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Viacom Inc  (VIAB)
Q1 2019 Earnings Conference Call
Feb. 04, 2019, 4:30 p.m. ET


Prepared Remarks:


Good day everyone and welcome to the Viacom Fiscal First Quarter 2019 Earnings 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, Investor Relations and Treasurer

Good morning everyone and thank you for taking the time to join us on our December quarter earnings call. Joining me for today's discussion are Bob Bakish, our President and CEO; Wade Davis, our Chief Financial Officer; and Chris McCarthy, President of MTV, VH1, CMT & Logo. Please note that in addition to our press release, we have trending schedules containing supplemental information available on our website.

We also have an accompanying slide presentation that you can follow along with our remarks. I want to refer you to the second slide in the 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 will turn the call over to Bob.

Robert Bakish -- President and Chief Executive Officer

Good morning everyone and thank you so much for joining us. Viacom today is a story of execution and evolution and in Q1, we delivered strongly on both, which in turn produced impressive financial results. On a constant currency basis in Q1, we delivered 4% growth in consolidated revenue, as well as 6% growth in adjusted OI and 13% growth in adjusted diluted EPS. This is the second consecutive quarter that we delivered growth in all three metrics.

Today, I'll start by briefly taking you through our performance in the quarter, highlighting how the strong execution of our plan delivered across the business. Then, we'll dive deep into two topics; first MTV, a story of dramatic resurgence and expansion as a definitive multi-platform entertainment brand. You will hear the story today directly from the leader who made it happen; Chris McCarthy. And second, our recently signed deal to acquire Pluto TV, the leading free streaming TV service in the U.S. and a key driver of transforming our Company for the future.

Both of these deep dives will give you a more detailed understanding of both the execution of our strategy and of our evolution. They will help you understand just how much Viacom has changed and how well positioned we are for the future. So, let's jump into the quarter where there are five key headlines; first, domestic affiliate. This was a very strong story in Q1, up 5% and marking the fourth straight quarter in which we delivered sequential improvement in this business. It's also the second consecutive quarter of year-on-year growth, driven by contractual rate increases, growth in OTT and Studio Production revenues as well as vMVPD growth. Our strategy is clearly delivering results.

Second, domestic ad sales. As guided, we delivered sequential improvement, driven by higher pricing and strong growth in advanced marketing solutions or AMS. In Q1, AMS revenues were up 54% year-on-year. On a full year basis, we expect to see the business nearly double and represent between 15% and 20% of domestic ad sales revenue, as we continue to bring more new and more advanced inventory across our growing portfolio, including from Pluto TV, which I'll talk more about in a minute.

Third, Paramount, where the turnaround continues to take hold with the studio delivering double-digit revenue growth and its eighth straight quarter of year-on-year adjusted OI improvement. Despite intense competition in the busy holiday box office, we're pleased with the performance of Bumblebee, which has earned approximately $450 million worldwide. In the process, the film has reset the Transformers franchise and solidly profitable.

Looking ahead, we are very excited about the '19 slate. Next up and coming this week is the BET co-branded film What Men Want, an updated spin on What Women Want, a film that leverages both library IP and one of our flagship brands.

Four, domestic media networks viewership. Here, we maintained the Number 1 share of viewing among key demos and had more Top 20 original cable series than any other cable family in the fiscal first quarter. That said, we did lose about a point of revenue weighted share in the quarter, driven by the larger revenue weight of Nickelodeon in the holiday quarter. The good news is that despite this, as I mentioned before, we delivered sequential improvement in ad sales and Nick actually had its strong share lead in 15 years.

Most importantly Nick's new President, Brian Robbins is close to unveiling an exciting new content slate that will begin to launch later this year. In the four months, Brian has been on Board, he's put a new creative leadership and made significant deals with top talent in front of and behind the camera. So, stay tuned.

Outside of Nick, the brand had a strong quarter. MTV, which you'll hear more about from Chris, had its seventh straight quarter of prime time share gains, and we are seeing early positive signs of our network realignment. Kent Alterman and his team notched not only the seventh straight quarter of share growth for Comedy Central, but also TV Land's highest rated Q1 since fiscal '14, and the first quarter of year-over-year share growth for Paramount Network in over three years.

The fifth headline is our Studio Production business. Here, our expansion beyond Paramount Television is really starting to gain traction and we're well on our way to achieving our goal of making this $1 billion business in just a few years. In December, Awesomeness made the exciting announcement that we will develop a sequel to last year's smash success To All The Boys I've Loved Before for Netflix. And over the last several months, Viacom International Studios has announced a string of new deals with Amazon, Claro and more, which will further reinforce our strength in Spanish language content.

Today, I'm pleased to announce that Nickelodeon has struck a new deal with Netflix for its Nickelodeon Studios division to produce two original animated feature films based on two of Nickelodeon's most important properties; The Loud House and Rise of the Teenage Mutant Ninja Turtles. This is both incremental business and powerful promotion for the two franchises.

Importantly, this deal is for films only and does not involve the TV series. Across all five of these areas, what you're seeing is the positive results of strong execution of our plan. Execution that has returned the Company to growth; an execution that is strengthening the positioning of Viacom and increasing its value to consumers and partners.

Now, I'd like to turn to MTV, which really brings to life, how all elements of our content strategy come together, to make the most of a changing, but expanding entertainment ecosystem. And in turn, make the most of this powerful global brand and all the iconic IP under its roof. To do that, I want to introduce Chris McCarthy, President of MTV, VH1, CMT & Logo, who's done an incredible job leading the evolution of this brand.

Chris McCarthy -- President, MTV, VH1, CMT & Logo Group

Thank you, Bob and good morning everyone. I'm excited to talk about the progress we've made at MTV in just two short years. Our story, much like Viacom's, is one of turnaround and evolution, all with strong execution. So, let's start with a big headline. This last quarter, MTV closed its sixth consecutive quarter of prime time ratings growth, that's our longest streak in our 38-year history. And this brings us back to Number 1 as the leading total day cable network for 18 to 34 demo.

The brand is clearly resonating. Now, there's a lot we did to get here, and it all centers around the power of the MTV brand and the wealth of our IP. MTV is a global brand with near-universal awareness that's in TV and across every platform. And in this increasingly crowded landscape, a powerful and durable brand is a clear advantage.

Speaking of advantages, we have a treasure chest of IP with over 200 titles. In fact, MTV has one of the largest libraries of music IP in television, giving us the power to continue to grow more audience and in more places, and our strategy does exactly that as we aggressively leverage the MTV brand and IP in four key areas. First, to drive ratings and share growth in our reinvigorated linear network. Second, to grow in digital, driving incremental consumption and monetization. Third, expand our studio production to feed third party platforms and fourth, to extend our presence into live events and experiences.

Each of these elements will increase our audience reach, deepen our engagement and drive even more revenue. And together, they will build an even more powerful MTV ecosystem.

Okay. So let's start with Number 1, reinforce and grow our existing cable business. With content at our core, we changed our development execution teams from buyers to builders, which means, we don't wait for ideas to be pitched to us, we go out and make them ourselves and why is this important. Because when we build the IP, we own it, which means we can franchise it and we can globalize it. And we can do all of this faster at a lower cost and with a higher success rate.

The results of this new approach have been dramatic. This past calendar year, we launched 5 of the Top 10 biggest new hits in the 18 to 34 demo and 9 of the Top 10, if you count the shows we've built for VH1. We didn't stop there. We saw a bigger opportunity to broaden our reach to the more lucrative 18 to 49 demo. And so, we've built shows with that specific goal and they worked.

This past calendar year, we are the fastest growing network in prime across all cable and broadcast with the 18 to 49 demo, up 22% in ratings and 35% in share. So, how does all this work? Well, let me give an example, through one title, our Shore franchise. The Shore was launched in 2009 with Jersey Shore and after six seasons, it went dormant here in the US. But our new strategy, we didn't see an old show, we saw a powerful IP waiting to be reinvented, and that's exactly what we did.

We built a new extension with Floribama Shore and with a fresh creative hook, we reimagined the original with Jersey Shore family vacation. Together, they were two of the biggest unscripted hits of the year and they serve two very different purposes. Floribama Shore enabled us to reinforce and grow our existing 18 to 34 audience while Family Vacation allowed us to broaden our demo to 18 to 49, bringing in 30% new viewers. Two shores talking to two different audiences will bring more ways to growth and that's just one IP. And because we're making it ourselves, we did it faster. Family Vacation went from concept to air in just three months.

We have several new show extensions in development and you can look out for us to launch at least one more this year. Not only faster, but we're doing it for less, which allows us to add more premier hours of content each week with no additional programming hours. And why is this important? Because more hours allows to make up for the changes in the cable universe. In fact, we've increased our prime time premier hours by 16% over the last two years, and we still have lots of room to grow.

This also frees up resources to build new hits, like we did with Siesta Key, How Far is Tattoo Far? and Ex on the Beach. And all of this is just cable.

So, let's move on to the second part of our strategy, extend of cable. Because content consumption is growing everywhere, it's not about either or, it's all about more. We can grow everywhere through the power of our IP. Take for example our show Wild 'N Out, which is a Top 3 cable series with young men. Over the last two years, we have successfully increased its share on cable by nearly 50% in the 18 to 34 demo, but we want it more. And so, we launched the Wild 'N Out channel on YouTube this past summer and it's already the Number 2 hip-hop channel with sub and even better, we're Number 1 in that same category with views per video, in just six months.

This new channel is a great example of how we extend our IP beyond cable to increase our audience, one that is five years younger than our linear viewers. And all of thus gives us even more ways to monetize through more advertising and more sponsorship integration.

At the same time, we launched MTV Studios in order to capitalize on a growing number of platforms and the wealth of our IP, which is Number 3 in our strategy for growth, Studio Production. Here, we're already seeing results. We recently announced a new deal with Facebook Watch, the largest community platform, to redevelop the Real World for a new generation in a new platform in three geographical territories, all integrating the community functionality of Facebook. This shift, the perceived competitor into our newest customer and it increases our reach and revenue. You can expect to see us do more deals like this going forward.

Finally, the fourth leg in our strategy is to broaden our audience with live events and experiences. This March, we are bringing back Spring Break with a three-day global event from Cancun, Mexico, where we're broadcasting across all of our platforms. And we recently acquired a new event SnowGlobe, the largest winter music festival in the U.S., which we plan to expand with more locations in 2019.

Collectively, these examples prove we are truly have an expanding multi-platform MTV. And the best part, our team is just getting started. Today we're using less than 10% of our 200 titles and of course, we're launching many new titles of IP, proving we have a lot more room to grow across cable, digital, studio production and experiences. All broadening our audience, our reach and our monetization opportunities. It's truly an exciting time at MTV and I couldn't be more proud to lead this world-class team.

Thank you again for your time today. And let me turn it back to Bob.

Robert Bakish -- President and Chief Executive Officer

Thanks, Chris. Next, I want to tell you more about our recent agreement to acquire Pluto TV. While the transaction is subject to regulatory approval, and is not expected to close until March, we think it will be a true game changer in driving the evolution of this Company and ultimately creating significant value across our business.

Let's start with what Pluto TV is. It's the largest free streaming TV platform in the U.S. It has more than 12 million monthly active users at the end of December, 7.5 million of which are on connected TVs and it's growing quickly. It's a very differentiated product in market, featuring more than 100 linear channels, supplemented by an over 5,000 hour VOD library, across a broad array of genres, including movies, news, sports, general entertainment and more.

This content is sourced from more than 130 partnerships with media networks, major film and television studios including Paramount Pictures and Awesomeness and digital content producers. It's available across devices, including on mobile, desktops, streaming players and game consoles. In fact, it's the Number 2 free app on Roku. And Pluto TV is also deeply integrated with a growing number of smart TVs including Samsung and Vizio, which represent about 60% of the smart TV market. But what's really exciting is how Pluto TV will fit into and accelerate Viacom's evolution and vice versa.

As we've been telling you for some time, we've been focused on developing a differentiated direct-to-consumer streaming service that would exploit our considerable content library and leverage our unique advertiser capabilities and relationships. Pluto TV fits squarely into that strategy.

Let me specifically highlight six key points. First, Pluto TV will instantly give Viacom a scaled D2C offering with differentiated distribution. That includes direct access to more than 12 million monthly active users and Pluto TV is expected to be enabled on more than 30 million additional devices over the coming months. Pluto TV will also serve as a very important marketing engine to acquire and retain consumers for our targeted SVOD products like Noggin, Comedy Central Now and our new product for older kids, Nick Hits, which launched last week on Amazon channels. And Pluto TV gives us the ability to promote our brands and content that live on other platforms as well.

Second, Pluto TV will meaningfully enhance Viacom's AMS business. Over the course of 2019, Pluto TV will add billions of addressable advertising impressions per month. And importantly, these are very high quality impressions. The majority of Pluto TV's viewers on the TV glass, a highly desirable environment for advertisers. And the Pluto TV audience is young, gender balanced and hard to reach. In fact, 50% of Pluto TV viewers are between the ages of 18 and 34. Importantly, Pluto TV with it's nascent ad sales force, currently sells less than 50% of this inventory, so there's plenty of upside here.

Third, Pluto TV will add an important offering for our distribution partners. As I've said before, the video marketplace will continue to segment across price points and we want to play in all of them, including free and help ensure our partners do too. Pluto TV will be a platform to expand our distribution partnerships, adding a free offering that can create value across the whole subscriber base, including importantly broadband only subs. We see this as a key new offering for our partners that can serve to increase the value of that service, retain customers and provide a platform from which to sell in additional services including basic pay TV. Note, that this represents a significant opportunity for all types of distributors including mobile operators.

Fourth, the deal will unlock large library value for Viacom. As you know, we made the strategic decision two years ago to curtail the licensing of large library packages to SVOD with our streaming service in mind. As a result, we have lots of content to work with. Pluto TV will create additional upside for us going forward as we tap into content that is not currently being monetized. Importantly, Viacom's current window programming will remain in the pay TV ecosystem on our branded networks.

Fifth, Pluto TV is a significant global opportunity. We will leverage Viacom's reach, infrastructure and capabilities to expand Pluto TV globally. In particular, we see a very compelling near-term opportunity to create a Spanish language offering. We have very deep content assets including Spanish language versions of our Media Networks original IP as well as Latin American originals including from Telefe. U.S. Hispanic is a large and quickly growing market and a wide-open space with no significant streaming service currently dedicated to this audience. We plan to rollout in the U.S. later this year with LATAM to follow.

Sixth and lastly, Viacom can accelerate Pluto TV's leadership in free streaming TV. Viacom content will strengthen Pluto TV's consumer offering across key genres including kids, African-American, reality and comedy. And the platform will have access to our brands and marketing capabilities to grow audience and usage, as Pluto has had modest marketing in the past. In turn, we believe we will deliver incremental value to Pluto TV's existing content and distribution partners.

In short, we couldn't be more excited about Pluto TV, the product, the team, and the technology and the role that will play in accelerating the evolution of Viacom. I'd now like to turn it over to Wade Davis to take you through the financials. Wade?

Wade Davis -- Executive Vice President and Chief Financial Officer

Thanks, Bob. This strong execution against our strategic initiatives across our existing and emerging business is driving the momentum we're seeing in the underlying financial results. These results demonstrate our ability to leverage content, IP and brands as the core engines driving our evolution and we continue to monetize these assets through an increasingly broad range of multi-platform strategies .

Before I get into the adjusted results, I want to note a couple of things. In the quarter, we recognized pre-tax charges of $148 million, primarily related to recent management changes and reorganization at Media Networks. We also changed the presentation of revenues at Media Networks, reclassifying syndication and download-to-own revenues from what was formerly known as ancillary revenue to affiliate revenues. With that change, we renamed ancillary revenues to consumer products, recreation and live. The reclassification is not expected to have a material impact on our affiliate growth rate and a detailed reconciliation of the impact is provided in our trending schedules.

Now turning to consolidated results on Slide 13 of our presentation. As Bob mentioned, we had a very strong quarter. On a constant currency basis, revenue grew 4%, adjusted OI increased 6%, and adjusted diluted EPS grew 13%. On a reported basis, revenues grew 1%, adjusted OI grew 4%, and adjusted diluted EPS grew 9%, reflecting the impact of currency headwinds.

This marks the fourth consecutive quarter of growth in adjusted diluted EPS. The strength of these overall results were driven by growth in worldwide affiliate, Filmed Entertainment revenues, benefits from our cost transformation efforts, continued year-over-year improvement in Filmed Entertainment operating income and lower interest expense due to our deleveraging actions.

Moving to the segment results on Slide 14. I'll start with Filmed Entertainment, which continues to gain momentum and achieved success at the box office and beyond. Paramount delivered its eighth consecutive quarter of year-over-year adjusted OI improvement, up $40 million versus the prior year. The continued roll out of the new slate as well as ongoing growth from TV production contributed to this strong performance.

In addition, the quarter benefited from the licensing of the Paramount brand and IP into theme parks and is reflective of the global power of these assets. Total revenues grew 14%, driven by strength in theatrical, TV production and ancillary revenues. Theatrical revenue grew 49%, driven principally by the performance of Bumblebee and Instant Family. Licensing revenues were up 3%, driven by an 84% increase in revenue at Paramount TV with the deliveries of a number of successful series in the quarter, including The Haunting of Hill House.

Lastly, growth in ancillary revenues of 54% was principally driven by license fees related to the development of two Paramount branded theme parks in Asia.

Now turning to Media Networks, which is on Slide 15. In the quarter, we had continued momentum with growth in worldwide affiliate revenue, sequential improvement in the domestic ad sales growth rate, accelerating growth in our Advanced Marketing Solutions business and growth in adjusted OI on a constant currency basis.

Excluding the impact of foreign exchange, worldwide revenues were flat as growth in domestic affiliate revenues was largely offset by declines in domestic advertising. The decline in worldwide reported revenue was driven by foreign currency headwinds. Adjusted operating income on a constant currency basis grew 2%, driven by lower overall expenses. On a reported basis, the impact of FX caused reported OI to be flat.

Domestic affiliate revenues increased 5% in the quarter, which follows 3% growth in the September quarter and marks the fourth consecutive quarter of sequential improvement. Growth in the quarter was driven by contractual rate increases, growth in virtual MVPDs, OTT and Studio Production revenues. We continue to benefit from the multi-platform expansion of products tied to our IP, including the continued success from Noggin launched on Amazon channels as well as our Bellator partnership with DAZN.

The domestic ad sales growth rate improved 100 basis points sequentially to a decline of 3% on a year-over-year basis. The sequential improvement was driven by accelerating growth in our Advanced Marketing Solutions business. AMS revenues grew 54% in the quarter compared to 32% in the prior quarter and now represents over 10% of domestic ad sales.

Turning to International Media Networks on Slide 16. Total revenue was flat in the quarter, excluding a 10 percentage point unfavorable impact from foreign currency. International ad sales, on a constant currency basis were flat in the quarter, which is a 300 basis point improvement in the growth rate from the September quarter.

Strength in Latin America driven by Telefe was offset by weakness in the UK. While Channel 5 delivered another quarter of expanded viewership share, the UK advertising marketplace continued to face headwinds given the macroeconomic uncertainty. On a reported basis, the decline in international ad sales was due to a 13 percentage point unfavorable impact from foreign exchange.

International affiliate revenues, on a constant currency basis, were flat in the quarter. Rate increases, channel launches and increased subs were offset by the timing of SVOD and OTT deliveries. The reported international affiliate growth rate was impacted by a 7 percentage point negative impact from foreign exchange.

Moving to worldwide CP rec and live revenue, which declined 10% in the quarter on a constant currency basis. The decline reflected comparisons to the successful prior year release of the South Park game, Fractured But Whole. Total Media Networks expense, excluding the impact of foreign currency was lower by 1%, while reported expenses declined 4% .

We continue to invest in our growth initiatives, which drove a double-digit increase in distribution and other expenses. However, overall expenses were lower as we continue to benefit from our cost transformation initiatives as well as lower advertising promotion expense.

Moving below the line, net interest expense was lower by $20 million due to our continued deleveraging efforts. Adjusted effective tax rate in the quarter was approximately 24.5%, which was comparable to the prior year.

Now turning to free cash flow and debt on Slide 17. In the quarter, we generated $191 million of free cash flow, as compared to a cash use of $16 million last year. This $207 million improvement was driven by better working capital, higher adjusted operating income and lower interest expense.

Moving to the balance sheet, in the quarter, we completed an upsized tender offer for $1.1 billion of senior notes and debentures. This enabled us to reduce our leverage by approximately 0.5 turn as compared to last December. Since we began our deleveraging strategy two years ago, we reduced debt by approximately $4.2 billion or 32%, significantly improving our credit profile. At quarter end, we had $9 billion of gross debt outstanding, which compares to $10.2 billion in the prior year. Taking into consideration the equity credit we receive from S&P and Fitch on our hybrid securities, our adjusted gross debt at quarter end was $8.3 billion.

Now, let's turn to our views on the remainder of fiscal 2019. Before I get into the specifics, I want to note a couple things on our recently announced agreement to acquire Pluto TV. While we expect Pluto TV to be accretive to revenue growth and slightly dilutive to earnings in fiscal 2019, the financial impact will be dictated by the closing date and the integration timeline. Given that we don't anticipate closing until March, will not materially impact our March quarter financials. Assuming we've closed the transaction, we'll provide more specific guidance related to the impact of Pluto TV on our next call.

Now turning to our full year guidance. We had a strong start to the year and we continue to see full year 2019 total Company revenue growth in the mid-single digits on a constant currency basis, with growth at both domestic and International Media Networks, as well as at Filmed Entertainment. I want to note a few things on our key revenue lines. In terms of domestic advertising for the March quarter with the Easter holiday following later than it did in the prior year, we expect this will have a negative impact of approximately 100 basis points on domestic ad sales performance in the quarter. Accordingly, we anticipate that the March quarter domestic ad sales performance will be similar to the December quarter. We continue to expect full year growth in domestic ad sales driven by meaningful growth in Q3 and Q4.

In the back half of the year, we anticipate significantly benefiting from advertiser mix shifts, including increased volume from the studio category and the Easter holiday timing, which results in higher weighted average price increases.

We also expect to benefit from an acceleration in our high growth AMS business and from improved audience delivery as the new management team's programming strategy comes on air in Nickelodeon and Nick at Nite. Additionally, Pluto TV will be an important part of our ad sales opportunity going forward and serve as a complement to our linear and AMS offerings. It will provide a rapidly growing source of billions of monthly advanced TV impressions in young hard-to-reach demos in a premium and safe environment. While the precise in-year impact of Pluto TV will not be determined till after we close on the acquisition, it will be a contributor to our expected full year growth in domestic ad sales.

The 5% growth in domestic affiliate revenue in the quarter is a significant overdelivery, which reinforces our confidence in 2019 full year expectations. We continue to see low single-digit growth for the fiscal year as we benefit from rate escalators, the multi-platform expansion of products based on our IP and continued virtual MVPD growth. We continue to see total Company adjusted operating income growth in the low single-digits, with the return to profitability at Filmed Entertainment and a low single-digit decline at Media Networks.

We also continue to see full year adjusted diluted EPS growth incrementally faster than adjusted OI growth. We feel great about the momentum we have and these impressive Q1 results set us up well for what's ahead. I'm really proud of how well our teams are executing across all dimensions of our business and I look forward to welcoming the Pluto TV team to the family.

And now, I'll turn it back over to Bob to wrap up.

Robert Bakish -- President and Chief Executive Officer

Thanks, Wade. So taking a step back, strong execution is clearly producing results across the business. Our domestic portfolio, as a whole, continues to lead key demos and we have a large volume of important hits across the brands. That includes MTV, which two years ago, I think many had written off. It's once again a market leader with significant opportunity to capture across the ecosystem.

At the same time, Paramount has really gained its footing, both in film and television, and internationally our brands continue to resonate and our share is growing. Execution is also been about evolving the business, ensuring Viacom's competitiveness and relevance in this changing landscape.

In ad sales, we created advanced marketing solutions from the ground up, and it's quickly becoming a significant force. The same goes for studio production with multiple studios up and running, delivering premium high quality content to a growing roster of Tier 1 partners and our pending acquisition of Pluto TV will be the next big step in the evolution of this Company.

What's most exciting is that this is a highly differentiated asset that fits incredibly well with Viacom. It's integral too many things we already do while also incremental in terms of market-reaching capabilities. The cumulative success of both our strategy and strong execution is clearly reflected in our improving financial performance.

As you can see from Q1, in which we achieved growth in revenue, adjusted OI and adjusted diluted EPS for the second straight quarter and something we're also on track to deliver for the full year, it's an exciting time at Viacom and we look forward to the road ahead. Thank you as always for your continued support. We'll now take your questions.

Questions and Answers:


Thank you. At this time, we'll be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Alexia Quadrani with JPMorgan. Please proceed with your question.

Alexia Quadrani -- JPMorgan -- Analyst

Hi, Thank you very much. My first question is just really on the advertising growth that you guys are -- you guys you talked about its acceleration in the back half of the fiscal year -- second half fiscal year along with the drivers in a way that you outlined. I guess, how much are you sort of depended on Nickelodeon's ratings to improve and I guess by how much in order for us to see advertising growth turn positive? And what is sort of a realistic timeline for Brian's changes to take effect before we see a positive turn?

Wade Davis -- Executive Vice President and Chief Financial Officer

Thanks, Alexia. Yes, so we're fairly confident in the return to growth in the second half of the year. It's not dissimilar from what we saw last year. The three levers just to reiterate a little bit what I said on the call. Number 1 is, it's the delivery of linear impressions. Number 2 is the pricing we're seeing on linear and 3 is the benefit from -- that we're seeing from rapid growth in the AMS line.

As it relates to the delivery of linear impressions, I do think it's important to note that the we're building up, we're looking at the balance of the year. We're not expecting any improvements in the underlying pay TV headwinds that are somewhat impacting us from a usage standpoint, but we do expect modest improvement in overall delivery across the portfolio with specific improvement at Nick that you referenced, I'll come back to that in a minute.

With respect to the pricing, we have very direct line of sight in terms of how the better upfront pricing layers in over the balance of the year with the material improvements showing up in Q3 and Q4. And this is really -- it's overwhelming -- overwhelmingly a function of the shift in the category mix and waiting impact of the higher priced studio spend coming in, in the back half of the year and we also pickup some additional benefits from incremental Easter volume just given where that falls this year.

As it relates to AMS, that is a big part of the second half growth story. I think the strong performance that we had in the quarter really underscores the momentum that we have there and we are definitely on track to deliver the guidance that we had provided, which is nearly doubling the overall revenue of that business from '18 and -- when you think about a business that's naturally doubling over that period, just the kind of mathematical impact of that trajectory, is naturally weighted to the back half of the year. And then, although Pluto will be additive In the year, it does really provide us incremental confidence in achieving the full year revenue growth, particularly in the event that we see incremental weakness show up in the linear impression delivery. As it relates to the specific Nickelodeon impact and how we get there, I think, I'll turn it over Bob for that.

Robert Bakish -- President and Chief Executive Officer

Yes, so, Nick, we are projecting a modest improvement and clearly Nickelodeon was a headwind in this quarter, but it's also true that we have taken and continue to take decisive action. You referenced Brian Robbins, he has been in the seat now roughly four months. He is a proven executive with deep traditional and digital experience, both in kids and beyond. He's already extensively overhauled the team. He has got new leadership in live-action, animation, programming and scheduling, and talent among other areas, and that team has developed a new slate including importantly programming coming later this fiscal year. That slate is going to be announced next week at Toy Fair here in New York. So, stay tuned for that.

I do think it's also worth noting that Nickelodeon did have some notable achievements in fiscal Q1. It had its largest competitively in more than 15 years and was obviously the Number 1 network for kids in this case for the 14th consecutive quarter. So in the pay TV ecosystem, Nick matters more than ever.

It also had two -- launched two new preschool series which are looking like hits; those are Butterbean's Cafe and Abby Hatcher and beyond TV, it continues its expansion, which is key to the future. On the digital side, it had its best month ever in the quarter, in direct-to-consumer, we'll launch Noggin 2.0 in fiscal Q2, that will be a launch partner for Roku channels by the way. Last week, we announced another service which is Nick Hits which we're starting distributing on Amazon. And the studios business is off on its way, it's creating partner content for Tier 1 partners.

And today, I mentioned that we signed a new deal with Netflix to produce theatrical releases based on Loud House and Rise of the Teenage Mutant Ninja Turtles. So, yes, Nickelodeon has been a headwind, but we are all over it. I love what Brain and his team is doing and we do see the light at the end of the tunnel starting to appear.

Alexia Quadrani -- JPMorgan -- Analyst

Thank you. And maybe just a quick follow-up for Chris, you mentioned a lot of the work you are doing for the digital platforms with MTV. Any color you can give us on how you could monetize the work you are doing on YouTube and such?

Chris McCarthy -- President, MTV, VH1, CMT & Logo Group

Hey, Alexia, sure. As we talked about on -- in my remarks, the MTV brand has near-universal awareness and that's not just on cable, it's across every platform. In the U.S. alone, we have 98% awareness. So, when we look at the total ecosystem, it's about managing the brand with each platform playing a specific role, but adding value, increasing our audience and all the while toward -- an eye toward optimizing monetization. So you take the Wild 'N Out example, you know, for us, that's a perfect example of our build model where we made the content, we are making more hours for less cost and that allows us to extend into new platforms.

Just this -- the year we launched the Wild 'N Out channel with 3.7 million followers and that's -- with no new expense. So, that's all incremental audience and incremental revenue and you can see us look to do more things like that as we manage the total ecosystem.

Wade Davis -- Executive Vice President and Chief Financial Officer

Yeah, and Alexia just to -- to jump in, in closing here, I think, we are actually having a lot of success with respect to monetization. I think there's a lot of people write about and think about the challenges around monetizing on some of these platforms, but multi-platform for MTV is already quite material. In totality, the revenue associated with all the activities on the platforms that Chris has talked about, will be well over $100 million for FY '19.

Alexia Quadrani -- JPMorgan -- Analyst

Alright. Thank you very much.


Thank you. Our next question comes from the line of Marci Ryvicker with Wolfe Research. Please proceed with your question.

Marci Ryvicker -- Wolfe Research -- Analyst

Thanks. Can you talk a little bit about your direct-to-consumer strategy? It feels like it's a bit different than some of the really large scale ones we are hearing from Disney and maybe NBCU with a little bit less risk and maybe a higher probability of success?

Robert Bakish -- President and Chief Executive Officer

Yeah, thanks Marci. Well, look, Pluto TV is a game changer for us in D2C. It's a strong strategic fit with our Company and it's going to accelerate our evolution on multiple levels. Big picture, it's a scaled D2C play, that's a cornerstone for our broader portfolio of targeted SVOD services. It had massive incremental advanced advertising inventory and it's a platform to broaden our distribution partnerships, all ultimately on a global basis. And when we look at it, there's clear upside in the ad space. As we said, significantly more than half of this inventory goes completely unsold today. And remember all this inventory is digital and targeted and most of it is delivered in a TV glass environment.

On the distribution side, on their own, Pluto TV has great momentum and differentiated placement and we expect Pluto TV to be enabled on an additional 30 million devices over the coming months. Add to that, at its core, we see it as playing role in our expanded partnership with MVPDs, and really being an incremental lever to pull on all our deals going forward, as it will be able to add additional value to the whole subscriber base, including importantly broadband only.

You know, on the consumption side, our strategic decision to curtail large scale library licensing to the SVOD players over the last couple of years, it cost us some money in fiscal '17 and '18, but it means that we have large volumes of content to bring to bear now once we close the Pluto transaction.

And finally, there is a significant product expansion opportunity here, both in the U.S. I talked about U.S. Hispanic, which will launch in '19 and globally leveraging our overall infrastructure and capabilities. So, you are right. This is a differentiated approach to the D2C space, it's both incremental in that regard, but it's also integral to many other things we are doing. We think it's very financially disciplined transaction, will create value in terms of multiples of the purchase price. So, we are truly excited about the Pluto transaction. We look forward to closing it in March and being off to the races.

Wade Davis -- Executive Vice President and Chief Financial Officer

And Marci, just to be -- give a little bit more context. Bob talked about the value creation opportunity for our shareholders being multiples of what we paid for it. I mean, think about it, just in the ad space alone, we think this is $1 billion opportunity. And in terms of how you guys should think about this unfolding, Bob talked about, this is really a massively under monetized asset where significantly more than half the inventory today is going completely unsold. If you look at some of the comps in the marketplace, they are monetizing at $3 to $5 per user per month and some of them range into the teens.

And if you apply those monetization comps to Pluto's audience even today, you get really big numbers. In terms of closing that monetization gap, the leadership that we have in AMS, advance TV advertising, those client relationships should help us get to those monetization levels pretty quickly and then if you think about on top of closing the monetization gap, the audience on -- Pluto's audience today, the audience is growing rapidly on an organic basis and that's another place, that we see Viacom being able to move the needle on. And then this is-- delivering on these synergies, is something that we have experienced doing and a strong track record. We've done a number of acquisitions that were very targeted along the lines of our strategic plan and we have been able to very effectively integrate the acquired businesses and deliver on the synergies and value creation opportunity that we've done in the past.

Marci Ryvicker -- Wolfe Research -- Analyst

Great, thank you. And then, Wade, I just want to clarify one thing, domestic advertising would show sequential improvement in the quarter, if it weren't for the timing of Easter, that's kind of what you're saying, right?

Wade Davis -- Executive Vice President and Chief Financial Officer

For Q2, yes.

Marci Ryvicker -- Wolfe Research -- Analyst

Yes, OK, thank you.


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

Rich Greenfield -- BTIG -- Analyst

Hi, thanks for taking the question. I got a couple, first, I think every investor that goes and meets with AT&T comes away thinking that Viacom is essentially dead man walking in your negotiation that's coming up. Yet on the other hand, on their conference call, AT&T talked substantially about growth expectations in 2019 for AT&T Watch. And I think you are pretty substantial part of AT&T Watch with five or so channels in the package. Just wondering like how do you think or how do you reconcile the -- what investors are perceiving in terms of your conversations with AT&T versus what actually happens and maybe just from a larger standpoint, how are distribution conversations changing?

I know historically, we have all been obsessed with rate, but it sounds like advanced advertising -- now Wade is talking about Pluto, how do all these things come to bear rather than just a pure rate conversation and then I got a follow-up for Chris.

Robert Bakish -- President and Chief Executive Officer

Yeah, sure, Rich, thanks. Look, as you might expect, I am not going to comment on any specific company, but let's talk big picture around renewals. We've come a long way in the past two years. We have a distribution strategy, which is proven to be successful, despite -- or perhaps because of the pressures on the ecosystem. We've used that strategy to renew or extend over half of our sub base with no blackouts and we actually gained back incremental distribution including on Suddenlink.

In parallel, our brand performance has strengthened. You heard the MTV story from Chris and more broadly, again in the first quarter, we continue to have the Number 1 share among key demos and had more Top 20 original series than any other cable family and as I said on the (technical difficulty) response, Nick had the largest lead in 15 years in share, so Nick matters more than ever in today's pay TV ecosystem.

Also, our relationships across the industry, including with folks like Charter, Comcast, AT&T and Altice among others are materially stronger than they were two years ago. And finally, we now have a powerful new piece to add to the equation, which of course, is Pluto TV. So, I like our hand, I know there's a lot of noise on this, but I like our hand. The video business is clearly competitive, consumers have choice, not having Viacom services in basic has proven to be a disadvantage. Remember what happened when Suddenlink added back our services. Connect rates improved by 10% and video bundle time spent increased by over 10%, that was public disclosure from them, not us.

And as the ecosystem involves Rich -- evolves Rich, to your point, conversations are becoming less about simply rate and more about creating and adding value and driving this industry forward and we have more value creating levers than ever, all which are proven and available today or in the case of Pluto TV on closing.

So again, I know there is a lot of noise on this, but I like our hand. And to your point, it's actually a six services on AT&T Watch, not five.

Rich Greenfield -- BTIG -- Analyst

Chris, you made a comment about kind of returning to being Number 1 in 18 to 34. I think there's probably a lot of people listening who go, that's great, but there's a lot less 18 to 34 year olds watching TV or that -- I think there is a perception that the youth demo is essentially moved away from watching linear TV. Yet, when I look at MTV on Instagram, you have a massive following of like 10 million followers and there seems to be still some vibrant following of the MTV brand among kind of used culture. How do you -- how would you reconcile kind of what's going on, on TV versus what you're doing on digital?

Chris McCarthy -- President, MTV, VH1, CMT & Logo Group

Hey Rich, thanks for question. We look at the entire ecosystem. And for us, it's about growth across each one of them. The MTV brand is strong, not just on cable, but it is a strong 98% across every platform. So, cable is our biggest platform, so we had a start there and we had great growth. So, we feel like, to be able to continue to grow that, we have six consecutive quarters. We are on track to hit our seventh and we continue to launch more hits, so we feel really good about our strategy and continue to grow both in the 18 to 34, but also the 18 to 49.

And to your second point around where we're growing the other platforms, that's our pool strategy and we plan on growing on each, take for example, the Wild 'N Out channel that we've launched. It's already has 3.7 million followers and it's Number 1 in the hip-hop category, with views per video.

In addition, you talked about Instagram and that show alone, we've increased dramatically just in this last year. We went from nearly -- nearly 1 million followers to roughly around 2.7 million followers and our streams and views on that are up over 500%. So, you can see how one IP can really drive multiple platforms, and it's about reaching audience where they are. So, we feel confident that we can reach both young audience and the younger heart with 18 to 49 across all the platforms moving forward.

Rich Greenfield -- BTIG -- Analyst

And you've got Real World launching soon?

Chris McCarthy -- President, MTV, VH1, CMT & Logo Group

Yeah, we're very excited about Real World. We think that's another great added development for us. We're barely tapping into our IP. We have over 200 titles and today we're only utilizing about 10% of those and that's to get the growth that we have today. So, we have 90% more to go. Real World is one of those IPs and we really love the structure and the deal that we have there. It's the way that we manage our total ecosystem with each platform playing a different role.

So with respect to Facebook, the structure of the deal allows us to reach incremental audiences that we wouldn't otherwise be tapping into and is a content licensing structure where we reinvent the model -- the show -- excuse me -- specifically for them and integrate their community functionality, allowing us to create a new format with daily drops. It allows us to deepen the engagement and really localize that because we're launching it in three different markets. So, we like that that deal a lot and hope to see it -- you'll see a lot more of those coming in the future.

Robert Bakish -- President and Chief Executive Officer

But again, I want to emphasize this is exactly what the flagship brand is about. In February '17, we first introduced to the world, the notion of a flagship brand and I think people wondered what that really meant. Fast forward to today, at MTV, you're growing audience share on linear television in fact in two key demos, not just one and in parallel to that, you're growing -- we're growing consumption across an ecosystem, in digital, in live events, we're now creating product for third party platforms. We don't have an O&O position, but we have a good licensing position.

You add all that together and it's growing our top line, our OI and our diluted EPS and as Wade said, in the case of MTV, it's already very material. So this is exactly what you need to do in the 21st century entertainment landscape. Our brands are uniquely equipped to do that and you already seeing it come to life.

Rich Greenfield -- BTIG -- Analyst



Thank you. Our next question comes from the line of Ben Swinburne with Morgan Stanley. Please proceed with your question.

Ben Swinburne -- Morgan Stanley -- Analyst

Thank you. Good morning. Just coming back to Pluto, can you guys give us a sense of a little bit of the engagement on the platform today or how much time the average viewer is spending on this service we can think about, sort of the line of sighted those bigger add ARPU numbers way that you threw out before and on monetization, you mentioned they sell out less than half their inventory. I'd imagine plugging that inventory into the Viacom ad sales force in ad tech platform, could ramp that sell out pretty quickly, maybe you could just give us a sense for what your expectation is for timing on those -- on bringing those assets together.

And then just more of a housekeeping question, Wade, could you help us with the core domestic affiliate growth in the quarter? I don't think you gave that in your prepared remarks. I mean, what we might want to expect for the March quarter on that front?

Wade Davis -- Executive Vice President and Chief Financial Officer

Sure. So with respect to Pluto, one of the really great things about Pluto, we talked about their overall domestic reach being over 12 million -- 12 million users, over 7.5 million of those users are on connected TVs, which is obviously where the most -- not only the most valuable inventory resides because it really is TV, when your TV inventory and in fact -- advance TV linear inventory, but that's also where you see the longest duration. We did talk about some of the unique distribution components for Pluto and in particular the systems level integration with Samsung and Vizio, which are over 60% of the smart TV market in the U.S.

Those platforms are actually pretty nascent and so the consumption there is, is still evolving and it's relatively lower than some of the more established platforms kind of the big four; Roku, Android, Amazon and IOS. If you look at Roku and Amazon, it's in the high-teens, in terms of the number of(ph)hours spent per user per month. So, in particular on the Connected TV segment of the user base is very strong and you're totally right, that this -- when we talk about just how strong the strategic fit of this acquisition is with Viacom, Bob referenced utilization of library, how we can expand the partnership with our distributors, but at the core, this is an ad supported streaming service.

We've been investing since 2015 in driving the industry forward around targeted advanced TV ad campaigns. We launched the AMS business really formulate last year and we think it's going to be not far off of -- it's going to be -- not far off of $1 billion by the end of this year before you start adding Pluto in, and so we do think that it's just plug -- and a lot of with plug and play, both with respect to the volume and how we start driving fill rates and overall monetization of the un-monetized inventory that Pluto has.

You know, as it relates to deconstructing the in-quarter performance around affiliates, probably the most important thing to note is, in the core linear affiliate business where we saw contractual rate increases more than offset the linear sub decline, getting us to about 2% organic growth on the core linear business.

We did pick up a couple points from growth in mobile and digital and syndication in the quarter. And I think that -- it is important to note that those couple points were even brought down by some of the negative SVOD library licensing comps in the quarter that were related to our strategic decision to bring our library back in-house.

Robert Bakish -- President and Chief Executive Officer

And I want to give you one additional fact that we haven't talked a lot about, is WHOSAY and it goes to the value of integration with the Viacom family. If you talk to the leadership of WHOSAY, and the sales force, what they will tell you is, their revenue since they've been part of Viacom has ramped very significantly. And the reason is, they're seeing money that they never saw before, and that is exactly what we are seeing coming together post close with Pluto and we think it's a tremendous opportunity. Again, we've done it before. Now, this will be that on a larger scale.

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

Operator, we have time for one more question.


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

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

Thanks. Maybe switching gears for the last one and a couple of follow-ups. But on this production, the ramp in Spanish language production. Can you just talk about how big that is? What's behind it and is it a new team and how big that can get? And then just on the follow-ups. How much of your inventory is currently being used for advanced marketing solutions? And what do you think that -- what it could -- what could it be? And on, I guess, the direct-to-consumer stuff, I just want to clarify something, Bob said early on the call, the broadband only service, I mean, these -- when you provide Pluto to broadband-only subs for free, what's included in that? Are the Viacom -- (inaudible)?

Robert Bakish -- President and Chief Executive Officer

Sure. Thanks, Jessica. Let me start with the Spanish-language point. That's a little bit two-way for AMS and then we'll finish on D2C. So look, when we acquired, we've long operated in Latin America and created dubbed versions all our original media networks content, Nickelodeon, MTV, et cetera, in addition to local originals things like Acapulco Shore et cetera. The big game changer for us however was when we acquired Telefe. Telefe produces about 3,000 episodes of content a year out of Buenos Aires and part of our strategy and by the way, it's the Number 1 broadcast network in Argentina and its lead has increased to its largest level in 10 years this quarter.

Our strategy was to use that as a production base. So, in the current fiscal year -- current year, Telefe is going to produce between 701,000 hours of original content for use beyond Argentina, we've done that. This is largely in the drama space. It's very attractive economics and you heard our Americas team at NATPE last week talking about a string of deals with all sorts of folks, streamers, traditional players, et cetera.

So that is a very significant opportunity on a traditional basis and that Spanish language portfolio of content, both from our traditional Media Networks brands, which isn't used at all in the U.S. today, and from our Telefe production, which we now call Viacom International Studios, forms a very material content collection that we can deploy against the U.S. Hispanic opportunity. We think it's very exciting, particularly since no one is doing this today in the streamer space.

Wade Davis -- Executive Vice President and Chief Financial Officer

Yeah. With respect to the amount of AMS inventory that we're utilizing today, there is couple ways to think about it. The biggest category of AMS is advanced addressable inventory. The largest -- the big components of that are Number 1, our O&O digital video inventory -- digital video inventory that exist on our partner MVPD apps. And then, in advanced addressable inventory that we have contractual entitlement to over the set-top box environment both on VOD and the kind of more recent partnerships that we've built around our ability to insert addressable into live linear with Charter, with Comcast, with Altice, et cetera.

And all of -- all of that inventory has both higher price and higher yield. There is a very small amount of linear inventory that we kind of reach into when we're trafficking our Vantage campaigns, but that's a very, very small piece. When you take all of that together in terms of AMS revenue pre-Pluto, we said this quarter is over 10% of our domestic ad revenue now, and as we move through the year, it's going to get closer to 15% to 20%.

Robert Bakish -- President and Chief Executive Officer

And then lastly, to your question on Pluto and how it works with the pay TV ecosystem. Look, as I've said before, the video marketplace is segmenting by price point. Majority of homes here in the U.S. are still at this basic $80 price point, while we got tiers below it, whether that's vMVPDs at $45, all the way down to niche SVOD like Noggin in single digits.

Ad-supported free is an important and underserved piece of its segmentation. It appeals to among others, the value-conscious consumer and in many respects these broadband-only homes are kind of the new broadcast-only homes and that is a fast-growing segment of the marketplace. Importantly, we believe the majority of the Pluto TV audience is not watching pay-TV today. And so this segment already exists, so it makes sense for us as Viacom to take share.

As we said, Pluto TV is already the leader in free streaming TV and given the segmenting of the market distributors need a free TV offering. As everyone knows a pain point for distributors is how to add value to their customer base without adding cost to their P&L, Pluto TV does that. In fact, it's an opportunity for Viacom to add incremental value across these guys whole sub base, including as you said, broadband-only without adding any fixed cost for an operator. And it will provide them an opportunity for an incremental revenue stream in terms of a rev-share and an opportunity to up-sell consumers inside their infrastructure to pay tiers and SVOD services or conversely to retain value from anyone that churns out of their sub base and so still be able to participate in free economics.

We think adding this free product is a natural next step in the broadening of our already successful distribution strategy, which again encompasses basic linear licensing, on-demand product, advanced ad partnerships and co-productions, and now has this free streaming piece. I think -- lastly, I'd point out the idea already has traction. I've spoken to leadership at every MVPD, they get it and there is real interest and in flat, Pluto TV already has a deal with a major MVPD for inclusion in their bundle, and that will be announced shortly.

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

Great, thank you.

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

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


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

Duration: 66 minutes

Call participants:

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

Robert Bakish -- President and Chief Executive Officer

Chris McCarthy -- President, MTV, VH1, CMT & Logo Group

Wade Davis -- Executive Vice President and Chief Financial Officer

Alexia Quadrani -- JPMorgan -- Analyst

Marci Ryvicker -- Wolfe Research -- Analyst

Rich Greenfield -- BTIG -- Analyst

Ben Swinburne -- Morgan Stanley -- Analyst

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

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