quarter and just how traction is on apps, to what degree you see incremental revenues from that. Maybe relatedly, I'd love to hear your current thoughts on the state of measurement given the recent Nielsen and Google deal on OCR. And what do you think that advertisers are willing to accept in terms of the data you can provide in terms of first-party metrics?

Philippe P. Dauman

Let me take the question, and Tom can add to it as he wishes. We are -- as we launch apps, obviously, they serve 2 purposes. One, we are creating a lot of new content for the apps and as well as putting on some of our existing content. And we have the ability to sell advertising directly on that. So as we roll them out, as they expand, as usage increases, that will drive new ad sales. The second purpose of these apps is to support our business with all of our affiliates. And we are looking forward to more widespread rolling out of so-called TV Everywhere capability such that we will have more reach to our consumers. We'll be able to have linear viewing. We'll be able to secure better ratings. We'll be able to secure more engagements because of all the other functionalities that we'll have on the apps. We also look forward to our distributors inserting capabilities like digital ad insertion and the like. So there's a lot of opportunity ahead. On the measurement front, which will also drive the penetration of TV Everywhere capability, we are encouraged by a lot of the initiatives that are on place. And as we go forward and as we roll out this app capability, we will have the opportunity to combine sample type ratings with first-party data that we already utilize on our dot-coms, on our apps and mobile application as we go forward.

Thomas E. Dooley

Yes. Brian, there's a great deal of demand for digital video inventory that's based upon or delivered within professional -- professionally produced content, and we are enjoying the benefit of that demand as we continue to fill that pipeline with our great content. Also, as Philippe said, I think measurement is just beginning in terms of its evolutionary process. And as you get measurement down, you will evolve currencies behind that, and I'd say we're in the first or second inning of a 9-inning game on that.

Brian W. Wieser - Pivotal Research Group LLC

Do you see that many advertisers are right now buying integrated packages right now? Or to what degree -- how common is that at this point in time? Or is it really standalone?

Thomas E. Dooley

The point that we see is that most of all -- almost all of our advertising is an integrated package because we have great demand from our largest advertisers to buy across the ecosystem.

Operator

And we'll take our next question from Doug Mitchelson of Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Two questions. I guess we'll jump balls. First, can you talk about the puts and takes driving December quarter domestic ad growth?

Philippe P. Dauman

Well, we have -- for this quarter, we have new programming rolling out as the quarter progresses, a lot of new series that are premiering, great lineup for Nickelodeon. It’s going to have a huge Thanksgiving weekend with a lot of original premieres and movies. We see good volume in the scatter market to build on a good foundation that we obtained in the upfront market. By the way, as the year progresses, the calendarization of the upfront gets better for us. So we see optimism ahead for the year as we go on, and a lot of our new programming on some of our other networks such as MTV and BET and others are really kicking in as the year progresses. So we expect this quarter to be solid and the year to be solid.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Does that mean that there's a potential that advertising accelerates during the year?

Philippe P. Dauman

There's that potential.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And then the second question is the 4Q '13 pulse noted domestic subscriber levels for your channels, including your mature channels, improved over the last year. So by our math, pay-TV video subs in the U.S. is essentially flat year-over-year. So first, did your internal results match what you're seeing from the Nielsen data reported in the 4Q '13 pulse? And is the high single-digit to low double-digit domestic affiliate fee revenue growth guidance reliant on subscriber growth at all?

Philippe P. Dauman

Well, obviously some variability depending on subscriber growth. That's how we always state our range to be in the high single digit to low double digit. The number of subscribers is holding up reasonably well. We have some lag in our data based on the way we get paid. But it's holding up reasonably well. The mix of distributors is -- improves as our market share shifts, from our point of view, both in terms of the distribution scope of our networks with some of the distributors that are gaining market share, as well as terms. So yes, within that range, obviously, one of the components of improvement would be some growth in subscribers, but we're not dependent on that.

Operator

And we'll take our next question from Barton Crockett of FBR Capital Markets.

Barton E. Crockett - FBR Capital Markets & Co., Research Division

I wanted to probe a little bit more on the ad growth. You spoke to mid-single digits that you're seeing here in the December quarter from the 10% that you just put up. I was wondering if you can be more granular on why you see a slower trend in the December quarter than the quarter we just passed. Does it have something to do with the Olympics comps or something to do with categories? I mean, I think kid's movies were good in the September quarter, maybe not as good in the December quarter, so more color there will be helpful.

Philippe P. Dauman

Well, we -- yes, we think mid-single-digit range is good for this quarter. The last quarter really came on strong as the quarter ended. It's a combination of our having really strong ratings across the board and a few categories such as retail pulled up at the -- pulled into the September months, some of the advertising that they originally scheduled for the beginning of the fourth quarter. So retail would probably be a category I would highlight as want to get ahead of the game in their advertising spend. So overall, we see a healthy marketplace, and we're very optimistic. Obviously, we are counting on the economy, the general economy, to continue its recovery. If the recovery accelerates, that will also be good.

Barton E. Crockett - FBR Capital Markets & Co., Research Division

Okay. And you had very good ratings performance in the quarter. As part of your -- what you're seeing here, just an assumption maybe that these ratings performance doesn't necessarily continue or was there really anything that applies to that in the outlook?

Philippe P. Dauman

Well, we feel good about how our ratings will be over the year, particularly on a revenue-weighted basis, as we indicated in our remarks. We're very focused on where the revenues are across our networks, and we have, with the higher volume of programming that we're producing, more flexibility on how we schedule our programming. So we have enough in the pipeline that we can move things around and yes, really look for the opportunities where the monetization is best.

Operator

And we'll take our next question from Alexia Quadrani of JPMorgan.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Just staying on the strong growth that you saw in the September quarter, were there -- was it really driven by any, I guess, one network? Did one network start to stand out as sort of a bigger driver of that growth? And then second question is sort of the improvement at Nick at Nite, did that sort of broaden your advertiser base a bit? I mean, with the demographics being a bit older, are you finding yourself pulling in maybe some advertisers more traditional for broadcast?

Philippe P. Dauman

Really, the strength in the quarter was pretty much across the board in our networks. And obviously, when you compare the fact that Nickelodeon, all the Nickelodeon dial, Nick and Nick at Nite as you point out, the improved ratings clearly helped. But across the board, we had strength. And yes, Nick at Nite, along with TV Land and CMT, give us the -- and other dayparts in other networks give us the opportunity to capture some of the older demos to build on our strength in the younger demos. And we can pick up some off-broadcast ad dollars through that. So as our ratings grow or continue strong in those demos, it gives us the opportunity to gain market share there.

Operator

And we'll take our next question from Vasily Karasyov of Sterne Agee.

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

My question is about Paramount. If we look at the full year results and compare it to the last few years, we do see that this year was below what we came to believe is the run rate profitability there. So I was wondering if you could talk about what made this fiscal year '13 different in the film studio and what kind of results should we be expecting going forward.

Philippe P. Dauman

Well, Vasily, first, we're pleased with Paramount's performance during the year. And this was an unusually crowded tent pole summer where all the studios released a lot of tent poles. And so it's very competitive. And given that, our tent poles, Star Trek and World War Z, did quite well. And I think Paramount was probably unique in not having a tent pole that failed during the summer. So it was a very competitive year, particularly in the summer. In terms of availabilities, yes, we had lower television licensing revenues than we experienced in prior years, and some of that has to do with what our own availabilities are. Some of it has to do, again, with some softness in certain markets, particularly in Continental Europe. And we hope to see improvement in that area in this year. As I indicated in my remarks, we also have a particularly strong lineup this year, as cited in our releases. So we feel we're going to have a solid year at Paramount.

Thomas E. Dooley

And Vasily, as you know, Paramount has done a great job around the world in terms of JVs on its distribution infrastructure and to further really enhance the core structure of the Paramount group to be able to continue to grow profitability in the future.

Operator

And we'll take our next question from Vijay Jayant of ISI Group.

Vijay A. Jayant - ISI Group Inc., Research Division

You guys talked about controlling costs apart from your programming costs increasing in the high single digit, can you sort of talk about some of the things that you've been doing to sort of reduce cost across both the film and the network side, automating the advertising process and showing distribution internationally? Where are we on that process? How much is left to be done there? And second, just quickly on cash in hand, given you're returning a lot of capital, what's the optimal amount of cash you should have on your balance sheet?

Philippe P. Dauman

I'll take the first question and leave it to Tom and Wade on the second one. Yes, we continue, throughout our organization, to look for opportunities to operate our company better. And operating it better involves both saving money by putting in software systems and other systems that make us more efficient, looking for opportunities to work with other partners. For example, we have, just very recently, in the Netherlands, entered into an ad sales joint venture with both Discovery and FOX, which will enhance the ad sales organization there both from a revenue side and a cost effectiveness side. So we always look for operational capabilities throughout the organization. In film, Tom touched on the distribution opportunity around the world. And we, together with other studios, look for more opportunities in more countries to do that as the overall output of these studios has diminished over the year, so it makes a lot of sense to combine infrastructure. And the other part of that, in operating the company better, is as we are doing that, we continue to invest in what we need to grow our business so that we can launch more apps, so that we can take advantage of the strong emerging opportunities in mobile video, and so we can take advantage of international development opportunities, taking control of Brazil and Italy and Russia and really expanding our footprint and our scale in those countries. So yes, that's a dynamic process, and we are -- we never stop on that. So we accomplished a lot, and we continue to look for opportunities. On the cash on hand?

Wade Davis

Yes. Cash on hand, Vijay, is in the area of $750 million to $1 billion would be sort of what I would call our optimal or average that we'll have at the end of any given quarter. That will vary, though, as of the end of this quarter with the borrowings that we've done and our net investment. Also, I mean, just to supplement what Philippe said, if you look at our capital expenditures, which is very modest and the majority of our capital expenditure goes into investing in information technologies that really are, on a global basis, driving down the cost of doing business at the company in terms of operating in business hubs on a global basis that support our diverse operations around the world that used to be supported by our operational facility that were diverse and dispersed in different markets. That is driving a lot of efficiencies and allows us, as Philippe said, as we expand into new markets, allows us to enter those markets with little incremental cost. So we think those investments have turned out extraordinary well, and the teams that have put those in place over the last several years have done a great job. And I think in terms of your runway to the future, I think there's significant additional opportunities both as we expand and continue to put more operations through those regional operational centers.

Operator

And we'll take our next question from John Janedis of UBS.

John Janedis - UBS Investment Bank, Research Division

Philippe, you talked about some of the new programming. Are your original hours increasing this year across the platform? And as you move to more originals versus licensed, how has cost per hour changed?

Philippe P. Dauman

Well, yes, so the answer is we are increasing the number of original hours across the board. That's how we're applying incremental spending. We still are acquiring third-party programming, particularly for networks like TV Land and Nick at Nite. But original programming gives us the ability to build our brands better. It gives us programming that we can exploit through different platforms and new distributors. So it creates a lot of value for us. We look at a mix of original programming. So we have some low-cost, efficient programming that repeats really well. For example, Ridiculousness on MTV. We have -- we launched a new format on Comedy Central, @midnight, which has performed very well so far. And then we'll have, obviously, more expensive scripted series. So if you look at it on a blended basis and impact, we see that it is improving our overall results and we continue to look to drive our margins as we continue to invest in programming. And of course, original programming, the more original programming we have, the more distribution and ancillary revenues we have the opportunity to generate.

John Janedis - UBS Investment Bank, Research Division

Maybe somewhat related to that, as you know, there's been some concern in having some Nick programming available online is creating some ratings issues. You referenced the growth there. Are you at a point now where it's pretty clear that any shift in viewing is minimal? And are there any metrics you can share on that?

Philippe P. Dauman

Well, in terms of the Nickelodeon programming, as you know, during the course of the summer, we shifted the Nickelodeon programming from Netflix to Amazon Prime. The impact was minimal when it was on Netflix. Given the narrower reach of Amazon Prime, while it's a very successful driver for Amazon Prime and it's a great partnership, there is significantly lower distribution than Netflix had. And for Nickelodeon content on Amazon Prime, it works really well for us because it's a great branded environment. We believe that we get discovery of our programming by new kids. And it helps consumer product sales on Amazon. So we manage that distribution to make sure we maximize our overall revenue and margin.

Operator

And we'll take our next question from Alan Gould of Evercore.

Alan S. Gould - Evercore Partners Inc., Research Division

I've got a couple of questions. First, can you tell us what percent of your subs come up with new affiliate deals this year? And secondly, I believe we're coming up to the Hard Eight or the Hard Ten [ph], the big Nickelodeon selling season. I mean you probably have a pretty good idea of that. How is the kids advertising versus your overall advertising?

Philippe P. Dauman

Look, the way I would characterize our affiliate deals, the way we have our renewals lined up now, in any given year, we have under 20% of our revenues up for renewal. That's just the way we have staggered our deals over the last several years. And you can understand that we don't want to get more precise than that. And the overall ad market is shaping up well for us. Nickelodeon has great vitality. The programming is working. Our advertisers are really pleased with what Nickelodeon has done. And Nickelodeon will grab the overwhelming majority of the advertising money available in the Hard Eight and otherwise.

Operator

And we'll take our next question from Doug Creutz of Cowen and Company.

Douglas Creutz - Cowen and Company, LLC, Research Division

Yes, I wonder if you could just review where you're progress has been on your international margins and how you see that developing in 2014?

Philippe P. Dauman

Well, Doug, 2013 was really a year which was difficult for us in Continental Europe. And we used that time to extend our footprint, as I mentioned before. And with the stabilization in Europe, we look to go back to growing our margins. Our objective is to get to the 20%-plus margins over time. We had hoped to get there by now, but with that setback it'll be a little delayed, but we will get there.

Operator

We'll take our next question from Dan Salmon of BMO Capital Markets.

Daniel Salmon - BMO Capital Markets U.S.

My question was mostly about international profitability as well, so I'll just ask maybe for a little bit more color by country, any ones that are maybe a little better than expected, a little worse and that we could maybe see pickup from?

Philippe P. Dauman

Again, U.K. has been a pretty solid market. We see great opportunities in Latin America, particularly now that we were able recently to take control of MTV in Brazil. And with that, we are already getting good distribution. We have more opportunities to expand with other networks. We are expanding the Paramount Channel across new territories. We recently launched it in France. France is doing better. Southern Europe, we see stabilization in Spain and Italy, again, with our taking control of the network. We see opportunity there. Russia, again, we were able to launch MTV. We have Nickelodeon distribution. So we see good growth ahead in the years to come. And the India joint venture that we're in continues to get stronger. We will add scale in India with our joint venture partners, and that continues to be a growing media market. And we are already creating significant value for Viacom today in India and will in the future. So really, I go across the world and I see a lot of opportunity over many years to grow our business, and we are committed to making our international networks business a very significant part of Viacom.

Operator

And we'll take our final question today from James Dix of Wedbush Securities.

James G. Dix - Wedbush Securities Inc., Research Division

Just 2 questions for you. First, any color you could give on the pricing you're seeing in your online video offerings. Or is it a little hard to tell because of your integrated packages? Any color you can give as to what growth you're getting from volume increases in online as distinct from other sources. And then secondly, just curious as to where you stand in terms of leveraging the data and analysis that you can get on your younger and more digitally savvy audiences in terms of programming development and marketing strategies. It seems to me that's a lot of opportunity for you over time to maybe improve your hit rate or lower your variability. But curious as to anything you're doing there that we should know about.

Wade Davis

Yes. James, the pricing in online, especially, as I mentioned before, in the digital video world, is at a premium to what we get in the linear world. It's a significant premium. And it's highly desired, especially when wrapped around the kind of content that we have. As far as data goes, data has become an increasingly important element in our toolset that we use, both in-house to identify targets and develop product, address our audiences. We have almost 140 million people in our database, IP addresses in our database, and we learn more and more about their preferences for shows and the kind of shows that they want to see on our air. And that has become an invaluable tool for us as we build out both the service functionalities we provide our advertisers and also the kind of content that we develop in-house for all of the core audiences that we serve. So that's really an exciting new area for us and many of the other media companies out there, and I think it's going to be a big change maker in the future that will drive both incremental opportunities on the cost side and also drive, I think, revenue opportunities for us to better serve our core constituencies.

Philippe P. Dauman

And James, to your point about programming development, we already see, for example, where we have -- apps are widely distributed like the Nick app where we have a number of short-form features on there. We obviously get to see what kids are picking, what they're interested in, really getting us to think about what kind of programming they might be interested in seeing. And it's a good way to experiment with fairly broad reach on what we're doing. And the same goes with some of the other creative initiatives that we have in our music networks where we're also trying inexpensive short-form content, some of which we will see develop into long-form programming on our television networks.

James Bombassei

We want to thank everyone for joining us in our earnings call.

Operator

And this concludes today's presentation. Thank you all for joining, and have a nice day.

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Viacom (VIAB): FQ4 EPS of $1.55 beats by $0.11. Revenue of $3.65B (+9% Y/Y) beats by $0.05B. (PR)