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Viacom Inc  (NASDAQ:VIAB)
Q4 2018 Earnings Conference Call
Nov. 16, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone. And welcome to the Viacom's Fourth Quarter and Full Year 2018 Earnings Release Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Senior Vice President of Investor Relations and Treasurer, Mr. Jim Bombassei. Please go ahead, sir.

James Bombassei -- Senior Vice President of Investor Relations and Treasurer

Good morning, everyone. Thank you for taking the time to join us for our September quarter earnings call. Joining me for today's discussion are Bob Bakish, our President and CEO; Wade Davis, our Chief Financial Officer, and Jim Gianopulos, Chairman and CEO of Paramount Pictures.

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 the second slide in 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.

And now, I'll turn the call over to Bob.

Robert Bakish -- President, Chief Executive Officer & Director

Good morning, and thank you for joining us. Q4 was a strong quarter for Viacom, capping off of pivotal year. We turned around our core business, evidenced by strong gains in audience share across our networks, the significantly improved performance of our US distribution business, and the revitalization of Paramount. At the same time, we took important steps to evolve Viacom for the future, investing in growth initiatives like our expanding digital and studio production businesses, our growing presence in experiential and events, and our increasing array of advanced marketing solutions.

At the beginning of fiscal 2018, we promised to deliver a strong back half of the year, and our financial results show we did just that. In Q4, we achieved growth in consolidated revenue, adjusted diluted EPS and adjusted OI, and a return to growth in domestic affiliate revenue.

The full year marked a return to growth in consolidated OI for the first time since fiscal 2014, a $241 million adjusted OI improvement at Paramount with the studio now on a path to continued profitability. Another banner year at international with record revenue and profitability, overachievement of our $100 million cost transformation target, all while paying down another $1 billion in debt.

Viacom is in a fundamentally different and better place than it was two years ago. We're proud of our performance and even more excited about what's next. So today, I want to talk you through the elements of Viacom's turnaround and evolution and provide more context on the initiatives that will return Viacom to full-year total Company revenue growth and continued full-year OI growth in fiscal 2019.

We'll start with content, which is fueling our transformation and then move to how we monetize it through ad sales and distribution. When it comes to content, our goal is to be a preeminent global supplier of multi-platform entertainment, created for our owned and operated networks and platforms and increasingly for others. We've already made significant progress against this important goal. To achieve that, we've been focused on two overarching objectives. First, continually improving our content engines by strengthening teams, evolving our programming mix and working with top talent. And second, by expanding how and where our content is deployed to make the most of our IP and creative assets and capabilities.

Let's start with how that strategy has come to life on the Paramount side. And I'm happy to say Jim Gianopulos, Chairman and CEO of Paramount is here with us today to take you through the Paramount story firsthand. Let me just say the story is extraordinary, including having delivered seven straight quarters of year-over-year improvement in adjusted OI. Jim?

James N. Gianopulos -- Chairman & CEO

Thank you, Bob and good morning everyone. I'm thrilled to update you on this exciting time at Paramount as we continue to make enormous progress going into fiscal year 2019. In the past 18 months, Paramount has undergone a massively successful transformation. Rebuilding Paramount started with strengthening our content engine. It meant augmenting our development and production capabilities to service our slate strategy of making a blend of movies for specific audiences and for broad global audiences. Simply put, we make films for someone or we make films for everyone.

To achieve this, our first order of business was bringing in talented new management in many areas, including established and proven executives to run each of our key production divisions, Paramount Motion Picture Group, Paramount Animation, Paramount Players and Paramount Television. They are focused on bringing to life the vast array of creative properties past and present that have made paramount a preeminent and successful major studio for the past century.

In addition to our internal executive team, we enter in -- entered into multi-year relationships with Hasbro, which brought us the Transformers and G.I. Joe films; and a wealth of valuable upcoming properties with David Ellison's Skydance, which gave us the upcoming Jim Cameron Terminator series; and investments in the Mission Impossible and Star Trek franchises and Neal Moritz, the producer of The Fast and Furious films, among many others. Coupled with a renewed integration with the valuable content creators and properties of our Viacom brands, including MTV, BET and Nickelodeon, these key talent and IP relationships will provide enormous creative opportunities for years to come.

The result of these collective efforts is evident in our recent numbers. To date as Bob mentioned, we've had seven straight quarters of adjusted operating income improvement and three consecutive profitable quarters. At our main Motion Picture Group, our efforts paid off across the film spectrum. Our strategy with A Quiet Place was to make a truly innovative film for someone at a production cost of $17 million. It became a smash hit with audiences everywhere with the worldwide box office of $341 million.

The massive success of the sixth installment of Mission Impossible franchise demonstrated the pay-off of our other strategic focus with a thrill made for everyone type of film. This was Tom Cruise at his action superstar best, backed by an integrated global Viacom marketing collaboration. Mission: Impossible-Fallout delivered with more than $790 million at the global box office, the highest of all the Mission: Impossible movies to date.

Paramount Television has also experienced phenomenal growth in its relatively short existence. Overall Paramount Television revenues grew 127% to over $400 million in fiscal 2018. Highlights included Tom Clancy's Jack Ryan starring John Krasinski, which was Amazon Prime's biggest launch to date and the second season is currently in production. Our other successes included The Haunting of Hill House and Maniac, both of which debuted on Netflix. With a renewed emphasis on monetizing our vast library of titles, we are projecting our home media and global television distribution will generate significant revenue increases of more than 30% next year from $1 billion in fiscal 2018 to over $1.3 billion in fiscal 2019. And now, we are targeting a big fiscal year 2019 at both film and television with positive operating income for the first time in four years.

In film, we have a diverse slate of 13 theatrical releases versus fiscal 2018's nine releases. These include the latest installment of the Transformers franchise, Bumblebee and the live-action film version of Dora the Explorer, among others. With a range of total production budgets from $10 million to $140 million, the diversity of this slate is reflected fiscally. 10 of the 13 films have Paramount's net production costs under $50 million. And collectively, 20% of our fiscal 2019 slate will be co-financed. The slate will include five co-branded films with Viacom division and the other eight releases from our main production division.

Paramount Television has 16 shows ordered or currently in production versus nine in 2018. Revenue for Paramount TV in fiscal 2019 will increase by approximately 50%, and operating income in fiscal 2019 is expected to double over fiscal 2018. Our momentum will accelerate further in fiscal 2020 when our slate will grow to a projected 19 titles with key franchise titles from our main division and from Paramount Players and Paramount Animation. The fiscal 2020 slate will be strategically and financially balanced, including a range of movies from animated titles like The SpongeBob SquarePants movie targeted mid-budget releases like A Quiet Place 2 and blockbusters like Top Gun, Terminator and Ang Lee's Gemini Man with Will Smith.

As Bob mentioned, our priority is to expand our role as a global content supplier. As such, we are exploring various new revenue streams in addition to our traditional theatrical releases, as a producer of first run films and television for other media platforms. Our first such partnership is with Netflix on a multi-picture deal, which we are very excited about. Our renewed management and creative relationships, film-making strategy, expanded Television division, improved monetization of our library and global distribution capabilities are producing demonstrable results. We are on a trajectory of long-term success and continued growing profitability.

Thank you so much. And now, I will turn it back over to Bob.

Robert Bakish -- President, Chief Executive Officer & Director

Thanks, Jim. Continuing the theme of content, I want to turn to our domestic TV networks. Networks that maintain the top review share of all the key audiences we serve and that will continue to help the large majority of our original content. We've had six straight quarters of year-over-year share growth across our flagships with particular strength at MTV, BET and Comedy Central in both the fourth quarter and the year. And while we've had some softness at Nick and Paramount Network, this is something we are actively working on starting with the series of management changes. Today, we have Brian Robbins leading Nick; Chris McCarthy leading MTV, VH1 and now CMT; and Kent Alterman adding Paramount Network and TV Land to his Comedy Central leadership role. These are proven leaders with track records of success, and they're working quickly in this new configuration to strengthen and evolve their respective content engines and improve network performance.

Internationally, our content continues to resonate with consumers across our broadcast cornerstones and global pay brands, which continue to outperform other pay-TV families. In the UK, I'm happy to report that Channel 5 has bounced back with 4% growth in share viewing this quarter. And despite the macroeconomic headwinds in Argentina, Telefe achieved achieve its 10th consecutive month of ratings leadership in October, which brings me to the newest element of our content strategy, our broader studio production business which is critical to our evolution in 2019 and beyond.

Viacom's global content capabilities and vast libraries of iconic IP uniquely positioned us to fill the large and growing demand for quality content. And this business feeds into our strategy to expand the presence of Viacom's flagship brands. Here, we are having some clear signs of early success. Not only are we producing more, but very importantly we're producing hits. Jim has already talked about Paramount TV, which is a key piece of this strategy, but the initiative is much bigger than Paramount. In June, we launched MTV Studios. And last month, we announced the sale of three regional versions of MTV's The Real World to Facebook, an extension of the TV format made for an interactive digital audience. This year, we also launched Nickelodeon Studio business and just sold our second project, Avatar The Last Airbender to Netflix in the quarter. Then, there is Awesomeness, a great addition to our Company and our studio business. In the quarter, Awesomeness delivered To All the Boys I've Loved Before, one of the most watched Netflix original films ever, and there's much more to come from the team.

We also established Viacom International Studios this year, which has done a series of deals across Latin America, US Hispanic and broader international markets, including two new Spanish language series for Amazon announced just this week. Through this, Viacom has quickly become one of the top producers of original Spanish language content in the world. In 2016, the only element of the studio concept was Paramount TV in its nascent stages. In fact, the vast majority of this activity came together in 2018 delivering close to $500 million in revenue, and our studio business is on track to be $1 billion business in the next couple of years with an expanding margin. Not surprisingly, it will be a big focus in 2019. The last element of our content strategy is digital native where we've made big moves to deepen our presence in this space.

Viacom Digital Studios is already having a visible impact. We are seeing rapid growth in streams, watch time and digital subscribers across the house, and that's quickly moving Viacom up the rankings. In fact, in Q4, we were the fastest-growing TV media portfolio in social video views, and we broke into the top 10 in social video views among all media and entertainment companies, up from number 24 a year ago.

In all, we are dramatically increasing where and how our IP comes to life, which in turn strengthens our ability to monetize that content, which brings us to ad sales. Now, we all know the domestic headwinds are having a negative impact on supply across the industry. But we're pulling two levers to tackle this challenge and create a path to growth. First, we are taking advantage of tight supply and the revitalization of our networks to drive price. In fact, we drove our strongest upfront pricing in five years. These CPM increases, combined with the impact of more targeted tiering of our clients, drove effective upfront price increases into the high-single-digit range heading into fiscal 2019. As a result, upfront pricing is in a significant better position versus where it was heading into 2018, and these price dynamics are carrying through to the scatter market where we are seeing high-single-digit scatter-to-scatter premiums and scatter-to-upfront premiums approaching 30%.

Our second lever in sales is creating and capitalizing on new forms of inventory, an area of opportunity we're very excited about. We now have seven products in the market across linear, branded content, influencer and shopper marketing, experiential and more, opening up new opportunities and strengthening the solutions we can provide to partners. This capability is the basis of our Advanced Marketing Solution strategy or AMS and while not yet as large as our core ad business, it's quickly growing to be a much larger contributor. In Q4, AMS revenue grew 32% year-over-year, driven by significant growth within our digital video business and Vantage. AMS also has benefited from recent acquisitions, including WHOSAY's marketing capabilities and the branded content offerings from Awesomeness, demonstrating that these accelerant acquisitions are already creating value for Viacom.

Stepping back, AMS has become a much larger percentage of our ad sales business growing to 10% in fiscal '18 with more than $340 million in revenue. This pace is only accelerating, and we expected to land in the range of 15% to 20% for fiscal '19. So like our studio production business, AMS will be a big area of focus for us in '19, as we look to quickly scale the potential of this business. More broadly, as we look ahead, we like our competitive position in the market. We are reaching younger audience than any of our traditional peers. And now that we have significant scale in digital ecosystem, we are a safer alternative compared to others, plus our ability to target consumers across linear, VOD and digital, which combined with our solutions-oriented approach will only make Viacom more valuable to advertisers over time. With the pieces of our sales portfolio in place and projected moderation of Nick headwinds, we expect a return to growth in domestic ad revenue in the back half of 2019.

Next, I want to talk about the dramatic turnaround in evolution in our distribution business. The headline here is that as promised, domestic affiliate revenue returned to growth in the quarter. In fact, revenue was up 3%, 200 basis points ahead of guidance. And this translates into an impressive 1,100 basis point sequential improvement in growth rate for the year.

So how did we get there? First, we strengthened and expanded our core pay-TV partnerships. In 2018, we secured and expanded agreements with key players, including Charter, Comcast, Altice and Mediacom. In most of these deals, we modernized rights grants beyond linear to deliver a better consumer experience and consumers responded. Viacom's brands grew their share of VOD transactions more than any other cable family in Q4 and also achieved strong growth in play time, clearly showing our value in the ecosystem. And very importantly, as part of these deals, we strategically expanded our distribution relationships to capitalize on our advanced advertising and content capabilities. As a result, Viacom can now deliver dynamic ad targeting to more than 90% of US pay-TV VOD homes as well as live linear ad insertion to a growing roster of MVPD partners, benefiting both our AMS and distribution business moving forward.

On the content side, we advanced our co-production agreement with Charter this quarter, including the recent sign-off on a series from BET. To be clear, no one else is bringing this combination of advanced advertising capabilities and partnership to the table, and it's creating value that we're now just starting to capture. With a stronger core distribution business, we can also focus on securing greater participation in next-generation platforms, including OTT and SVOD.

In the vMVPD space, we are seeing sub-growth on DirecTV Now and Sling. And we recently launched six networks on AT&T Watch. We also have dynamic ad insertion on Sling and the same will be true for DirecTV Now and AT&T Watch in the near future. And we continue to believe that some MVPDs will launch OTT offerings targeting their broadband-only subs offerings that Viacom will be part of.

We're also focused on new subscription products, largely tied to our library content and served at an ad free on-demand environment through third-party platforms for specialized audiences. Examples include Naagin available through app stores, Amazon and other third-party platforms, as well as the newly expanded Comedy Central Now. And we see additional opportunities to package offerings for more platforms focused on the genres and demos where we excel, including reality, Spanish language and African-American audiences. We also continue to increase our international mobile offerings. We now have distribution deals with mobile operators across 29 countries, but it's more than deals. Importantly, we are rapidly growing our mobile sub base, which nearly tripled to just under 5 million over the past year, and we have more coming.

Stepping back whether it's content, ad sales or distribution, the progress is real. As we look forward, we see more opportunity in the core, all while strategically expanding our capabilities and offerings as we evolve for the future. Efforts will accelerate in 2019.

I'll now turn it over to Wade to give you more color on the numbers and our outlook for 2019.

Wade Davis -- Chief Financial Officer & Executive Vice President

Thanks, Bob. We had a great fourth quarter that delivered strong growth on both the top and bottom lines with 5% total Company revenue growth, 16% adjusted operating income growth and 29% adjusted diluted EPS growth. As Bob mentioned, this fourth quarter capped off the 2018 fiscal year where we delivered on our promise to return the Company to growth in the back half of the year. This momentum drove full-year consolidated OI growth of 3%, which is the first time it has grown since 2014.

On an adjusted basis, our 2% OI growth flowed through and contributed to an even stronger adjusted EPS growth of 9% for the full year. The strength of these results is underpinned by a return to domestic affiliate revenue growth in the fourth quarter, a record year for International Media Networks revenue and profitability, and meaningful improvement in Paramount's profitability.

Moving to the segment results. I'll start with Paramount which is on Slide 21 of our earnings presentation. Jim and his team delivered year-over-year profitability improvement of over $240 million, bringing the studio within striking distance of breakeven for the full year. This is a remarkable story looking back to 2016 when Paramount had nearly $0.5 billion of OI loss and consumed over $1 billion of cash.

This year's results are all the more impressive given the headwinds they needed to overcome from the significant underperformance of the legacy titles in the early part of the fiscal year. For the quarter, the studio generated worldwide revenue growth of 25%, driven by growth in theatrical revenue due to the global success of Mission: Impossible-Fallout as well as strong growth in licensing revenue, largely fueled by continued momentum at Paramount TV. As Jim mentioned, for the full year, Paramount TV generated over $400 million of revenue, representing nearly 130% growth over the previous year. Paramount's adjusted operating income for the third -- for the quarter was $38 million, up $81 million year-over-year. The current quarter benefited from the performance of MI6 and from strong profit contribution from the prior quarter's release of A Quiet Place and Book Club.

Now turning to Media Networks on Slide 22. We had a very strong quarter in this segment as well, delivering important progress with a return to growth in both domestic affiliate revenues and in adjusted operating income, as well as continued strong growth in our Advanced Marketing Solutions business.

Worldwide Media Networks revenue for the quarter was down 1% to $2.5 billion, as mid-single digit growth in worldwide affiliate revenue was more than offset by a decline in worldwide advertising. Adjusted operating income grew 2%, driven by lower overall expenses on a constant currency basis. Relative to prior year, adjusted operating income grew 4% in the quarter.

Domestic affiliate revenue reached an inflection point and returned to growth with a 3% year-over-year improvement. This was ahead of our guidance and a 600 basis point sequential improvement from the June quarter. Growth in the quarter was driven by the MVPD contribution, growth in digital and OTT revenues, as well as contractual rate increases. During the quarter, we benefited from the multi-platform expansion of products tied to our IP, including the continued success from Naagin's launch on Amazon channels as well as our Bellator partnership with DAZN.

Moving to domestic advertising revenues. The 4 percentage point year-over-year decline in the quarter was due to lower linear impressions, partially offset by higher pricing and continued strong growth in our AMS business. AMS continues to be an engine of growth, increasing 32% in the quarter and reaching our goal with revenues of over $340 million for the fiscal year. We are now at a point where AMS is reaching scale, and we expect this business to accelerate into 2019, as we make investments to take advantage of the significant traction and leadership that we have in this area.

Turning to International Media Networks on Slide 23. Total International Media Networks revenue for the quarter grew 1% on a constant currency basis. On a reported basis, given the currency headwinds in some of our larger ad sales markets, revenues declined 7%. International affiliate revenues were up an impressive 16% in the quarter on a constant currency basis. On a reported basis, revenue grew 10%. These results benefited principally from strong SVOD and OTT performance where the team expanded a number of important partnerships. This growth was further supplemented by healthy subscriber growth in the linear part of our business.

For the quarter, international advertising revenue saw 3% constant-currency declines and 13% declines on a reported basis, which includes a 10 percentage point unfavorable impact from foreign exchange. Organic results were impacted by a soft marketplace in both Argentina and the UK associated with the macroeconomic uncertainty in both countries. Notwithstanding this, both Channel 5 and Telefe saw expanding viewership share.

Turning back to Worldwide Media Networks, we were able to achieve an improvement of 3% in total expenses for the quarter. Despite significant investment in our growth initiatives and marketing of new show launches, we were able to reduce our overall expenses through the results of our cost transformation efforts and a programming mix shift toward unscripted. The benefit of this improvement continued -- contributed to the healthy Worldwide Media Network's OI growth.

Now turning to taxes and free cash flow. The full-year adjusted effective tax rate was approximately 24%, which is a 600 basis point improvement from the prior year as we benefited from the new tax legislation. The components of free cash flow are broken out on Slide 24 of the earnings presentation. For the year, we generated $1.6 billion of operating free cash flow, which is up 9% versus the prior year and is the highest level it's been since fiscal 2015.

Turning to the balance sheet. Over the past 21 months since we announced our delevering strategy, we significantly improved our credit profile from both an operational and financial perspective. These improvements were recognized in the quarter by S&P removing us from negative watch and reaffirming our investment-grade status. At quarter-end, we had $10.1 billion of total debt outstanding, which is a reduction of over $1 billion during the year and we had cash on hand of $1.6 billion. If you take into consideration the equity credit we received from S&P and Fitch on our hybrid securities, our adjusted gross debt at quarter-end was $9.4 billion. We plan to continue to pursue opportunities to delever, including using our excess free cash flow to redeem debt.

Now turning to fiscal 2019, the strong fourth quarter I just took you through sets us up for continued success where we see a return to top line growth and continued bottom line growth in fiscal 2019 for Viacom as a whole. Driven by our growth initiatives, we anticipate that full-year total Company revenue growth on a constant currency basis will be in the mid-single-digits with growth at both Domestic and International Media Networks, as well as at Filmed Entertainment.

At Media Networks, in terms of domestic affiliate revenues, we expect to be -- to see low-single-digit growth in fiscal 2019 as we benefit from rate escalators, the multi-platform expansions of products based on our IP and continued virtual MVPD growth. For domestic ad sales, we anticipate sequential quarterly performance improvement over the course of the fiscal year with a return to growth in the back half, leading to growth on a full year basis. Ad sales will benefit from strong upfront pricing and nearly doubling of revenues from AMS and improved audience delivery as the new management teams' programming and strategy comes on air at Nickelodeon, Nick at Nite and the Paramount Network.

Now turning to Worldwide Media Networks' expense. On a constant currency basis, we expect total expenses to grow low-to-mid single-digits. For fiscal '19, we will be increasing the investment in our growth initiatives to capitalize on the momentum that we're seeing coming out of fiscal '18. This investment in AMS, digital, next-generation products and our studio initiative is fueling our top line growth. These investments will be partially offset by the benefits of our cost transformation initiatives which remain on track to deliver over $300 million in run rate annual savings in fiscal 2019 and beyond.

At Filmed Entertainment, in fiscal 2019, we expect to see strong top line growth driven by the new slate strategy, continued momentum in TV production as well as continued improvements in the monetization of Paramount's film library. Putting this altogether, we expect low-single-digit growth in fiscal 2019 total Company adjusted operating income with a return to full-year profitability at Filmed Entertainment and a low-single-digit decline at Media Networks.

As we continue to invest to scale our initiatives and drive sustainable long-term growth, we anticipate Media Networks' adjusted OI will return to growth in the back half of the fiscal year. In terms of the expected impact from foreign exchange for fiscal 2019 at current spot rates, foreign exchange will negatively impact Worldwide Media Networks revenues by between $160 million and $180 million. For fiscal 2019, we forecast an adjusted effective tax rate in line with 2018. And finally, as we continue to delever and benefit from lower interest expense, we see full-year adjusted diluted EPS growing incrementally faster than OI.

Before I finish up, I want to note that I'm extremely happy with the progress we've made and it's exciting to be entering fiscal 2019 with this level of traction and momentum. And now, I'd like to turn it back over to Bob to wrap up.

Robert Bakish -- President, Chief Executive Officer & Director

Thanks, Wade. As you can see, we've turned around critical areas of our business and our core is significantly stronger, and we continue to unlock value from it. Simultaneously, our growth initiatives have quickly gained traction and have clear room to run. In 2019, we will accelerate these initiatives particularly in AMS and digital, next-generation distribution and studio production to drive greater consumption and monetization of our content at scale. The combination of a revitalized core and our accelerating growth initiatives will return Viacom to full-year total Company revenue growth and continued full-year OI growth in 2019.

At the center of all of it is content. Viacom is uniquely positioned to be a preeminent global supplier of multi-platform entertainment content, and there has never been a better time for that. We've made great progress against this goal, which will only accelerate in the coming year and after what we achieved this year, we couldn't feel any stronger about our ability to execute in 2019 and beyond.

With that, I want to thank you for your continued support and partnership and we'll now take your questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of John Janedis with Jefferies. Please proceed with your question.

John Janedis -- Jefferies -- Analyst

Thank you. Bob, the distribution story continues to get better. And as you know, there has been some concern on slowing of the virtual players. So can you talk about your confidence level that the flagship networks will be part of future OTT and SVOD offerings and that the growth continues. And then, I guess maybe related -- anything new to share on the mobile front in the US. And I guess also I know it's early, but any loose timeline on how quickly do you think it'll take to see some improvement in ratings over Nick. Thanks.

Robert Bakish -- President, Chief Executive Officer & Director

Sure, John. Let's start with the distribution side. The MVPDs have and continue to be additive to the ecosystem both in general and for Viacom. And we're on the biggest of the MVPDs, Sling and DirecTV Now and we're seeing sub-growth from both of those. Importantly, Viacom services represent material audience share on those services. As you know, we recently launched six networks on AT&T Watch, which is an entertainment-only mobile bundle. We're also pleased with the trajectory of Philo. Though it's early days and the numbers are small. Finally, it's worth noting that we have deals in place with MVPDs for inclusion on potential future OTT services, which they may launch to target broadband-only subs.

Now, it's not surprising that the category is evolving given its early state. Margin pressure is driving price increases as we predicted well over a year ago and which we feel still points to the need for lower cost, higher margin, non-broadcast, non-sports options. More recently, some carriage disputes and changes in marketing is impacting key players. In the near term, that is softening sub adds. But subs are still being added, so the category remains positive.

In general, we feel positive about where we are and our opportunities in this broader OTT ecosystem. This includes our emerging SVOD business for specialized audiences with products like Naagin and Comedy Central Now, and future products in other spaces where we have significant assets, including African American and reality. And mobile remains a source of big upside potential, one where we are gaining early traction outside the US having tripled subs to almost 5 million in 2018.

Now, on the audience side, let me flip to that. Let me -- I think the main focus there is probably Nickelodeon. At Nick, we've gone to the playbook, putting in place a new management team and evolving the strategy. Brian Robbins brings a true unique mix of creative and business expertise, having excelled in TV, film, digital including in the kids space and is diving in, has created great energy and urgency at Nickelodeon. He has already moved to strengthen the creative engine, putting in place Shauna Phelan to lead for live action, and Shauna has worked with Brian for 10 years, including at Awesomeness. And as you know, Awesomeness has produced very cost effective hits for both Netflix and Hulu. He also put in place Ramsey Naito to lead animation whose track record includes DWA's 2017 hit Boss Baby, which did over $0.5 billion in the box office as well as earlier animated work at Nickelodeon on the major franchises, including Rugrats and Jimmy Neutron.

That team is already casting a wider Nick and in fact, has a number of shows in motion for later this fiscal year. On a related note, we also have some upcoming moves that we are confident will strengthen Nick at Nite. At the same time, it's worth noting that we are seeing some encouraging signs at Nick. Just this week, Monday's PAW Patrol: Mighty Pups premiere delivered the highest ratings in over a year with a 7.3 on kids 2 to 5 and almost 10 with boys. Those ratings were up triple-digits from a year ago and the prior four weeks. But perhaps more important, our new series launched Butterbean's Cafe delivered the highest launch ratings since PAW Patrol's launch in August of 2013. So both of those points clearly prove a bigger Nick TV audience is out there, and we just need more products to get them, something I'm confident Brian and his team will begin to deliver in the back half of 2019.

John Janedis -- Jefferies -- Analyst

Thanks, Bob.

James Bombassei -- Senior Vice President of Investor Relations and Treasurer

Operator, we'll take our next question.

Operator

Thank you. Our next question comes from the line of Alexia Quadrani with JP Morgan. Please proceed with your question.

Alexia Quadrani -- JP Morgan -- Analyst

Thank you so much. On the domestic affiliate side, can you provide some color on how you're tightening your position for the upcoming renewals? You highlighted some recent renewal has clearly had a nice positive impact on the affiliate revenue growth in the quarter. I guess are you confident looking ahead at the future renewals?

And then, maybe just a question for Jim. Thank you so much for the color on Paramount. I guess from a financial perspective, and you're taking account the co-financing your cost, etcetera. I guess which films are you sort of most hopeful for fiscal 2019?

Robert Bakish -- President, Chief Executive Officer & Director

Sure, Alexia. I'll start with the affiliate piece and then we'll flip it to Jim. So I'm not going to comment on any specific company or renewal, but in general, this has been a question since day one when I became CEO. And two years in, we are in a materially better place with respect to our outlook and as you've heard today, our affiliate revenue has returned to growth.

So let me explain why we're in a better place. First, our brands are performing significantly better in an unquestionably matter to consumers. Viacom is Number 1 in share on key demos, including 2 to 11's, 18 to 34's, 18 to 49's, African Americans. Our flagship share has grown six quarters running and believe it or not MTV is now the fastest growing network on television. In the most recent quarter, we had nine of the 10 top unscripted original series on 18 to 34, six of 10 on 18 to 49, and we also had the Number 1 new original scripted series in 2018. And as I said in my remarks, it's not just linear. We now represent the fastest growing share of VOD transactions on -- in the MVPD ecosystem. And we're Number 2 in share of viewing in that environment.

The second point is our strategy of broadening our relationships with distribution clients is definitively working and creating incremental value. We've now renewed well in excess of 50% of our sub base, maintaining broad distribution and annual rate escalators and we've done it with no blackouts. In fact, we've regained important carriage with Suddenlink who publicly commented that the resumption of Viacom services was a contributor to their 10% increase in connect rates and over 10% increase in time spent with the video bundle. Remember the video business is competitive. Consumers have a choice. Not having Viacom services in basic has proven to be a disadvantage. It's also worth noting that we have been part of important new launches like AT&T Watch. And stepping back from an overall in Q4, we continued to see sub-declines in only the mid 1% range. So while the ecosystem is evolving, I feel good about our value and position, and I'm confident in our ability to continue to get deals done which are good for Viacom and good for our partners.

James N. Gianopulos -- Chairman & CEO

As far as our 2019 slate, we're very excited about it. It reflects the strategy I talked about earlier. We have a great mix of mid-budget titles with breakout potential like this weekend's Instant Family and bigger tent poles with continued franchise potential like next month's Bumblebee at Christmas. Given the recent success of Bohemian Rhapsody, we're looking forward to Rocketman, our Elton John musical biopic that releases in May; Pet Sematary which is taking advantage of the great success that pre-awareness hard times have had in the marketplace; Wonder Park, which is a big animated title that we're doing in conjunction with Nickelodeon, and Nickelodeon is also building a series on the back of that film for future programming. And also, I think we aim to construct each slate in a balanced manner with no single title driving an outsize -- outsized share of profitability and fiscal '19 is no exception. Based on our fiscal '19 budget, no single film represents more than 12.5% of our total budget in slate profit. So it's balanced creatively, it's balanced physically and it's balanced strategically.

The other interesting thing is in terms of capital needs, our current estimates show no increase in cash needs from fiscal '18 to fiscal '19 despite the growth of the slate 4 to 19, a 13 title from 9 in the previous year, and this is due to the stronger slate performance and the budgeted -- the more modestly budgeted titles coming from Paramount Players. So we're very confident in the slate and given the fact that this team has been in place basically for about a year, it's a really great slate that we put together and at the same time, have built the slate for '20. We've just finished shooting the James Cameron's Terminator. We are in the middle of shooting Top Gun. We finished shooting Ang Lee's Gemini Man with Will Smith. And we are almost finished now shooting Sonic the Hedgehog, which is a big title for next year as well. All of those are scheduled for 2020, and they are all in full production this year. So, in addition to the great slate for 2019, we've built a really strong slate for 2020 as well.

Alexia Quadrani -- JP Morgan -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Rich Greenfield with BTIG. Please proceed with your question.

Rich Greenfield -- BTIG Research -- Analyst

Hi, thanks for taking the question. I got two. Maybe just to follow-up a little bit on that last question, Bob, clearly the overall ecosystem is under pressure. If you look at whether we're talking about Comcast or we're talking about DirecTV, I mean, everyone is now sort of in a losing subscriber environment. It seems like sports is the real pressure point, especially regional sports seem to be one of the biggest kind of cost pressures and like everyone talks about dropping channels, but no one really has dropped channels to date. I guess, Univision appears like the first maybe permanent drop ever. But how do you see like what has to happen, the sports end up having to get tiered like how does the ecosystem evolve? What's your perspective on what needs to happen to the overall kind of multi-channel universe?

And then two really questions for Jim, you've got this Dora film coming out. Now that Brian who was at Paramount is over at Nick, just wondering like how deep are the opportunities to mind (ph), like are there -- will we see lots of projects coming out on the film side from Paramount that leverages Nick, like what are the big opportunities or what are the big franchises that you look at within Nick or maybe even broadly within MTV that you go, we should be doing movies in those categories over the next several years Thanks.

Robert Bakish -- President, Chief Executive Officer & Director

Sure, Rich. So, we have -- I have long commented on the fact that sports and broadcast for that matter drives real costs and it's a fundamental driver of paid increases in pay television and that there is a real opportunity for a skinnier bundles whether they exclude sports or broadcast or both. And that's something we've seen some traction on ex-US. We see Philo having a little traction on that, but that card needs to continue to play out. But I'd step back and talk about it a little bit more broadly, which is if you look at Viacom and we've clearly stabilized our core distribution business. And the reason we've been able to do that is we have a strategy that works and product that's fundamentally matters in the linear pay-TV ecosystem and that you really point to our strength on unscripted and you see that whether that's at VH1 or MTV or other brands and we talked about statistics where we're really leading the rankers. And you look at our audience share overall in these platforms and it's very significant.

But the longer -- longer-term part of that is, that's also a foundation where we can diversify our affiliate revenue here at Viacom. Of course, getting the benefit of incremental carriage in places like AT&T Watch and again, we look to that as an example of the first of more to come, where carriers are able to leverage these mobile platforms putting out lower priced packages, which again we think are supplying (ph) our services very well suited to. But it's also benefiting from growth in our emerging broader assets, including our SVOD channels business as well as our studio production businesses expanding within Media Networks.

And you look at for example our performance in the quarter and the fact that -- the reason we beat guidance for the quarter. Now our linear business is basically flat in the quarter like it was last quarter. We guided to plus 1. We delivered plus 3. And the reason we overdelivered is that our incremental businesses in the broader distribution ecosystem are developing faster than we anticipated. That includes the accelerating performance of Naagin, as its distribution expanded from just B2C to B2B2C, which is leveraging third-party platforms like the Amazon Channel Store. It shows up in the course of our significant new Bellator partnership with DAZN, which by the way makes Bellator profitable and really puts that on a track to becoming a very significant Number 2 in the space. As you know, the distance between UFC and Bellator on economic value basis is very dramatic. The reality is we've got the Number 2, we've got growing momentum, and now with DAZN here, we have more distribution, we have more revenues. And then we're using that to increase consumer appeal, including strengthening the lineup. So that's an exciting opportunity. You look at the deliveries from very emerging Media Networks studio business in the quarter, Pinky Malinky, To All The Boys I've Loved Before which was a smash hit for Netflix and Light as a Feather going to Hulu, all these things contribute. And we see a lot more opportunity in the space.

So from a Viacom perspective, we see the stabilization of the core on the back of improving core product and growing share in the brands and really recognition of that combined with our approach to partnership and distribution which leverages more assets, including our Advanced Marketing Solutions capability and for some clients who are now interested in exclusive first window products co-production like we referenced the Charter. And then there's a broader opportunity that's really accessing, providing a path for the brands to get to consumers we are spending more and more time with content. So that's how I see it emerging. I like our position in that. I'm feeling good and believe '19 will be an exciting year in that regard.

James N. Gianopulos -- Chairman & CEO

And as for your other question, we are very enthusiastic about leveraging Viacom's valuable IP and harnessing the power across all of Viacom's brand. We are sharing talent, we have a talent among all the brands and Paramount. We share an IP, we share and benefit from their marketing and promotional reach capabilities. And Paramount Players, which is primarily focused on that. We'll have four releases in 2019, all of which are co-branded with Viacom Networks and we will continue to have going forward six to eight Paramount Players releases each year, many of which will continue to be branded -- co-branded with Viacom.

To your point about Nickelodeon and Brian, we put the best of all -- of both worlds now. Brian has been with us for over a year and now moves over to Nickelodeon and while that will be his primary focus, obviously he's still very close to the team he built at Paramount Players and the projects he's left behind. And now, we have both the champion at Nickelodeon of those properties and someone who is very familiar with the production and creative process of further developing those properties. Dora is a great example of it. It's a perennial property that lot of the kids grew up with, and now we reset it as Dora as a young teenager and live action, who goes on earth adventured sort of like a Indiana Jones kind of adventure now as a young teen. We are also developing properties like Are You Afraid of the Dark? and Rugrats and many others, specifically with Nickelodeon. And they go in both directions. They are exploring properties that the studio owns that they can program as well and that sort of flow is seamlessly and collaboratively going in both directions.

It also applies to -- the other benefit and opportunity of the Viacom brand is that they have distinctive demographic and psychographic audiences. So it allows us to program teen and young adult properties with MTV or African American properties supported and co-branded with BET. So there are variety and talent that we are able to access through Comedy Central. So that is an ongoing initiative and a very collaborative process that Bob has made a core strategy to Company we have all embraced.

Rich Greenfield -- BTIG Research -- Analyst

And Jim, could you just give us more detail on the Netflix partnership that you announced today?

James N. Gianopulos -- Chairman & CEO

Yes, look we had a long relationship with Netflix on the licensing side. We've known them, the senior management for many years. This represents an incremental revenue stream that we're really excited about. And we have more capacity for great production than the theatrical systems can accommodate. While that remains our core business, we are very happy to work with the likes of Netflix, Amazon and others as new partners and customers. It's an incremental business with a small number of titles. We sell to them when and where it makes sense, both in the context of the original film deal that we just did, as well as the ongoing relations that we have been in television and downstream exploitation of library deals that we do around the world with all of them essentially. You look at their spend of Netflix, Amazon, Hulu and Apple in 2018 is over $20 billion. And while they have increased their internal capabilities, they are looking for great properties and we have great IP, great development, great creative relationships and potential to develop them. So that evolved into a discussion with Netflix coming out of some of our recent film relationships with them. And so, we're looking at properties that are suitable for them and that we can produce. And this is really in some ways it's just an evolution from a historic practice when studios were making MOWs for the networks and we view it as such.

The difference of course is that, in this case the quality some of these films is much higher, making these relationships even more valuable and it plays to the strength of a large, well established studio like Paramount. As Bob said, we are a broad multi-platform supplier across the whole company and clearly that's a big initiative for us at Paramount as well.

Rich Greenfield -- BTIG Research -- Analyst

Thanks.

Operator

Thank you. Our next question comes from the line of Michael Nathanson with Moffett Nathanson. Please proceed with your question.

Michael Nathanson -- Moffett Nathanson -- Analyst

Thanks. I have two, one for Bob and then one for Jim. Bob, I guess the question I have for you is that your predecessor was wrongly criticized for selling TV shows to SVOD players and putting Jim's -- kind of just like Jim's I'd say in different business. So when you see yourself selling shows to new platforms, when those shows can go on your own networks, how do you think about that balance, right? So are you accelerating the move away from networks by putting some of the shows that look really good on to SVOD platforms?

Robert Bakish -- President, Chief Executive Officer & Director

Sure, so thanks, Michael. Look as we know consumer time with content continues to increase. That's really a global phenomenon. There has never been more demand for quality content and it is from a growing pool of buyers whether they are networks, distributors, platforms, et cetera and actually other types of businesses that are looking to differentiate their assets. And furthermore, all the recent activity around vertical integration only serves to create additional demand for high-quality independent producers.

Viacom has all the pieces to become a preeminent creator of multi-platform content for the world. You've seen that in the dramatic ramp and success of Paramount TV. And during that ramp, it became clear that we can execute more broadly using the same recipe. And I want to emphasize that because the old strategy for Viacom was essentially bulk licensing library product to SVOD, and our experience ultimately with that was that sort of facilitated some audience movement. This strategy is not about that. This strategy is about new original productions under the flagship brand. So it's part of expanding the presence of the flagship brands to these third-party platforms, both to serve consumers that are there, but also to reinforce their presence in the broader ecosystem and hopefully bring some people who like say at MTV who see the real world. MTV is the real world on Facebook, because MTV is in the title and in that deal, we are doing three different versions of the show. In parallel, we're doing an US version, a Mexican version and an Asian version and it is -- again, it's part of MTV. And we've looked at what was happening with Paramount TV in the rest of these iconic IP libraries. But we have those at Nickelodeon, we have those at MTV, we have those at BET, we have of those at Comedy Central and we have in places like Telefe which you remember is the Number 1 broadcaster in Argentina with a library in excess of 30,000 episodes.

And we also have broad production capabilities in animation, in reality, in comedy and music related in low-cost locations that are creatively excellent like one of ours. And we have a pipeline of projects and extensive talent relationships in all forms. So we see that as a real opportunity to extend those presence of the flagship brand, serve consumers that might not otherwise be served and also reinforce the value of these brands through partially a promotional benefit in the broader ecosystem because still our largest collection of original IP would be resident in our owned and operated networks that are distributed on pay TV and that evolving environment.

So we think this is a really big opportunity for the Company. I've talked about it as $1 billion business in a couple of years and we are absolutely on track for that. We see that as not only incremental, but benefiting obviously the broader ecosystem, including our flagship on core and we're tremendously excited about it.

Michael Nathanson -- Moffett Nathanson -- Analyst

Okay, thanks. And let me just ask one for Jim. Hey, Jim on Pay 1 windows, if you take a look at what Disney is doing with Pay 1 and probably taking the Fox content with them, how do you think about the value of your Paramount Pay 1 deal? And would you ever consider creating your own service, (inaudible) maybe Warner is going to do as well. So that's the question I have to you on Pay 1.

James N. Gianopulos -- Chairman & CEO

Well, I would -- I think if we were to do that, that would be at the Viacom level to transition into a B2C Pay 1 window. I think the other way we look at it is that and not very long, our current deal for Pay 1 will expire and in contrast to years past for those of us who had been in this business for a while where we had a choice of essentially HBO and showtime and bounce back and forth between those two. When we bring our content to market, there will be a lot more players and very aggressive buyers, at least a half a dozen of them. And so, we feel really good about being able to come to market with our product in an environment in which, as you said, some of the other players are pulling their content into their own platforms making few of the studio, fewer of the studio is available in our content, which will not only by then have improved substantially from the initiatives we've started, but be a more scarce commodity with a lot more buyers in the market. So while that is a possibility to build the platform at some point, I think the more likely the scenario is that we'll have a pretty fun bidding work going in a very short period of time in the next few years.

Michael Nathanson -- Moffett Nathanson -- Analyst

Okay. Thanks, Jim.

James Bombassei -- Senior Vice President of Investor Relations and Treasurer

Operator, we have time for one more question.

Operator

Thank you. Our final question comes from the line of Jessica Reif Cohen with Bank of America Merrill Lynch. Please proceed with your question.

Jessica Reif Cohen -- Bank of America Merrill Lynch -- Analyst

Thanks, I have two topics. First, on Paramount. It was an amazing outline by Jim Gianopulos and obviously one of the biggest swing areas for the Company. Can you talk a little bit about, do you feel like you're at scale for film or what about TV, are you nearing scale? How much more is there to go? What are the advantages of being a mid-sized studio? And do you think you would benefit from scaling up? And then the second topic is on advanced advertising. I think you guys said you're going to double revenue in fiscal '19. So clearly another area of growth for you. How much -- can you give us color on like how much incremental inventory will be available for sale on '19 and then again in '20 versus fiscal '18? And given that success, the success that you're seeing, do you expect to wrap (ph) other companies? And is this just a domestic business or can you expand it globally?

Robert Bakish -- President, Chief Executive Officer & Director

Okay. Thanks, Jessica. On your first question, yes, there is certainly room for growth and scale on both film and TV. In film, as I mentioned, we moved to 13 this year. We're hoping to get to 19 planning for '19 and '20. I think somewhere in that range of 15 to 20 movies is the ideal range to fully amortize the capabilities of the overall organization. Opportunistically, if the right properties came around, are they developed internally or by acquisition? Could we add to that and go to 20 or 22 or something (ph) to that or even 24. Yes, I think you start to hit the restraints of dating, which is always -- which is an art and a science in our business and so at 24, you're essentially one movie every other week. So there is a limit to it. So I think the ideal is in that range and I think we will easily get there.

Television has more room to expand. As I mentioned earlier, the number of buyers and their appetite continues to increase. And so, we have an excellent organization. The move from 9 to 16 shows was fairly seamless, did not create a large overhead requirements. And so, as we continue to enhance the relationships inside of Viacom with the other brands and opportunities there and moving properties from the film studio over to the television side and then combining that with the appetite of the buyers, I think there is certainly more room to grow in television as well, and we plan to do that.

James N. Gianopulos -- Chairman & CEO

And Jessica, I'll take the -- I'll take the AMS question. First, we are incredibly proud of what we accomplished in 2018. And we do have some ambitious goals to almost double that business in 2019. And it's important to remember that we are now dealing with a lot of somewhat larger numbers when we're talking about a doubling the business that's around $340 million coming out of 2018. So, I mean in terms of our confidence in doing that, I'd say there is really -- there's really three elements to it. First is the fact that we beat our 2018 and we are carrying huge momentum out of 18 into what now is a scale of base.

Second, we had a really great upfront, both in terms of our ability to drive pricing improvements in our linear business, but we had a differentiated strategy relative to a lot of our other traditional competitors. It is much as we took seven products into the upfront that combined our linear with our AMS portfolio and the ability to do that allowed us to layer in a significant base of business coming out of the upfront that we didn't have going into '18. So that's an additional benefit for us and an important part of our confidence in the rate of growth. And then third, you did reference capacity and yes, capacity is big part of our ability to grow that. We are growing capacity both in the addressable media side and in the brand solutions side. On the addressable media side, we're bringing on new pools of inventory that we've been working on over the course of '18 and that's starting to light up at scale. And on the brand solution side, the capacity has grown there as we've added businesses like AwesomenessTV for the fall and continue to ramp up our capacity in delivering some of these more bespoke solutions.

In terms of your question with respect to third parties, we do have some third-party elements embedded in the 2019 budget. That's principally from the Vantage licensing where we're licensing our Vantage targeting engine to other members of the Open AP consortium who are pushing their advanced TV efforts and the structure of those deals allows us to share in a piece of all the advanced TV revenue that's sold through off of our Vantage targeting engine. It is possible for us to bring more third-party volume into the differentiated go-to-market strategy and sales force that we are building, but in '19, we have an ambitious goal that we're really excited about that's focused on doubling the revenues with our own capacity. So in terms of likely continuing to scale that business beyond the doubling in '19 into comparable rates of growth in '20, it may include third parties. And I think it's a similar answer with respect to global versus domestic. There is a big opportunity globally. And as it -- but our focus and the revenue guide that we've given is really a domestic opportunity. But in some of the marketplaces that we are scaled like the UK and like Argentina, there is a big opportunity for us to bring these approaches to market -- to market there.

Jessica Reif Cohen -- Bank of America Merrill Lynch -- Analyst

Thank you.

James Bombassei -- Senior Vice President of Investor Relations and Treasurer

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

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 67 minutes

Call participants:

James Bombassei -- Senior Vice President of Investor Relations and Treasurer

Robert Bakish -- President, Chief Executive Officer & Director

James N. Gianopulos -- Chairman & CEO

Wade Davis -- Chief Financial Officer & Executive Vice President

John Janedis -- Jefferies -- Analyst

Alexia Quadrani -- JP Morgan -- Analyst

Rich Greenfield -- BTIG Research -- Analyst

Michael Nathanson -- Moffett Nathanson -- Analyst

Jessica Reif Cohen -- Bank of America Merrill Lynch -- Analyst

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