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Viacom (VIAB)
Q3 2019 Earnings Call
Aug 08, 2019, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, and welcome to the Viacom's fiscal third-quarter 2019 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jim Bombassei.

Jim Bombassei -- Senior Vice President, Investor Relations and Treasury

Good morning, everyone. Thank you for taking the time to join us for our June quarter earnings call. Joining me for today's discussion are Bob Bakish, our president and CEO; and Wade Davis, our chief financial officer. 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 on our filings with the SEC. Today's remarks will focus on adjusted results.

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Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website. Before we begin, I want to note that the purpose of today's call is to discuss our third-quarter results and performance and we will not be responding to questions or comments regarding potential M&A. Now I'll turn the call over to Bob.

Bob Bakish -- President and Chief Executive Officer

Thanks, Jim; and good morning, everyone. Thank you again for joining us. During the quarter, Viacom delivered strong execution and made progress on our evolution as investments helped drive our transformation and top-line growth. We have a lot to be proud of this quarter.

I'm particularly pleased with the return to growth we reported in domestic ad sales, as well as our strong upfront results, which set us up well for next year. We also continue to see great traction from the rapid integration and scale in the Pluto TV, and we're pleased to see International Media Networks return to growth on a constant-currency basis. I'll update you on these areas in detail in a moment. But first, a brief overview of the financials and some key operating highlights from the quarter.

From a financial perspective, the main point here is that we have been promising a return to growth for Viacom, and this quarter we have accomplished just that. On a constant-currency basis, total revenue grew 6%. Domestic ad revenue grew 6%. Total International Media Networks revenue grew 7%.

And while adjusted OI was flat, adjusted diluted EPS grew 3%, marking a sixth consecutive quarter of growth. And year to date, free cash flow up $984 million is up 10% compared to prior-year period. Moving to operating highlights, I want to start with Paramount. We are thrilled with what's going on at Paramount, which just delivered its 10th straight quarter of year-over-year adjusted OI improvement and is on track for full-year profitability in 2019.

At the box office, Elton John's musical biopic, Rocketman, was a global success, generating over $185 million and counting. Currently in theaters is Crawl, a summer thriller that received great reviews and will be a profitable film for the studio, creating a very substantial return on a $16 million cost. And tomorrow, Dora and the Lost City of Gold premiers, which is a live-action film from Nickelodeon's Dora the Explorer franchise. This co-branded film is a great example of how we're using our iconic IP to rekindle interest in beloved franchises and drive engagement at the theater, the network and at retail through consumer products.

Looking ahead, we're very excited about Paramount's 2020 slate. We have a wild new sci-fi action film starring Will Smith called Gemini Man coming in October. Then we have first of three Terminator movies coming with Linda Hamilton and Arnold Schwarzenegger back in action. And next summer, we have a Top Gun sequel that looks incredible, one that audiences are clearly excited about.

When the trailer dropped in July, it had nearly 10 million views on YouTube within the first 24 hours. And these are just three of the 16 films we have scheduled. So the fiscal '20 slate is a big step forward and one we are extremely excited about. On the TV side, Paramount also continue to fire on all cylinders.

Paramount television picked up seven Emmy nominations and continues to deliver hits like Catch-22, which premiered on Hulu in the quarter; and 13 Reasons Why, which comes out with its third season on Netflix later this year. In all, Paramount TV now has 26 shows ordered to or in production, including the sequel series to TNT's The Alienist, the adaption of the international best-seller Shantaram for Apple, and two series for Warner Media's upcoming streaming service, among others. And production continues to ramp up at our other studios too. For example, Awesomeness had a busy quarter with the releases of The Perfect Date and Trinkets on Netflix and the season two debut of Hulu's Light as a Feather in July.

We also announced that Viacom International Studios and Paramount Television are developing an adaption of the Telefe hit series 100 Days to Fall in Love for Showtime. This is another great example of how we're leveraging our IP and illustrates Telefe's growing global influence in making Viacom an even larger production force. So there's a ton of great stuff happening on the studio side, and we're excited for more to come. Continuing in international, against the challenging macroeconomic environment, I'm proud to say that on a constant-currency basis we delivered strong quarterly results and return to growth.

Rating share of Telefe and Channel 5 were up nicely, as were Comedy Central and Paramount Network International. And we continue to launch new premium and international products. During the quarter, we launched seven premium VOD offerings, including Paramount+ with NET Brazil and two Noggin launches in Latin America, bringing the live total to 46. So we're getting some scale there.

And in mobile, we closed six deals, including two Noggin deals, bringing us to a total of 32 international mobile subscription partnerships. Turning to domestic audience performance. In the quarter, Viacom maintained the number one share of US basic cable viewing among key demos, including kids, teens, 18 to 34s, 2 to 49s and African-Americans. And we had more top-20 original cable series than any other cable family.

Overall, our portfolio of networks grew share 1% year over year, with strong results of Comedy Central and Paramount Network in particular. In fact, Comedy Central notched its ninth consecutive quarter of share growth, while Paramount Network enjoyed its third straight quarter of growth. Our networks are performing because even in an increasingly crowded content landscape, we're producing hits. Hits like Yellowstone, whose season two debuts on Paramount Network makes it the most-watched series on cable this summer.

Hits like The Hills on MTV, which is the number one new reality series for persons 18 to 49 and has already been renewed for a second season. And hits like Ryan's Mystery Play Date on Nickelodeon, which after three months on air is already the number one show on TV for preschoolers. Importantly, Nickelodeon continues to execute on its turnaround. We're encouraged by the performance of new series like Are You Smarter Than A 5th Grader and All That.

These shows are attracting new audiences and helping drive share gains at Nick for the first few weeks in the fourth quarter. In addition, we saw enormous success with SpongeBob's 20th birthday blog special in July. And come fall, we'll have the largest slate of new content ever across the Nickelodeon portfolio. Also this week, we announced plans to acquire Garfield, which marks another step in reinforcing Nickelodeon's status as kids' first stop for the best content and characters.

We're incredibly happy to have Garfield join our growing roster of globally loved franchises and look forward to the unique content, consumer products and experiences our teams will create, which brings me to domestic distribution. Domestic affiliate revenue declined 1% for the quarter. Note that the quarter had some timing impacts, which Wade we'll discuss in a moment. Importantly, as we announced last week, Viacom signed a new carriage distribution deal with NCTC, which represents more than 750 member companies.

With that, this management team has now renewed or extended almost all of Viacom's traditional sub base. In short, our partnership-first strategy continues to resonate with distributors as evidenced by our deals over the past three years. We have secured meaningful distribution wins, broadened industry relationships through collaborative partnerships and extended the reach of our services. Another key component of our distribution strategy has been the launch of targeted niche products where we think we have a unique competitive advantage in the marketplace.

That's why we're so excited to announce the launch of BET+, a joint venture with Tyler Perry, which will be a premier subscription video-on-demand service focused on the African-American audience when it launches later this fall. BET+ will feature more than 1,000 hours of premium content, including exclusive new original programming and fan-favorite series, movies and specials from Tyler Perry and a host of other leading African-American content creators like Will Packer, Tracy Oliver and more. It's shaping up to be a fantastic product. Now to domestic ad sales, an area I want to spend a bit more time on and highlight how the transformation of Viacom is clearly evident in the delivery of compelling financial performance.

As I mentioned at the outset of the call, the biggest headline of the quarter is that domestic ad sales returned to growth for the first time in 20 quarters as revenue grew 6% year over year. This represents a significant milestone for Viacom. In fact, this quarterly performance allows us to reiterate our guidance for full-year growth and ushers in a new era of advertising growth at Viacom. I think it's fair to say that there was some skepticism in the market when we said we would return to ad sales growth.

But we were committed to it, putting in place a differentiated strategy and working hard on execution. And we are now beginning to see that payoff. Two years ago, we recognized that across the industry linear inventory was declining, necessitating a meaningful shift in strategy to return ad sales to sustainable growth. This required an entirely new approach in both what solution we offered marketers and how we partnered with them.

That's why we built a sophisticated set of advanced marketing solutions for our advertising partners to reach the demographics that are most valuable to them in new and compelling ways. Organically, we launched Vantage, one of the most sophisticated ad-targeting platforms in the industry. At the same time, we pursued key advanced marketing partnerships with MVPD providers and helped launch OpenAP for better industry collaboration. Along the way, we also made several strategic acquisitions including: Awesomeness TV, WHOSAY and Pluto TV.

As a result, our AMS offerings now engage customers across linear and digital video, influencer and shopper marketing, branded content, and now Pluto TV's advanced sales capabilities. And they are powerful solutions for today's marketplace. Underscoring the efficacy of this strategy, our AMS revenue increased 84% year over year and is now a business contributing hundreds of millions of dollars. The AMS business will nearly double in fiscal '19, representing nearly 20% of domestic ad revenue as we continue to bring new and more advanced inventory online across our growing portfolio, especially from Pluto TV.

Related to this, we're very excited about our upfront results and how they set Viacom up for continued ad sales momentum. In the upfront, we drove strong pricing with high single to double-digit growth across all our cable networks, reflecting the improved strength of our brands and demand for the AMS portfolio, including Pluto TV. We went in with a carefully crafted strategy to take full advantage of both the market dynamics and our unique assets, which resulted in our ability to drive price increases and capture meaningful overall volume while preserving significant linear inventory to continue to capitalize on an extremely strong scatter market. Pluto TV was a big contributor to ad sales growth in the quarter and the upfront discussions, in part because its leadership in free streaming TV continues to grow.

When we announced the acquisition of Pluto TV in late January, it had 12 million monthly active users. As of the end of July, Pluto has 18 million monthly active users, a 50% increase. We expect user growth to continue as we further expand the content offering and broaden distribution, which will also further benefit ad sales and our partners. In fact, during the quarter, we increased Pluto TVs content offering by adding 28 new channels to the service.

We also launched Pluto TV Latino, a suite of 11 free linear channels stocked with 2,000-plus hours of TV programming in Spanish and Portuguese. And we are delivering on our vision of using Pluto TV as a platform to work with distributors to create incremental value in broadband, mobile and video sub basis, both through advertising and by up selling additional video products, including video bundles and targeted SVOD products. In fact, Pluto TV is now integrated on Comcast's Flex service, and X1 set-top boxes and gained new distribution on Cox Communications' Contour video and broadband platforms. These distribution relationships will also be a valuable asset when we launch BET+ this fall.

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

Wade Davis -- Chief Financial Officer

Thanks. As Bob just discussed, several quarters ago, we described the path for returning Viacom onto long-term sustainable growth. The third-quarter results delivered on that promise with growth across all of our businesses on a constant-currency basis. And we expect this momentum to continue in the September quarter.

Looking forward, I want to reiterate our prior guidance that domestic ad sales and domestic affiliate revenue will grow for the full year, and Paramount will deliver solid full-year profitability for the first time in four years. We are also reaffirming our adjusted OI guidance of low to mid-single digit decline on a total-company basis. The investments we are making in AMS and Pluto and Noggin and in BET+, as well as in our studio production business, are driving the evolution of the company. These initiatives are achieving scale and are offsetting headwinds in the linear business, returning Viacom to overall top-line growth for the full year.

On Slide 8 of our web deck, we have a summary of our consolidated financial performance. For the June quarter, on a constant-currency basis, total revenue grew 6% and adjusted diluted EPS grew 3%, marking our sixth consecutive quarter of adjusted diluted EPS growth. In addition to the P&L strengths, year-to-date free cash flow of $984 million is up 10% versus a year ago. Moving on to the segment results on Slide 9, I'll start with filmed entertainment.

Paramount continues to deliver on its turnaround with strong top and bottom-line growth. Fiscal third-quarter revenue grew double digits, and adjusted OI of $85 million was almost double that of the prior year. Total revenue for Paramount increased 14%, driven by strong double-digit growth in licensing and home entertainment revenue, partially offset by a modest decline in theatrical revenue. Licensing revenue was up 29% in the quarter, driven by monetization of our library and growth in TV production.

Home entertainment revenue increased 35% benefiting from carryover revenue associated with Bumblebee. Theatrical revenue reflected the strong performance of Rocket Man and Pet Sematary, which was more than offset by comparisons to the release of A Quiet Place in the prior-year quarter. The improvement in filmed entertainment profitability was largely driven by increased monetization of the library and disciplined cost management. With the strong adjusted OI performance in the quarter, Paramount is now profitable through the first nine months of the fiscal year.

Turning to Media Networks, which is on slide 10. Comments on Media Networks will be in constant-currency terms. For detail on our reported result, please see our earnings release. Worldwide Media Networks revenue returned to growth in the quarter, up 3% year over year, driven by 7% worldwide advertising growth and 8% international affiliate growth.

This is partially offset by a decrease in CPE rec and live revenue. Adjusted operating income was down 5% in the quarter, largely due to an increase in marketing for current and upcoming original programming launches, as well as our investments in Pluto, other D2C products and the scaling of our AMS infrastructure. Moving to domestic ad sales. This was an impressive quarter with growth of 6%, representing 800 basis points of sequential improvement versus our second quarter.

This performance was driven by a combination of sequential improvement in the linear business and accelerating growth in AMS, which increased 84% in the quarter. The sequential improvement in the linear business was driven by a strong scatter market, improved pricing in key categories and contribution from a number of tent pole events, including The BET Awards, The MTV Movie Awards and The CMT Music Awards. We also benefited from the timing of Easter by about 100 basis points. In our AMS business, we continue to add addressable advertising capacity, lighting up incremental inventory on both DIRECTV Now and AT&T Watch in the quarter.

Given the scale and accelerating growth of AMS, we expect it will continue to more than offset linear headwinds, driving full-year domestic ad sales growth. I want to take a moment to add some more context around Bob's earlier comments on the upfront. As he noted, we had a very successful upfront, which sets us up well for continued domestic advertising growth going forward. We went into the upfront with a differentiated strategy built around the combined power of our linear brands and our rapidly growing AMS portfolio.

And the strategy worked. We achieved the highest price increases across all of our cable networks in over a decade while simultaneously capturing meaningful volume. Our strategy positioned the breadth of our solution set, including targeted TV, digital video, Pluto TV, influencer marketing, branded content, experiential and shopper marketing to complement our powerful linear brands which reached elusive younger demos. By leveraging the rapidly growing inventory in our AMS business, we are able to reduce the amount of linear inventory we sold, focus on price and absorb overall volume and demand in AMS where we're not inventory constrained.

Having done this, we preserved significant linear inventory, which will allow us to take full advantage of a historically strong scatter market as the year unfolds. Now moving to domestic affiliate revenue. Revenue declined 1% in the quarter. Quarterly performance was impacted by subscriber declines including comping against the return of full distribution on charter, partially offset by higher contractual rate increases, OTT and studio production revenues.

From a timing perspective, certain anticipated content licensing revenue shifted out of Q3 and into Q4, which will benefit our September quarter. On Slide 11 of the deck, we have an overview of international media networks where revenue returned to strong top-line growth, up 7% in quarter. International ad sales grew 9%, driven by viewership gains in our major markets. In Argentina, we also benefited from the political advertising cycle.

And in the UK, our growth was further supported by contractual ad sales partnerships that are not marketplace dependent. Looking at ratings, Channel 5 achieved its fourth consecutive quarter from growth in viewership share. And Telefe remained the No. 1 network in ratings for 19 straight months.

International markets outside of Argentina and the UK also saw ad growth in the quarter. International affiliate revenue increased 8% in the quarter, benefiting from growth in the linear business, as well as from SVOD and OTT deliveries. Now turning back to the consolidated results and looking at items below the line. Net interest expense was lower by $19 million due to our deleveraging actions.

Our adjusted effective tax rate in the quarter was 23.1%. For the full year, we now expect an adjusted effective tax rate of 24%. On slide 12 is a summary of our cash flow and debt. We continue to deliver extremely strong free cash flows, up 10% year to date to $984 million.

The growth in free cash flow was due to an improvement in working capital management, partially offset by an increase in cash taxes. Moving to the balance sheet. At quarter end, we have $9 billion of gross debt outstanding, a reduction of 11% versus the prior year. Our adjusted gross debt, reflecting the equity credit we received from S&P and Fitch on our hybrid securities, was $8.3 billion.

We plan to pay down the $220-million maturity that comes due in September as we continue to delever. Looking at the outlook for the remainder of the year. The benefits from our strategic initiatives will continue to deliver results. We're reaffirming our outlook for full-year total company revenue growth in low to mid-single digits on a constant-currency basis, with growth at Media Networks and filmed entertainment.

We will deliver meaningful domestic ad sales growth in the fourth quarter and consequently see full-year growth. For fiscal 2019, AMS will represent nearly 20% of our domestic ad sales business. The scale of our AMS business now compares to the advanced advertising businesses of the market leaders Hulu and Roku, which are doing incredibly well. We're proud to say that we're right there with them.

in Terms of domestic affiliate revenue, we continue to expect full-year growth in the low single digits as we benefit from rate escalators, virtual MVPD growth, content licensing and the scaling of our solution products. For international media networks, we expect continued momentum in the September quarter with growth in total revenue, benefiting from continued strength in Argentina, as well as significant SVOD and OTT deliveries. Lastly, we're also reaffirming our adjusted OI guidance of down low to mid-single digits, which is driven by the incremental investments we're making in our growth initiatives. Filmed entertainment will return to profitability for the full year for the first time since 2015, cementing the turnaround we promised.

In wrapping up, we continue to be focused and relentless in the execution of our strategies to deliver growth. The third quarter is a great example of the progress we've made. We're excited about the opportunity going forward as these growth initiatives continue to deliver at a scale that has created an inflection point in Viacom's growth. And now I'd like to open it up for question.

Questions & Answers:


At this time, we will be conducting a question-and-answer session. [Operator instructions] Our first question comes from Alexia Quadrani of J.P. Morgan. Please proceed with your question.

Alexia Quadrani -- J.P. Morgan -- Analyst

Thank you very much. I just have one on Paramount and one on Media Networks, please. First on Paramount, we've seen some really impressive improvement at Paramount. It sounds like the films that were creating the new leadership there really just started in earnest about a year ago.

I guess I would assume also most of the restructuring and cost cutting is well behind you. So I guess given all that, I guess where are we in terms of the stages of Paramount's turnaround? Just trying to get a sense of how we can sort of assess the growth prospects ahead. And then my second question just on the network side, how disruptive, if at all, do you think the launch of Disney+ is to your Nickelodeon platform? You know, it makes kids content maybe a bit more ubiquitous. Does it further the competition for your viewership?

Bob Bakish -- President and Chief Executive Officer

Sure, thanks, Alexia. So on Paramount, there's no question that the turnaround phase is behind us and we're entering into a new phase of growth and vitality. And you really only need to look at the 2020 film slate, including titles like Gemini Man, Terminator: Dark Fate, A Quiet Place II, The SpongeBob Movie, the long-awaited sequel to Top Gun among others, as well as the TV slate with 26 shows ordered to or in production, including 13 Reasons Why, Jack Ryan, Haunting of Hills House 2 and more to see that very clearly. And Paramount has incredible value to Viacom and really to the market at large.

It's a home for talent, it's a global premium content producer. It's a massive library owner. It's a marketing and distribution machine. And it's really a platform for the creation and growth of franchises, which makes it an irreplaceable partner to the creative community, to the theater circuits, to the networks and really all forms of distribution platforms.

And that of course makes it a material asset to Viacom. So look, these are exciting days at Paramount and really for Viacom, and we're feeling great about it. On your second question on Disney+, certainly a lot of discussion on this, and their pricing does look very competitive. Our view continues to be that the consumer market is segmenting by price points from big basic to skinny bundles to SVOD to free, and there will be movement across those segments both up and down.

And there will be bundling benefits in some of those segments, particularly with broadband and video bundles. Now within the segments, we think there will be choice, and competition will be intense. And certainly, Disney will be a factor in that SVOD segment. Our strategy is to play in all the segments from big bundle to free and our evolving product lines allowing to do just that.

And look, Nickelodeon has incredible traction in the marketplace, very important to distributors. They love what they're seeing in terms of where it's going. So we feel good about that in the shifting landscape.

Alexia Quadrani -- J.P. Morgan -- Analyst

All right, thank you very much.


Our next question comes from Jessica Reif Ehrlich of Bank of America. Please proceed with your question.

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

Thanks. Maybe one other one on Paramount and then advertising. Has there been any impact or any expected impacts from all of the stuff that's going on with China at the moment? And then on advertising, you've made such progress with your digital initiatives. Is any of it scalable into the international markets? And I guess on the upfront you were great in giving us pricing increase, but you said volume's up.

Can you give us a sense of how much it's up? Thank you.

Bob Bakish -- President and Chief Executive Officer

Yes, Jessica. Thanks. So on Paramount and China, certainly no impact to date. I mean, we don't have any big titles till well into the fall.

So clearly, some time for this to get sorted out. And so we'll just have to wait and see. Ultimately, this is a high-stakes game these two countries are playing. There's lots of reason to believe it will get sorted out.

But again, for now, no impact.

Wade Davis -- Chief Financial Officer

In terms of being able to take the things that we've built in the US around AMS and in particular Pluto as part of AMS, international is absolutely a huge opportunity. We're just getting started with respect to that. Pluto integration internationally just started to touch the places that it was operating in before we acquired it. It was Germany, Austria, Switzerland and the UK.

We did begin integrating Pluto into the My5 AVOD in the UK. We're already seeing significant consumption of Pluto content on the My5 platform, and we have very ambitious set of international roll out plans going forward. We're investing in the infrastructure necessary for kind of a smooth, aggressive roll out into traditional territories. In '20, you'll see us roll out across all of Latin America.

And between '20 and '23, we're going to be rolling out in 19 territories around the world. So big opportunity for us internationally.

Bob Bakish -- President and Chief Executive Officer

Volume in the upfront.

Wade Davis -- Chief Financial Officer

In terms of volume in the upfront, sorry. So volume in the upfront, we were able to capture significant volume in the upfront as we said. A key part of the strategy was to pull back the amount of linear inventory that we sold in the upfront. Having the breath of the AMS portfolio that we had was really what enabled us to absorb the demand while still holding out linear volume.

So in terms of what that actually was, we -- that's not really something that we're going to disclose because it is not helpful to us from a competitive standpoint, but we did hold back significant linear inventory that's going to benefit us really well as we head into a market, a scatter market unfolding going forward that we think is probably stronger than anything we've seen in a long time.

Bob Bakish -- President and Chief Executive Officer

We'll take our next question.


Our next question comes from Marci Ryvicker of Wolfe Research. Please proceed with your question.

Marci Ryvicker -- Wolfe Research -- Analyst

Thanks, I have two questions. I guess the first one, Bob, did you see that all traditional distributors have been renewed at this point?

Bob Bakish -- President and Chief Executive Officer

Yes, Marci. We said virtually all. There's a little bit to go in '20, but the vast, vast, vast majority of the sub base is complete and we're feeling really good about that. It's clear evidence that our strategy, which we embarked on in 2017, where we look to partner and broaden the set of activities we're doing with folks, putting advanced advertising, co-productions in some cases and now broadband, mobile and Pluto TV.

It's clearly working, and that's really taken a big risk off the stock. We feel great about it.

Marci Ryvicker -- Wolfe Research -- Analyst

OK. And then is there anything you can tell us about Pluto users, their demographic, what they are watching, how they are watching, where they're coming from, how you're getting them, et cetera?

Wade Davis -- Chief Financial Officer

So we are super proud of the progress we're making on Pluto. As we said in our prepared remarks, at the end of July we had 18 million monthly average uniques, significant growth over what we announced in the previous quarter. This growth is coming from all the right places. These are 18 million US uniques.

They're overwhelmingly consuming content on connected TV. We've seen the connected TV cohort grow over 400% on a year-over-year basis. In terms of what they're watching, the biggest categories and genres in terms of the consumption, movies, news, entertainment. Now that we have Viacom content on there, kids is one of the fastest-growing categories we have, drama.

And we're also incredibly excited about the launch of Pluto Latino. This is a very important, rapidly growing demographic that's underserved from an OTT standpoint, and the offering that we put up on Pluto, we think, is an incredibly compelling offering and we're very excited about what that's going to deliver us in the coming quarters.

Marci Ryvicker -- Wolfe Research -- Analyst



Our next question comes from Doug Mitchelson of Credit Suisse. Please proceed with your question.

Doug Mitchelson -- Credit Suisse -- Analyst

Do you know, Bob, you've got a clear focus on investing for growth, and margins being down a bit this year reflects that I believe. When we look forward, is there a point at which you would suggest margins flatten out or grow? And I guess sort of backing into how much more growth investment is there to do? And when do the returns on that actually start to sort of offset new investment? And then, Wade, if you could help us on affiliate revenue within a contribution this quarter from OTT, SVOD and a studio production revenue, sort of what was the impact of that category of revenue? Thanks.

Wade Davis -- Chief Financial Officer

Yes, why don't we actually flip it? Do you want me to take the margins and you take affiliate?

Bob Bakish -- President and Chief Executive Officer


Wade Davis -- Chief Financial Officer

OK. So in terms of the ongoing growth investment, it's fairly modest and it's important to note that we're actually stepping on the gas where we're seeing delivered, where we're seeing the ability to deliver results, right? So as we've seen Pluto traction begin to take hold. We've started incrementally investing to support and help accelerate that growth. We are starting to invest incrementally in our niche B2C products, as Bob described.

And obviously, we're investing in supporting the AMS infrastructure. When you take all of that together, these are very modest incremental investments in the scheme of Viacom. We are going to continue to invest in things like Pluto. Obviously, it's in a hyper-growth mode.

Going to require investment in order to continue to support that. But one of the great things about Pluto is that the majority of its cost structure is variable. So unlike a lot of other people's forays into this area, we don't have to invest significantly ahead of the curve in terms of big fixed costs, licenses and content distribution. So we're able to grow the cost structure as the business grows.

In terms of overall margins, we've talked a lot previously about our cost transformation activities. We are able to, we continue to be able to drop significant savings to the bottom line. So in this quarter, if you look at SG&A improvements, we were able to improve SG&A by a couple of percent net of ad and promo expense. And so those savings are really allowing us to invest in these growth initiatives without really impacting Viacom's bottom line.

Bob Bakish -- President and Chief Executive Officer

Yes. And in terms of your question on over the top and the like in the affiliate number, the reality is I'm not going to unpack that because we have a multifaceted distribution business, which is reflective of the significantly broader landscape that we now operate in. Viacom IP is in demand across this landscape, in many sectors. We're working to satisfy that demand, and that's driving growth overall in distribution.

And that's really how you need to think about it.

Doug Mitchelson -- Credit Suisse -- Analyst

And if I could just follow up, Bob, if you sort of carry forward with Wade's comments on the growth question, have you sort of checked the box on a lot of the things that you wanted to do regarding driving growth initiatives? Or should we expect that there's plenty more to come?

Bob Bakish -- President and Chief Executive Officer

Look, I think we're just getting to an inflection point. Obviously, if you go back two, three years. We had a bunch of near-term revitalization work we had to do, and I won't recover that. But we said simultaneously we'd evolve the company for the future.

And when we entered fiscal '19, we said we were really leaning into that side, and that's exactly what we've been doing. And then you look at our third fiscal quarter and the return to growth on so many metrics, you're seeing it actually start to play through the P&L. And our focus now is on continuing to ramp that. And that might be, well, that includes ramping things like our Pluto platform, ensuring that broadband only and for that matter, video-bundled consumers first in the US, but really all around the world, have a premium content experience that leads the industry.

That includes our advanced marketing solution business, which as Wade discussed, really differentiated us in the quarter, in the upfront and sets us up and actually already has returned us to sustainable growth. So you should expect us to keep doing that. And you should also expect us to continue to look for ways to evolve our business and take advantages in a glass-half-full way of the many opportunities this shifting landscape presents.

Doug Mitchelson -- Credit Suisse -- Analyst

All right, thanks so much.


Our next question comes from Rich Greenfield, please proceed with your question.

Bob Bakish -- President and Chief Executive Officer

Rich, you might be on mute?

Rich Greenfield -- Analyst

Sorry about that. Sorry. Sorry about that. Viacom and Discovery appear to be leading the industry in ad sales, which is -- my guess is it's probably pretty counterintuitive to most people listening to this morning's call.

Is unscripted outperforming scripted? I mean, is that what's driving the improvement that you're seeing relative to the rest of the industry? And just from a housekeeping standpoint, how much was the -- I think you closed Pluto toward the end of last quarter. How much was the first time Pluto impact on ad sales, just so we can kind of get a sense of what the underlying organic growth was? And I realized there's probably a point in there for Easter as well. And then just a follow up for Bob. You had talked earlier in the year pretty excitedly about mobile MVPD deals.

I think you would point to T-Mobile being kind of first of its kind. We haven't really seen much materialize there. Will it -- Is it a timing issue? How soon? How should we think about kind of the mobile MVPD opportunity? Thanks.

Bob Bakish -- President and Chief Executive Officer

Sure, Rich. So a lot there. So all of that, I'm not going to comment on Discovery. I can tell you from a Viacom perspective we saw our networks grow audience share in fiscal Q3.

Certainly, unscripted/reality is a programming genre that works for us. That's a big part of MTV resurgence for sure, shows like Ex on the Beach, The Hill, Jersey Shore, et cetera. They all are actually pretty monetizable as well. So that's working for us.

But obviously, that's not the only thing. As we said, the real driver of ad sales growth is our ability to access incremental inventory in sophisticated ways, i.e. advanced marketing solutions. And Wade, I'm sure, will comment on that.

Before he does, let me just take your mobile question. You're right, I have talked about mobile for a while now, and it's because we continue to think that it is a really substantial opportunity to unlock in terms of consumers having these devices. They're kind of the remote controls for their life. They're with them all the time, and plant [Sp] is now at a place where they are super video enabled and the business is very commoditized and carriers are looking for ways to drive data ARPU and differentiation.

We've done a bunch of mobile deals in both the US and around the world. Certainly the US, AT&T Watch where we added three additional services was part of our last deal. T-Mobile and their forthcoming service. And then really, ex US, after the six mobile deals we did in the last quarter, we're now up to 34 operating.

And I think we're at the very early days of this. So very exciting development for our industry and Viacom, certainly in particular.

Wade Davis -- Chief Financial Officer

So in terms of the impact of Pluto in the quarter, this was the first full quarter that we benefited from Pluto. Pluto, as we've said before, is part of AMS. It's not something that we break out separately. It's part of AMS because it's integral to how we operate the AMS business.

We're already using Pluto inventory to fulfill Vantage campaigns. We're using Pluto inventory to satisfy certain areas of bundled delivery. So it's an integral part of not only AMS, but the overall ad solutions business. But probably the most important thing, or at least the most direct answer to your questions that you asked that I can tell you, that without Pluto, we still would have grown domestic ad sales in the quarter.

And Pluto, it really wasn't the only bright spot in AMS. Vantage grew over 80%, social and digital grew over 50% as we added new source of inventory. Like I said in the remarks, DIRECTV Now, AT&T Watch. I mean, AMS is hundreds of millions of dollars, grew 80% from the quarter.

This is an incredibly differentiated and strategic asset for Viacom leading the market.


Our next question comes from John Hodulik of UBS. Please proceed with your question.

John Hodulik -- UBS -- Analyst

Great. Maybe a couple quick follow ups on Pluto. Bob, you mentioned when you acquired the company that one of the big sources of upside was going to be the sale that sort of 50% of the inventory that was going on sold. Just any progress you made there in terms of plugging that inventory into AMS and into sort of your own sort of sales infrastructure? And then maybe, Wade, you talked about the engagement.

But any metrics you can provide? I mean, you're putting a lot of new content on Pluto. So you got 18 million monthly users, but anything you can tell specifically on what's happening in terms of engagement? Is that growing as we're seeing this more content on the platform? Thanks.

Wade Davis -- Chief Financial Officer

Yes, for sure. So let me just start with the content part. We continue to make great progress with -- from a content standpoint. We have over 65,000 hours of content on the Pluto platform across what's now -- we're now over 200 channels on the platform.

And it comes from about 165 content partners. So it's an incredibly robust, probably unlike anything else in the marketplace in terms of premium content. And that content really is working. So it is driving significant, really month-over-month per-user watch times.

It's not something that we're specifically disclosing, but the growth in watch time coupled with the very rapid growth and overall usage. The growth of 18 million monthly average uniques is driving inventory of volume at -- obviously the mass of that, the inventory volume, is growing at a pace that exceeds what the absolute audience volume growth is. And I guess that's a good segue into your question about fill rate, right? So in terms of fill rate, when we bought the business, it was significantly under 50%. And I guess we have a little bit of a kind of rich man's problem here in the sense that we're making great progress on fill rate both from a direct sales and indirect sales standpoint.

But the absolute volume of inventory on Pluto is scaling so rapidly that we're actually still under 50% sold. And so as volume continues to scale rapidly, we have an incredible amount of room to run from a monetization standpoint.

Bob Bakish -- President and Chief Executive Officer

Yes. And just to add to that, I mean I think that's just raising the ceiling. The reality is we said we plugged Pluto into our infrastructure in a whole bunch of ways, content, distribution and ad sales. In the ad sales point, which what you're asking about, we definitely did it.

It's helping us in the scatter market. We made a very material upfront based on a stand-alone basis for Pluto and part of AMS and therefore part of solutions. So that's got great traction in the marketplace. And we just keep having more and more premium inventory to sell, which just means the thing continues to have a potential to get even bigger.

So we're thrilled that we did this. It's working even faster than we planned. And it's a really great road ahead.

John Hodulik -- UBS -- Analyst

Great, thanks.


Our next question comes from Ben Swinburne of Morgan Stanley. Please proceed with your question.

Ben Swinburne -- Morgan Stanley -- Analyst

Hey, good morning, guys. Bob, if you gave this earlier, or Wade, I apologize. But I wanted to ask you if you could size the sort of TV production business now at Viacom, kind of across Paramount and the media networks and what that looks like as you head into next year and whether you think they'll start being sort of profitable or meaningfully profitable in that business? And then secondly, sort of sticking on the Paramount side, I think your TV licensing deal in the US with Epic is up in a couple years. Just wondering how you think about the opportunity around licensing in the pay-one window, whether that whole marketplace has changed? Do you think that you may take that content in a different direction or sort of how you think the market shifts around in the context of that opportunity for Paramount?

Bob Bakish -- President and Chief Executive Officer

Yes, sure, Ben. So look, as we said, our studio production business continues to scale very rapidly. That's true at Paramount where, as I indicated, we have 26 series now ordered to or in production. I think in the last call we were up to 22.

We have productions in place at our domestic media networks. And I also mentioned that we continue to see that scaling at biz [Sp]. So we feel great about that. We're definitely on track to what we said, which is an exit velocity in 2020 of $1 billion.

And that would include profitability. On the second part of your question, which goes to the Paramount, let's call it pay-one window, that's still -- we're not going to [Inaudible] to date, but that's still a little ways off. But that's a place where time is our friend. The value of that window, that product probably increases every day.

We regularly get inbound interest in that product from a range of players sort of across platforms. We're not doing anything in the near future because again we think time is our friend. And as time plays out, we'll determine the highest and best use of it. And by the way, as time plays out, you'll see what a powerhouse Paramount will become on a slate basis because we just talked about the '20 slate.

But we've also looked longer, and it's just, the pipeline looks phenomenal and these guys really know what they're doing. So that window will have incredible value to us once we make a decision on what we'll do.

Ben Swinburne -- Morgan Stanley -- Analyst

Got it, thank you.

Jim Bombassei -- Senior Vice President, Investor Relations and Treasury

Operator, we have time for one more question.


OK, our next question comes from Tim Nolan of Macquarie. Please proceed with your question.

Tim Nolan -- Macquarie Research -- Analyst

Thanks so much. Really appreciate the comments on AMS. I wonder if I could dig in just a little bit more in relation to the upfront. I mean, AMS is a very different piece from your traditional upfront negotiations.

Are you selling this as like a package with your linear upfront deals? Is it a separate sale? I just wonder if you can give us a bit more color on how you're using AMS in the upfront. And perhaps relatedly, I believe there's an OpenAP 2.0 I guess you would call it, supposedly due to launch this fall. Any updates on consortium partners or anything new to say on OpenAP? Thanks.

Wade Davis -- Chief Financial Officer

Sure. So AMS really allowed us to go into the upfront with the right strategy at the right time, right? The overall market context for this upfront was linear inventory scarcity that everybody only expected to increase overtime. And so having this portfolio of products to be able to take to the marketplace as a package was really, really differentiated but, most importantly, was the place we're able to absorb volume while still driving price on the linear side of the equation. So the answer to your question about is it a package is resoundingly yes.

And I think it's important to note that the way in which we brought it to market was a construct that every major holding company participated in. So the strategy not only delivered results for us but was also embraced by the industry as a way to deliver results for their clients. So we couldn't be happier with both how AMS is performing in general, but also the way in which it allowed us to have a differentiated offering going into the upfront. In terms of OpenAP 2.0, that represents a very significant and interesting step forward for that consortium as we think about moving OpenAP functionality from being really a tool for creation and posting of advance TV segments to starting to become a broader planning and then ultimately a planning tool and ultimately a buying platform.

But in terms of the more specific announcements around consortium partners and the actual roll out of the product, I think it's best to leave that to the consortium itself.

Bob Bakish -- President and Chief Executive Officer

So look, in closing, I trust you can all see we had a great quarter, and I'm really pleased with the performance we continue to demonstrate as we invest in and evolve Viacom for the future. We're building off of our existing linear TV and film base. We're expanding on a global basis, we're rapidly growing our premium content reach beyond our traditional networks, including in D2C; and we're creating innovative solutions for our growing roster of partners. Our brands are strong, and they're resonating with audiences of all ages, and you see that in our hits.

We built a sophisticated advanced marketing solutions portfolio that's ideally suited to the evolving marketplace, and you see that in our return to advertising growth. And we've achieved a strong presence across the diverse video ecosystem, ranging from traditional MVPDs to VMVPDs, niche SVOD, mobile and now free streaming, which means we're entertaining more consumers than ever. In short, our strategy to evolve Viacom for the future is working, and our business model allows us to thrive and grow in what is a rapidly changing media landscape. We're excited by the opportunity and growth ahead, and we thank all of you for your support and time.

Jim Bombassei -- Senior Vice President, Investor Relations and Treasury

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


[Operator signoff]

Duration: 55 minutes

Call participants:

Jim Bombassei -- Senior Vice President, Investor Relations and Treasury

Bob Bakish -- President and Chief Executive Officer

Wade Davis -- Chief Financial Officer

Alexia Quadrani -- J.P. Morgan -- Analyst

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

Marci Ryvicker -- Wolfe Research -- Analyst

Doug Mitchelson -- Credit Suisse -- Analyst

Rich Greenfield -- Analyst

John Hodulik -- UBS -- Analyst

Ben Swinburne -- Morgan Stanley -- Analyst

Tim Nolan -- Macquarie Research -- Analyst

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