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EX-32.2 - EXHIBIT 32.2 - Viacom Inc.via-20170930x10kexhibit322.htm
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EX-31.2 - EXHIBIT 31.2 - Viacom Inc.via-20170930x10kexhibit312.htm
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EX-24.1 - EXHIBIT 24.1 - Viacom Inc.a201710-kexhibit241.htm
EX-23.1 - EXHIBIT 23.1 - Viacom Inc.a201710-kexhibit231.htm
EX-21.1 - EXHIBIT 21.1 - Viacom Inc.a201710-kexhibit211.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended September 30, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to _______
Commission File Number 001-32686
VIACOM INC.
(Exact name of registrant as specified in its charter)
DELAWARE
 
20-3515052
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
1515 Broadway
New York, NY 10036
(212) 258-6000
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
 
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Class A Common Stock, $0.001 par value
 
NASDAQ Global Select Market
Class B Common Stock, $0.001 par value
 
NASDAQ Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title Of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
  
Accelerated filer  ¨
 
Non-accelerated filer  ¨
(Do not check if a smaller reporting company)
 
Smaller reporting company  ¨
 
Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
As of the close of business on March 31, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, there were 49,431,379 shares of the registrant’s Class A common stock, par value $0.001 per share, and 351,557,942 shares of its Class B common stock, par value $0.001 per share, outstanding. The aggregate market value of Class A common stock held by non-affiliates as of March 31, 2017 was approximately $487.0 million (based upon the closing price of $48.75 per share as reported by the NASDAQ Global Select Market on March 31, 2017, the last trading day of the quarter). The aggregate market value of Class B common stock held by non-affiliates as of March 31, 2017 was approximately $16.4 billion (based upon the closing price of $46.62 per share as reported by the NASDAQ Global Select Market on March 31, 2017, the last trading day of the quarter).
As of October 31, 2017, 49,431,181 shares of our Class A common stock and 352,826,905 shares of our Class B common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Viacom Inc.’s Notice of 2018 Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, are incorporated by reference into this Annual Report on Form 10-K (Portion of Item 5; Part III).
 



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PART I
Item 1. Business.
OVERVIEW
Viacom is home to premier global media brands that create compelling entertainment content - including television programs, motion pictures, short-form content, games, consumer products, podcasts, live events and social media experiences - for audiences in more than 180 countries on various platforms and devices. We operate through two reportable segments: Media Networks and Filmed Entertainment, each of which is described below.
In fiscal year 2017, following a comprehensive review of our operations and performance, we began to execute against a new business strategy that is built on the following key pillars:
We have designated key brands - Nickelodeon, Nick Jr., MTV, BET, Comedy Central and Paramount - as our highest priority, “flagship” brands. Our flagship brands are unique from our other brands, in that they have compelling, valuable and distinct brand propositions; serve diverse, substantial audiences with content largely owned by us; and have global reach and distribution potential across linear, digital, film, consumer products, and live events and experiences. We have also focused on opportunities to bring the best of Paramount Pictures to our Media Networks business, and the best of our Media Networks business to Paramount Pictures.
We are elevating our approach to content and talent, by building our content pipeline and embracing new formats. We are working to transform our approach to talent development by creating new opportunities for our key talent across our networks and film studio.
We are deepening our partnerships to drive new distribution and advertising revenue, including through advanced advertising, data, marketing and co-production agreements.
We are extending the reach of our brands in both the physical world (through live events, recreation and similar experiences) and the digital world.
We are optimizing and energizing our organization, by focusing on our culture and shared vision and values.
We were organized as a Delaware corporation in 2005 in connection with our separation from CBS Corporation (“CBS”), which was effective January 1, 2006. Our principal offices are located at 1515 Broadway, New York, New York 10036. Our telephone number is (212) 258-6000 and our website is www.viacom.com. Information included on or accessible through our website is not intended to be incorporated into this report. References in this document to “Viacom,” “Company,” “we,” “us” and “our” mean Viacom Inc. and our consolidated subsidiaries, unless the context requires otherwise.
MEDIA NETWORKS
Overview
Our Media Networks segment provides high-quality entertainment content, services and related branded products for consumers in targeted demographics attractive to advertisers, content distributors and retailers. We create, acquire and distribute programming and other content for our audiences worldwide, distributed through cable, satellite and broadband services, on linear, streaming and on-demand bases, via a variety of owned and third party platforms including televisions, branded apps and sites, for viewing on a wide range of devices such as connected televisions, PCs, tablets, smartphones and other connected devices. The Media Networks segment also licenses its brands for consumer products and recreational opportunities, and produces live events.
Our Media Networks segment operates globally as Viacom Media Networks, through three brand groups based on target audience, similarity of programming and other factors:
our Global Entertainment Group offers content that reaches a diverse group of adults and young adults who love comedy, music, pop culture and general entertainment;
the Nickelodeon Group offers content designed for kids ages 2 to 17 and their families; and
BET Networks offers content targeted to African-American audiences and consumers of Black culture.

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Globally, our program services reach approximately 4.3 billion cumulative television subscribers in 183 countries and 43 languages, via 300 locally programmed and operated television channels, including Nickelodeon®, Nick Jr.®, MTV®, BET®, Comedy Central®, SPIKE® (which will be rebranded as Paramount Network™ in the United States (“U.S.”) in January 2018), VH1®, TV Land®, CMT®, Logo® and our program services created specifically for international audiences, such as British public service broadcaster (“PSB”) Channel 5® (in the United Kingdom (“UK”)), Telefe® (in Argentina), Colors® (in India) and Paramount Channel™ (in a variety of territories). In fiscal year 2017, our Media Networks segment launched 16 new channels, including in East Asia, Russia and various parts of Europe. Cumulative television subscribers aggregate total subscribers to each Viacom owned and operated, joint venture and licensee channel.
Our Media Networks brands develop and operate an extensive portfolio of online, mobile and app experiences, including “TV Everywhere” apps, that provide their target audiences with video streaming of long-form and short-form programming content, games and interactive features, across shows, events, news, music, community, culture and, for our younger audiences, educational and learning activities. During the quarter ended September 30, 2017, our Media Networks online properties, in the aggregate, averaged approximately 44.5 million unique visitors per month domestically, and according to internal data, 454 million content streams each month. Our brands also provide branded experiences across several streaming services and social media platforms, as well as live events and branded consumer products.
Media Networks Properties
Our most significant Media Networks properties are discussed below. Unless otherwise indicated, the domestic television household numbers are according to Nielsen, the Internet monthly unique user and video stream data is according to comScore Media/Video Metrix (U.S. data only unless otherwise indicated), and the average app usage data and the international reach statistics are derived from internal data coupled with external sources when available.
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Nickelodeon, now in its 38th year, is a diverse, global business and a recognized leader in kids and family entertainment. Nickelodeon has been the number-one-rated advertising-supported basic cable network for 22 consecutive years, featuring leading original and licensed series for kids across animation, live action and preschool formats. Nickelodeon produces and distributes television programming worldwide, has a global consumer products licensing business and licenses its brands for recreation experiences such as hotels, theme parks and live entertainment.
Programming highlights in fiscal year 2017 included the series premieres of Dude Perfect, I am Frankie and Hunter Street; returning hits The Loud House, School of Rock, Alvinnn!!! and the Chipmunks, Game Shakers, Henry Danger, Nicky, Ricky, Dicky & Dawn, The Thundermans, Teenage Mutant Ninja Turtles and SpongeBob SquarePants; and tentpole events such as Kids’ Choice Awards, Kids’ Choice Sports, The HALO Awards and Worldwide Day of Play.
During the evening and overnight hours, Nick at Nite airs on the same linear cable channel on which Nickelodeon airs during the daytime, and features licensed contemporary family comedies, such as Friends, George Lopez, The Goldbergs, Fresh Prince of Bel-Air and Full House.
In September 2017, Nickelodeon and Nick at Nite reached approximately 602 million cumulative television subscribers in 177 countries worldwide, excluding branded programming blocks.
In the quarter ended September 30, 2017, our Nick online properties in the aggregate averaged 2.6 million monthly unique visitors domestically and, according to internal data, 56 million content video streams each month. Nickelodeon has garnered 249 million cumulative followers across social media platforms.
With 28 films to date, Nickelodeon has deepened its partnership with Paramount Films, working together to develop a slate of branded films based on some of Nick’s most iconic franchises and characters.
Nickelodeon has taken steps to expand its footprint in the physical world, with the 2016 opening of the Nickelodeon Resort in Punta Cana, multiple PAW Patrol live tours around the world and licensing our intellectual property in theme parks.
Nickelodeon developed SpongeBob SquarePants, a live musical stage production, in conjunction with an award-winning, premier Broadway team. The musical is now in previews and scheduled to formally open on Broadway in December 2017.

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Nick Jr. seeks to educate and entertain preschoolers, providing kids an opportunity to engage with characters they love while building their imaginations, gaining key cognitive and social-emotional skills and learning about the world around them. Nick Jr. offers parents and their kids entertaining and enriching activities geared toward their interests, ages and developmental levels.
Programming highlights in fiscal year 2017 included hits such as PAW Patrol, Blaze and The Monster Machines, Shimmer and Shine and Rusty Rivets and licensed originals such as Peppa Pig, Teletubbies and Max & Ruby.
In September 2017, Nick Jr. reached approximately 217 million cumulative television subscribers in 148 countries worldwide.
In the quarter ended September 30, 2017, our Nick Jr. online properties in the aggregate averaged 2.3 million monthly unique visitors domestically and, according to internal data, 278 million content video streams each month. Nick Jr. has garnered 10 million cumulative followers across social media platforms.
NOGGIN is Nickelodeon’s advertising-free, direct-to-consumer, over-the-top (“OTT”) preschool video subscription service, featuring over 1,000 full-length library episodes, plus short-form and educational content. In fiscal year 2017, we launched a slate of play-along videos that allow preschoolers to engage with their favorite characters and navigate through enhanced educational experiences that promote science, technology, engineering, math and social-emotional skills.
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MTV is a global youth culture brand that creates original music and pop culture content. MTV Play, a multiplatform video streaming offering for adults available in approximately 27 countries and territories, provides on demand access to fans’ favorite shows and live streaming of the MTV linear channel in support of our TV Everywhere partnerships.
Programming highlights in fiscal year 2017 included the long-running Teen Mom, Teen Mom II, Catfish: The TV Show, Ridiculousness, Are You The One? and The Challenge franchise. New series launches in fiscal year 2017 included Teen Mum, SafeWord, Siesta Key and Fear Factor. In October 2017, MTV relaunched its signature hit, Total Request Live, airing live from the MTV Studio in Times Square.
MTV’s signature programming event is the MTV Video Music Awards, which in 2017 drew 5.4 million viewers across its live linear simulcast. On Twitter, the VMAs trended globally for 13 hours, was the number-one trending topic in the U.S. from 7:00 p.m. to 11:00 p.m. (ET) on the night it aired, and at the show’s peak accounted for eight of the top 12 U.S. trending topics. MTV’s additional annual tentpole programming events included the MTV European Music Awards, MTV Movie and TV Awards and MTV Fandom Awards.
In September 2017, MTV reached approximately 945 million cumulative television subscribers in 179 countries worldwide.
In the quarter ended September 30, 2017, our MTV online properties in the aggregate averaged approximately 11.5 million monthly unique visitors domestically and approximately 48 million content video streams each month. MTV has garnered 245 million cumulative followers across social media platforms.
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BET is a leading consumer brand in the urban marketplace, and the nation’s leading provider of entertainment, music, news and public affairs programming to African-American audiences. BET Play, a direct-to-consumer OTT offering for adults available in approximately 100 countries and territories, provides hundreds of hours of content, including BET original series, awards shows, stand-up comedy, reality shows and documentaries.
In fiscal year 2017, we entered into a comprehensive, multi-year content partnership with award-winning writer, director, producer, actor and playwright Tyler Perry, encompassing television, film and short-form video. Beginning in 2019, Tyler Perry will produce approximately 90 episodes annually of original drama and comedy series for BET and other Viacom networks, and we will have exclusive licensing rights on this programming, as well as exclusive distribution rights to Tyler Perry’s short-form video content. The partnership extends through 2024.

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Programming highlights in fiscal year 2017 included the premieres of Tales, Face Value and 50 Central; returning favorites such as Being Mary Jane, Real Husbands of Hollywood, The Game and Sunday Best All Stars; and acquisitions such as House of Payne and Martin. BET’s tentpoles and live events in 2017 included the fifth annual BET Experience, BET’s weekend-long celebration of music, entertainment and Black culture, which was attended by 165,000 people and featured the 2017 BET Awards; BET Honors Awards; Black Girls Rock; BET Hip Hop Awards; Soul Train Awards and Celebration of Gospel. BET’s programming received 5 NAACP Image Awards nominations and 2 wins in 2017.
In September 2017, BET reached approximately 226 million cumulative television subscribers in 73 countries worldwide.
In the quarter ended September 30, 2017, our BET online properties in the aggregate averaged approximately 14.2 million monthly unique visitors domestically and, according to internal data, 8 million content video streams each month. BET has garnered 42 million cumulative followers across social media platforms.
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Comedy Central is a leading destination for comedic talent and all things comedy, featuring award-winning late night, sketch, scripted and animated series and stand-up specials and series, as well as a Global Podcast network. In June 2017, Comedy Central hosted its first Colossal Clusterfest, a three-day festival in San Francisco that featured an unprecedented mix of world-class standup comedy, live music and interactive reproductions of sets of iconic television shows.
Programming highlights in fiscal year 2017 included The Daily Show with Trevor Noah, series premieres of The Jim Jefferies Show, The President Show and The Opposition with Jordan Klepper, new seasons of returning favorites including South Park, Broad City and Tosh.0, local versions of Drunk History and acquisitions such as The Big Bang Theory, Friends, Impractical Jokers and Family Guy.
In September 2017, Comedy Central reached approximately 372 million cumulative television subscribers in 146 countries worldwide.
In the quarter ended September 30, 2017, our Comedy Central online properties in the aggregate averaged approximately 5.6 million monthly unique visitors domestically and, according to internal data, approximately 23 million content video streams each month. Comedy Central has garnered 168 million cumulative followers across social media platforms.
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In January 2018, we will rebrand Spike in the U.S. as the Paramount Network - a premier general entertainment brand that we expect will enhance our offerings for adults 18 to 49. We anticipate that Paramount Network will leverage the best in our original scripted and non-scripted programming, and feature high-quality original and third party programming, movies and documentaries, and combat sports.
Paramount Network programming will feature a six-part event series Waco, a drama focused on the Branch Davidians; Yellowstone, a drama starring Kevin Costner and written and directed by critically-acclaimed screenwriter Taylor Sheridan; American Woman, a period piece starring Alicia Silverstone from award-winning producer John Wells; and Heathers, a 10-episode anthology based on the 1988 cult classic film of the same name. Paramount Network will also feature the culturally-relevant documentary Rest in Power: The Trayvon Martin Story, and new episodes of the multiplatform global hit Lip Sync Battle, Ink Master, Ink Angels, Bar Rescue and Bellator MMA.
Spike programming highlights in fiscal year 2017 included returning franchises Lip Sync Battle, Ink Master and Bar Rescue, and tentpoles such as Spike’s One Night Only tribute to Alec Baldwin. The Lip Sync Battle multiplatform franchise continues to expand with Lip Sync Battle Shorties, which will premiere in early 2018 on Nickelodeon, hosted by Nick Cannon and JoJo Siwa, and featuring younger, non-celebrity competitors lip-syncing to their favorite pop songs.
In September 2017, Spike reached approximately 146 million cumulative television subscribers in 11 countries worldwide.

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In the quarter ended September 30, 2017, our Spike online properties in the aggregate averaged approximately 990,000 monthly unique visitors domestically and, according to internal data, 5 million content video streams each month. Spike has garnered 21 million cumulative followers across social media platforms.
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VH1 is a leading lifestyle brand for millennials, with pop culture, celebrities and lifestyle topics, including original series, exclusive events and entertainment news.
Programming highlights in fiscal year 2017 included the critically acclaimed original program RuPaul’s Drag Race, which won three Emmy Awards in 2017, Basketball Wives, the Love and Hip Hop franchise, Black Ink Crew, Hip Hop Squares, Martha and Snoop's Potluck Dinner Party, Signed and Baller Wives and VH1’s premier tentpole event Hip Hop Honors.
In September 2017, VH1 reached approximately 274 million cumulative television subscribers in 117 countries worldwide.
In the quarter ended September 30, 2017, our VH1 online properties in the aggregate averaged approximately 3.9 million monthly unique visitors domestically and 23 million content video streams each month. VH1 has garnered 42 million cumulative followers across social media platforms.
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TV Land features a mix of original programming, classic and contemporary television shows, specials and iconic movies that appeal to adults aged 25 to 54. The channel is split into two dayparts - TV Land Classic airs during weekdays with beloved series like M*A*S*H*, and TV Land airs in the evening hours and on weekends, focusing on our original series and more modern acquisitions that appeal to adults aged 40 and older. In September 2017, TV Land experienced its highest ratings since 2014.
Programming highlights in fiscal year 2017 included returning original favorites Younger (which experienced its highest-rated and most-watched season to date) and Teachers (which also experienced its highest-rated season to date), and licensed favorites such as Everybody Loves Raymond, The King of Queens and new acquisition Mom.
In September 2017, TV Land reached approximately 87 cumulative television subscribers, airing only in the U.S.
In the quarter ended September 30, 2017, our TV Land online properties in the aggregate averaged approximately 501,000 monthly unique visitors domestically and, according to internal data, 4 million content video streams each month. TV Land has garnered 7 million cumulative followers across social media platforms.
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CMT is a leading country music and lifestyle destination, offering a mix of original series, music events and specials. CMT also has a 24-hour linear music channel, CMT Music, and online radio station, CMT Radio.
Programming highlights in fiscal year 2017 included returning favorites Nashville, I Love Kellie Pickler, Still the King, Steve Austin's Broken Skull Challenge and Dallas Cowboys Cheerleaders; and tentpole events and music programming such as the annual CMT Music Awards, CMT Artists of the Year and CMT Crossroads.
In September 2017, CMT reached approximately 109 million cumulative television subscribers in 9 countries worldwide.
In the quarter ended September 30, 2017, our CMT online properties in the aggregate averaged approximately 1.1 million monthly unique visitors domestically and, according to internal data, 1.5 million content video streams each month. CMT has garnered 13 million cumulative followers across social media platforms.
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Logo is a leading entertainment brand inspired by the LGBTQ community. Logo features one-of-a-kind personalities, shows, specials and unique stories.

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Programming highlights in fiscal year 2017 included the Emmy Award-winning Logo Documentary Films, as well as Trailblazer Honors, Logo’s signature tentpole event.
In September 2017, Logo reached approximately 48 million cumulative television subscribers, airing only in the U.S.
In the quarter ended September 30, 2017, our Logo online properties in the aggregate averaged approximately 2.2 million monthly unique visitors domestically and, according to internal data, 1.5 million content video streams each month. Logo has garnered 8 million cumulative followers across social media platforms.
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Channel 5, a PSB in the UK, and its affiliated channels air a broad mix of popular content, including factual programming, entertainment, reality, sports, acquired and original drama, and preschool programming through its award-winning Milkshake brand.
Programming highlights in fiscal year 2017 included Blind Date, Cruising with Jane McDonald, Paddington Station 24/7, and popular returning series such as Celebrity Big Brother, The Yorkshire Vet and Caught on Camera.
In September 2017, Channel 5 reached approximately 179 million cumulative television subscribers in the United Kingdom.
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In November 2016, we acquired Televisión Federal S.A. (“Telefe”), one of the main free-to-air channels and biggest content producers in Argentina. Our acquisition of Telefe added 10 channels to our portfolio of international television networks.
Programming highlights in fiscal year 2017 included national telenovelas such as Educando a Nina, Amar Después de Amar and Golpe al Corazón, international telenovelas including Moisés y Los 10 Mandamientos, El Sultán and Josué y La Tierra Prometida, original reality series such as Dueños de la Cocina and the 30th season of the popular program Susana Giménez.
In September 2017, Telefe reached approximately 23 cumulative television subscribers in 19 countries worldwide.
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Paramount Channel is a 24-hour movie channel featuring classic and contemporary films from the Paramount library and other Hollywood studios as well as domestic and international television series. Paramount Channel is available free-to-air in Spain and Italy, and on basic cable television in France, Hungary, Russia, Romania, Poland, South East Asia and various Latin American countries, including Brazil, Mexico, Chile and Argentina. Paramount Channel is expected to continue to expand internationally.
Programming highlights for fiscal year 2017 included The Indiana Jones Trilogy, Transformers, Forrest Gump, Shrek, the Godfather trilogy and acquisitions such as Gotham and NCIS.
In September 2017, Paramount Channel reached approximately 119 million cumulative television subscribers in 116 countries worldwide.
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Colors is a highly-rated Hindi-language general entertainment pay television channel operated by our Viacom 18 joint venture in India. Colors is available in India and over 100 additional countries, including the U.S., Canada, the UK, parts of Europe, the Middle East and North Africa (e.g., United Arab Emirates, Tanzania, Uganda, Kenya and Rwanda), Asia Pacific (e.g., Australia, New Zealand, Singapore and Indonesia) and South-East Asia (e.g., Nepal, Bangladesh, Sri Lanka and The Maldives).

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The Colors brand is also extended to the English language through Colors Infinity, an English general entertainment channel, and to other Indian regional languages through the regional general entertainment channels COLORS Marathi, COLORS Kannada, COLORS Super, COLORS Bangla, COLORS Oriya and COLORS Gujarati, all of which feature fiction shows, reality programming and feature films.
In addition, our Viacom 18 joint venture operates two Hindi language channels under its brand Rishtey, which is a free-to-air Hindi general entertainment channel, and a pay television Hindi movie channel, Rishtey Cineplex.
In September 2017, Colors and Rishtey reached approximately 593 million cumulative television subscribers in 104 countries worldwide.
In addition, our Media Networks properties include:
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TeenNick appeals to kids ages 6 to 11 and features Nickelodeon original live action hits, signature originals and The Splat, a programming block targeting millennials with iconic Nick library content from the 1990s.
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Nicktoons is a leading cartoon destination for kids featuring signature franchises and fan favorites, as well as the Nick Sports block.
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Nick Music is a 24-hour music video destination featuring a Nickelodeon-curated lineup which gives kids their favorite Top 40 hits from breakout artists and ever-popular hit-makers.
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MTV2 is a music and lifestyle destination with content targeting male millennials aged 12 to 34 and featuring original music, live-action sports and irreverent lifestyle programming.
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MTV Classic features a mix of fan-favorite series and music programming from MTV’s history, with a special focus on the 1990s and early 2000s.
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mtvU is an on-air, online and on-campus network created by and for the college audience.

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MTV Live is a music-centric high-definition television channel.
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BET Her, formerly Centric, is the first network designed for black women, reflecting the lifestyle of today’s African-American and multicultural adult viewer and delivering a variety of culturally relevant movies, series, music, live performances, specials and reality programming. Centric was rebranded to BET Her in October 2017.
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BET Gospel features gospel music and spiritual programming.
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BET Hip Hop spotlights hip hop music programming and performances.
Media Networks Revenues
Our Media Networks segment generates revenues in three categories: (i) the sale of advertising and marketing services, (ii) affiliate fees from distributors of our programming and program services and (iii) ancillary activities such as consumer products. In fiscal year 2017, advertising revenues, affiliate revenues and ancillary revenues were approximately 48%, 46% and 6%, respectively, of total revenues for the Media Networks segment.
Revenues from the Media Networks segment accounted for 76%, 79% and 78% of our revenues for the fiscal years 2017, 2016 and 2015, respectively, after the elimination of intercompany revenues.
Advertising Revenues
Our Media Networks segment generates revenues from the sale of advertising and from marketing services. Our advertising revenues generally depend on the number of viewers and viewership demographics. Demand and pricing for our advertising depend on the attractiveness of our offerings to advertisers, viewership and overall market conditions.
Ratings and demographic information for advertising purposes are determined by third-party research companies such as The Nielsen Company (US), LLC (“Nielsen”) and comScore, Inc. (“comScore”), sometimes also including third- and first-party data.
Our Media Networks properties appeal to various key audiences attractive to advertisers. For example, MTV appeals to teens and young adults, Nickelodeon appeals to kids and their families and BET appeals to African-American audiences. We also drive additional demand through integrated sales of multi-platform advertising and marketing opportunities and through our integrated marketing services, providing unique branded entertainment and custom sponsorship opportunities to our advertisers.
Domestically, we sell a certain amount of our advertising inventory in advance each year in the upfront market, and other inventory in the scatter market closer to the time a program airs. Upfront sales and pricing for each new cable broadcast year are largely established in our third fiscal quarter and reflected in advertising revenue principally beginning in the first quarter of our subsequent fiscal year as marketing plans are finalized and orders are fulfilled to deliver advertising across various programs and dayparts. Pricing for advertising within our programming is generally established based on projected impression delivery, which may be guaranteed on a fixed price per impression unit basis. For advertising sold based on impression guarantees, audience deficiency may result in an obligation to deliver subsequent additional units, reducing inventory available

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for scatter sales. Scatter advertising is sold throughout the year at pricing reflecting market conditions at the time of sale and customization of services delivered. Most scatter advertising is also sold based on impression guarantees. To the extent we do not satisfy contracted audience ratings, we record deferred revenue until such time that the impression guarantee has been satisfied.
Internationally, advertising markets vary from jurisdiction to jurisdiction; however, we do not typically sell our inventory in advance in an upfront market. The majority of our international inventory is sold in the equivalent of the U.S. scatter market, and in a number of markets we are represented by third-party sales houses. The terms of these relationships vary. For example, in the UK, which is our largest market outside the U.S., we are represented by a third party to whom we sell the inventory on our television channels in the form of commercial impacts at a price calculated in accordance with a pre-agreed pricing metric, and the third party then resells those impacts to UK agencies and advertisers. In Argentina, our inventory is sold to advertisers either directly or through advertising agencies.
Our advertising revenues may be affected by the strength of advertising markets and general economic conditions, and may fluctuate depending on the success of our programming, as measured by viewership, at any given time. Measured viewership may vary due to the success of our programming (due to, among other things, the timing of availability of new episodes of popular programming and the performance of competing programs and other entertainment alternatives for viewers), the platforms on which our programming is available, as well as variations related to the methods used by third parties to measure viewership. Advertising revenues may also fluctuate due to seasonal variations, the timing of holidays and significant programming events such as awards shows and premieres. Typically, advertising revenues are highest in the first quarter of our fiscal year.
We continue to invest in proprietary data platforms and advanced analytics that enable our customers to better target and measure the impact of their advertising. Our Viacom VantageTM platform combines data from multiple sources, which may include both first- and third-party data, in a predictive environment to deliver enhanced consumer targeting and campaign measurement. Viacom VelocityTM is our branded content agency offering full-service marketing that seamlessly integrates clients’ brands into custom content across our platforms. Customized programs and proprietary analytics provide a strategic perspective on engagement across multiple social platforms including Facebook, Twitter, YouTube, Instagram, Snapchat and Tumblr.
In fiscal year 2017, Viacom created a consortium with Fox Networks Group and Turner to form OpenAP, the television industry’s first open platform for cross-publisher audience targeting, enabling advertisers and agencies to define and customize the audiences they want to reach across member networks, with consistent standards of measurement and independent third party posting for advertising campaigns.
We are also working with distributors of our programming to evolve our multi-platform advertising offerings to include targeting and customization through Vantage, Velocity and OpenAP.
Affiliate Revenues
Our affiliate revenues are generated through fees from distributors of our programming and program services, such as cable television operators, direct-to-home satellite television operators, mobile networks and subscription video-on-demand and other OTT services.
Our agreements with multichannel television service providers are generally multi-year carriage agreements with set rate increases. The amount of fees we receive is generally a function of the number of subscribers and the rates we receive per subscriber. Expirations of these affiliate agreements are staggered. We are also working with these distributors to create new and improved pay television revenue opportunities.
Under subscription video-on-demand and other similar OTT agreements, we make certain programs available for distribution on one or more dates, and our revenue under these OTT agreements is recognized upon the availability of the programs licensed; therefore, revenue will fluctuate depending on the timing of when programming is made available throughout the license period.
Ancillary Revenues
Our Media Networks ancillary revenues are principally derived from (i) our consumer products activities, which include licensing our brands and intellectual property, as well as creation and publishing of interactive games across various platforms (including mobile, PC and console), (ii) recreational experiences and live events, (iii) viewing of our programming through electronic sell-through and download-to-rent services and the sale of DVDs and Blu-ray discs and (iv) television syndication of our content.

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Our ancillary revenues vary based on consumer spending, the popularity of our programming, the volume of content available during a particular period and acceptance of our and our partners’ products.
Media Networks Competition
Our media networks generally compete with other widely distributed cable networks, the broadcast television networks and digital programming services and platforms. Our media networks compete for advertising revenue with other cable and broadcast television networks, social media platforms, other connected outlets such as websites, apps and other online experiences, radio programming and print media. Each programming service competes for audience share with competitors’ programming services that target or include the same audience. For example, Nickelodeon’s programming and services compete for younger viewers, and BET’s programming and services compete for consumers of African-American culture, with other entertainment services, including cable and broadcast networks, digital distribution outlets and other content platforms. We also compete with other cable networks for affiliate fees and distribution. Our networks compete with other content creators for directors, actors, writers, producers and other creative talent and for new program ideas and the acquisition of popular programming. Competition from these sources may affect our revenues and costs.
FILMED ENTERTAINMENT
Overview
Our Filmed Entertainment segment develops, produces, finances, acquires and distributes motion pictures, television programming and other entertainment content under the Paramount Pictures®, Paramount PlayersTM, Paramount Animation® and Paramount TelevisionTM divisions, in various markets and media worldwide, for itself and for third parties. It partners on various projects with key Viacom franchises, including Nickelodeon Movies and MTV Films.
Paramount Pictures is a major global producer and distributor of filmed entertainment and has an extensive library consisting of approximately 1,200 motion picture titles produced by Paramount, acquired rights to approximately 2,300 additional motion pictures and a number of television programs. Paramount’s library includes many Academy Award® winners, including Titanic, Braveheart, Forrest Gump, The Godfather, There Will Be Blood and Wings, which won the first Academy Award® ever awarded for Best Picture in 1929, and recent Academy Award best picture nominees such as Arrival, Fences, The Big Short, Selma and The Wolf of Wall Street. The Paramount library also includes classics such as The Ten Commandments, Breakfast at Tiffany’s and Sunset Boulevard and a number of successful franchises such as Transformers, Star Trek, Mission: Impossible and Paranormal Activity.
In June 2017, we announced the establishment of Paramount Players, a new production division that aims to expand Paramount’s slate of films by partnering with our Media Networks flagship brands to develop, produce and market distinctive feature films in order to bring more of our leading brands to movie audiences around the world. These co-branded films will be distributed by Paramount with a unique emphasis on marketing campaigns and integrations benefiting from the global reach of our flagship networks. Paramount Players will also focus on smaller budget films reflecting specific genres and target audiences.
Paramount Animation is focused on creating high-quality animated films and has various projects in production and development, including upcoming releases Sherlock Gnomes and Amusement Park. Amusement Park is a feature film expected to be released in 2019, to be followed by an Amusement Park television series on Nickelodeon. Going forward, we anticipate that Paramount Animation will release one to two animated films per year.
Motion pictures produced, acquired and/or distributed by the Filmed Entertainment segment are generally first exhibited theatrically in domestic and/or international markets and then released in various markets through electronic sell-through, DVDs and Blu-ray discs, transactional video-on-demand, subscription video-on-demand, pay television, cable television and free television, free video-on-demand and by airlines and hotels. In fiscal year 2017, the Filmed Entertainment segment released 14 films in the domestic and international theatrical markets, including Transformers: The Last Knight, xXx: The Return of Xandar Cage, Baywatch, Ghost In The Shell, Jack Reacher: Never Go Back, Arrival and Fences. Paramount expects its total film slate to include approximately 10 theatrical releases in fiscal year 2018 as it continues to rebuild its film slate under its new divisions.
Paramount Television draws on Paramount’s extensive library of film properties and develops original programming for television and digital platforms. In fiscal year 2017, Paramount Television produced Shooter, 13 Reasons Why and Berlin Station. Paramount Television also has various other programs in production, including The Alienist for TNT, Jack Ryan for Amazon, and Maniac and The Haunting for Netflix, as well as School of Rock (produced by Nickelodeon), 3 Days of the Condor (produced by DirecTV) and Lemony Snicket’s A Series of Unfortunate Events (produced by Netflix). In addition, it has

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numerous projects in development. Paramount Television’s first project, 2016’s live television event Grease Live, received 10 Emmy nominations, winning five.
Motion Picture Production, Distribution and Financing
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Paramount produces many of the motion pictures it releases and also acquires films for distribution from third parties. In some cases, Paramount co-finances and/or co-distributes films with third parties, including other studios. Paramount also enters into film-specific financing and slate financing arrangements from time to time under which third parties participate in the financing of the costs of a film or group of films, typically in exchange for a partial copyright interest. Paramount distributes motion pictures worldwide or in select territories or media, and may engage third-party distributors for certain pictures in certain territories.
Paramount has recently extended and expanded its relationship with Skydance, a producer and co-financier of many Paramount motion pictures. The new agreement extends to 2022 and includes a Paramount “first look” for projects initiated by Skydance, including smaller budget and animated projects.
In November 2017, Paramount Pictures and Hasbro, Inc. (“Hasbro”) announced a new exclusive agreement to produce and distribute content based on Hasbro’s expansive list of brands, as well as original stories. Paramount and Hasbro will partner on live action and animated films, with Hasbro’s Allspark Pictures and Allspark Animation having a role in development and production. The agreement expands the companies’ existing relationship, under which Paramount and Hasbro have partnered on five Transformers films, two G.I. Joe films and the first Transformers spinoff - Bumblebee - which is scheduled for theatrical release in December 2018.
Domestically, Paramount generally performs its own marketing and distribution services for theatrical releases and its own sales and marketing services for home entertainment releases. Paramount has an agreement with Universal Studios for certain back-office and distribution services for all physical DVD and Blu-ray discs released by Paramount in the U.S. and Canada. Paramount also distributes CBS’s library of television and other library content on DVD and Blu-ray disc on a worldwide basis under an agreement that runs through 2020.
Internationally, Paramount, through its international affiliates, generally distributes its theatrical releases through its own distribution operations or, in some territories, through United International Pictures, a company that Paramount and Universal Studios own jointly. For home entertainment releases, Paramount’s physical DVD and Blu-ray discs are distributed in certain international territories by Universal Pictures Home Entertainment and in certain other territories by Paramount licensees.
Paramount also distributes films domestically and internationally on electronic sell-through, transactional video-on-demand, subscription video-on-demand and television platforms. In the first domestic pay television distribution window, Paramount’s feature films initially theatrically released in the U.S. are generally exhibited on EPIX, a multi-platform premium entertainment service that offers Paramount, MGM, Lions Gate Films and certain third-party films, as well as original content, through a premium pay television channel and television and digital subscription video-on-demand services.
Producing, marketing and distributing motion pictures and television programming can involve significant costs. The timing of a motion picture’s release can also cause our financial results to vary. For example, marketing costs are generally incurred before and throughout the theatrical release of a film and, to a lesser extent, other distribution windows, and are expensed as incurred. As a result, we typically incur losses with respect to a particular film prior to and during the film’s theatrical exhibition, and recoupment of investment as well as profitability for the film may not be realized until well after its theatrical release. Therefore, the results of the Filmed Entertainment segment can be volatile as films work their way through the various distribution windows.
Filmed Entertainment Revenues
Our Filmed Entertainment segment generates revenues in four categories: (i) the release and/or distribution of motion pictures theatrically, (ii) the release and/or distribution of film and television product through home entertainment, (iii) the licensing of film and television product to television and digital platforms and (iv) other ancillary activities. In fiscal year 2017, theatrical

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revenues, home entertainment revenues, licensing revenues and ancillary revenues were approximately 25%, 26%, 40% and 9%, respectively, of total revenues for the Filmed Entertainment segment.
Revenues from the Filmed Entertainment segment accounted for 24%, 21% and 22% of our revenues for the fiscal years 2017, 2016 and 2015, respectively, after the elimination of intercompany revenues.
Theatrical Revenues
Paramount generates revenues worldwide from the theatrical release and/or distribution of motion pictures, primarily from audience ticket sales. In addition to the traditional 2D format, certain of Paramount’s theatrical releases are made available in 3D and/or IMAX format, tickets that are generally sold at premium pricing.
Each motion picture is a separate and distinct product with its revenues, and ultimate profitability, dependent upon many factors, among which audience response, domestically and internationally, is of fundamental importance. Theatrical revenues may also be affected by the number, timing and mix of releases and competitive offerings in any given period, consumer tastes and consumption habits, and overall economic conditions, including trends in discretionary spending. The theatrical success of a motion picture is a significant factor in determining the revenues it is likely to generate in home entertainment markets and licensing arrangements for television and other platforms. Revenues from motion picture theatrical releases tend to be cyclical with increases around the holidays that fall during the first quarter of our fiscal year, and in the summer months during our fourth quarter.
In fiscal year 2017, Paramount theatrically released in domestic and/or international markets Transformers: The Last Knight, Arrival, Jack Reacher: Never Go Back, Baywatch, Fences, Office Christmas Party, xXx: The Return of Xander Cage, Ghost in the Shell, Allied, Monster Trucks, Rings, mother!, Silence and An Inconvenient Sequel: Truth to Power. In addition to Daddy’s Home 2, which was released in November 2017, Paramount’s fiscal year 2018 slate is expected to include Downsizing, Sherlock Gnomes and Mission: Impossible 6.
Home Entertainment Revenues
Home entertainment revenues are derived from the worldwide sales and distribution of DVDs and Blu-ray discs relating to the motion pictures released theatrically by Paramount and programming of other Viacom brands such as Nickelodeon, MTV, Comedy Central and BET, as well as certain acquired films and content distributed on behalf of third parties such as CBS. Home entertainment revenues are also derived from the viewing of our films on a “transactional” basis through transactional video-on-demand and electronic sell-through services around the world, for a fee and/or on a revenue-sharing basis.
Our home entertainment revenues may be affected by the number, timing and mix of releases and competitive offerings in any given period, consumer tastes and consumption habits, the prominence given by distributors and retailers to our releases compared to those of our competitors, and overall economic conditions, including trends in discretionary spending.
Key home entertainment releases in fiscal year 2017 included Star Trek Beyond, Jack Reacher: Never Go Back, Arrival, xXx: The Return of Xander Cage, Ghost In The Shell, Transformers: The Last Knight, Fences, Allied, Baywatch, Monster Trucks and Office Christmas Party.
Licensing Revenues
Paramount generates fees by licensing, around the world on a territory by territory basis, films and television programs produced, acquired or distributed by Paramount, for a fee or on a revenue-sharing basis, to subscription video-on-demand, pay and basic cable television, free television and free video-on-demand services.
Revenue from the licensing of film and television exhibition rights is recognized upon availability for airing by the licensee and will fluctuate depending on the number and mix of available titles in any given territory.
Licensing revenues in fiscal year 2017 were generated from films that were licensed to various platforms, including Star Trek Beyond, Jack Reacher: Never Go Back, Teenage Mutant Ninja Turtles: Out of the Shadows, xXx: The Return of Xander Cage, Allied and Arrival, and from distribution of Paramount Television titles including Shooter, 13 Reasons Why and Berlin Station.
Ancillary Revenues
Paramount generates ancillary revenues by providing production and facilities services to third parties, primarily at Paramount’s studio lot. Paramount also generates ancillary revenues by licensing its brands for consumer products, themed restaurants, hotels and resorts, live stage plays, film clips and theme parks and other location-based entertainment projects.

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Filmed Entertainment Competition
Our Filmed Entertainment segment competes for audiences for its motion pictures, television programming and other entertainment content with the motion pictures and content released by other major motion picture studios, independent film producers and television producers, as well as with other forms of entertainment and consumer spending outlets. Our competitive position primarily depends on the amount and quality of the content produced, its distribution and marketing success and public response. We also compete for creative talent, including producers, actors, directors and writers, and scripts for motion pictures, all of which are essential to our success. Our motion picture brands also compete with studios and other producers of entertainment content for distribution of motion pictures through the various distribution windows (such as television and home entertainment) and on digital platforms. Competition from these sources may affect our revenues and costs.
SOCIAL RESPONSIBILITY
Viacommunity is the umbrella effort representing all of Viacom’s social impact programs.
Through the power of entertainment, Viacommunity works to inspire social change hand-in-hand with the people we serve, the employees with whom we work, and the communities in which we operate. Some of Viacommunity’s key areas of focus include building diverse and inclusive societies, promoting healthy living, inspiring future generations through education and empowering our employees with the tools, resources and freedom to truly make a difference.
Following are just a few examples of our efforts:
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Get Schooled
In partnership with Viacom, Get Schooled leverages the power of pop culture to inspire and empower students to graduate from high school and succeed in college. The organization has been recognized by Fast Company as a Most Innovative company, partners with over 2,000 middle and high schools around the country and engages close to two million students.
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MTV Staying Alive Foundation
Our international media networks’ multi-award-winning MTV Staying Alive Foundation engages in fighting the stigma, spread and threat of the HIV and AIDS epidemic globally by creating engaging media content such as MTV Shuga and funding youth-led, grassroots prevention projects.
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MTV Look Different
MTV’s Emmy Award-winning “Look Different” campaign helps America’s youth better recognize and challenge hidden racial, gender and anti-LGBT biases, empowering them to create a more equal future.

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VH1 Save The Music Foundation
The VH1 Save The Music Foundation is a nonprofit organization dedicated to restoring instrumental music education programs in America’s public schools, and raising awareness about the importance of music as part of each child’s complete education. Founded in 1997, VH1 Save The Music was the first organization in existence dedicated to restoring music programs in America’s schools. Over 20 years, the foundation has donated more than $53 million worth of new musical instruments to 2,030 public schools in 251 school districts around the country, impacting the lives of more than three million public school students.
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Nickelodeon’s Worldwide Day of Play
Nickelodeon encourages kids to get up and get active on its annual Worldwide Day of Play by suspending programming for three hours in the afternoon across its platforms while thousands of local partners nationwide host activities focused on “just” playing. The Road to Worldwide Day of Play, underway throughout the summer, travels to communities where kids are hometown heroes making play happen.
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Logo Global Ally
Global Ally is an international storytelling project from Logo that provides an inside look into the lives of LGBTQ people from all corners of the world, and provides ways for an American audience to learn more, take action, and support LGBTQ people around the world.
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Paramount’s Kindergarten to Cap & Gown
Paramount has a long and proud tradition of giving back with a corporate social responsibility program focused on four key initiatives: supporting public education; protecting the environment; combating HIV/AIDS; and promoting volunteerism. By offering employee engagement opportunities, coupled with financial and in-kind contributions, Paramount supports numerous local, national, and global non-profit organizations. Kindergarten to Cap & Gown - Paramount’s signature education program - mentors students through their educational experience, targeting four partner schools in Paramount’s Los Angeles neighborhood.
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Viacommunity’s Talent for Good
At Viacommunity, one of the best ways to leverage the power of the Viacom brands and give back to the communities we serve is through the unique expertise of our creative and talented employees. Through this skills-based volunteering program, employees can strengthen their skills and build new ones, while giving back to the causes they care about most.
REGULATION AND PROTECTION OF OUR INTELLECTUAL PROPERTY
We are, fundamentally, a media content company, so the trademark, copyright, patent and other intellectual property laws that protect our brands and entertainment content are of paramount importance to us. Our businesses and the intellectual property

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they create or acquire are subject to and affected by laws and regulations of U.S. federal, state and local governmental authorities, as well as laws and regulations of countries other than the U.S. and pan-national bodies such as the European Union (“EU”). The laws and regulations affecting our businesses are constantly subject to change as are the protections that those laws and regulations afford us. The discussion below describes certain, but not all, present and proposed laws and regulations affecting our businesses.
Certain Regulations Affecting Our Business
Children’s Programming
Our business is subject to various regulations, both in the U.S. and abroad, applicable to children’s programming. For example, since 1990, federal legislation and rules of the U.S. Federal Communications Commission (the “FCC”) have limited the amount and content of commercial matter that may be shown on cable channels during programming designed for children 12 years of age and younger, and since 2006 the FCC has limited the display of certain commercial website addresses during children’s programming. In early 2017, the FCC initiated a review of its media rules with the objective of eliminating or modifying those that are outdated, unnecessary or unduly burdensome. We are participating in the FCC’s review process. In addition, some policymakers have sought limitations on food and beverage marketing in media popular with children and teens. Restrictions on the television advertising of foods high in fat, salt and sugar to children aged 15 and under have been in place in the UK since 2007 and were enacted in Ireland in 2013. Various laws with similar objectives have also been enacted in France, Mexico, Chile, Peru, Taiwan and South Korea, and significant pressure for similar restrictions continues to be felt globally, most acutely in Australia, Brazil, Canada, Colombia, India, Slovenia, South Africa and Turkey. The implementation of these or similar limitations and restrictions could have a negative impact on our Media Networks advertising revenues, particularly for our networks with programming for children and teens.
Children’s Privacy
Other laws and regulations intended to protect the interests of children include measures designed to protect the privacy of minors online. The U.S. Children’s Online Privacy Protection Act limits the collection of personal information online from children under 13 years of age by operators of websites or online services. We have been required to limit some functionality on our websites and apps as a result of these regulations. Such regulations also limit the types of advertising we are able to sell on these sites and apps and impose strict liability on us for certain actions of Viacom, advertisers and other third parties, which could affect advertising demand and pricing. State and federal policymakers are also considering regulatory and legislative methods to protect consumer privacy on the Internet, and these efforts have focused particular attention on children and teens.
UK Regulations Affecting Channel 5 Business
As a PSB in the UK, Channel 5 is subject to certain OFCOM broadcasting regulations that impose detailed obligations including mandating the proportion of total programming and programming during peak hours that must be original productions; the hours devoted to news and current affairs; and the proportion of commissioned programming that must be made by independent producers. Channel 5 has also undertaken to air a certain amount of UK-originated children’s programming. Like all UK broadcasters, Channel 5 must abide by the OFCOM Broadcasting Code, which contains content and scheduling regulations relating to harm and offense, protection of individuals under the age of 18, privacy, fairness and product placement, and by OFCOM’s Code on the Scheduling of Television Advertising, which contains regulations on the amount and scheduling of advertising.
Argentine Regulations Affecting Telefe Business
Telefe is governed by Argentina’s Media Law 26522, as amended by Decree 267/1515. A legislative drafting committee is currently drafting a new media and communications law that will govern both the media and telecommunications businesses in Argentina, and the proposed legislation is expected to be released for public consultation in 2018. We will assess the impact of the proposal on our businesses at that time.
EU Commission’s Digital Single Market Strategy
The European Commission (the “EC”) continues to pursue its Digital Single Market (“DSM”) Strategy, which contains a broad range of proposals designed to create a more complete EU-wide market for digital goods and services, several of which are likely to impact Viacom’s businesses. The territorial nature of copyright has been identified by the EC as one of the main barriers to a single European market, and there has been strong pressure from politicians to undermine content owners’ commercial freedom to distribute exclusively on a territorial basis.
The EC published DSM-related legislative proposals in each of May 2016 and September 2016. Several of these proposals are of particular relevance to Viacom’s business practices in Europe given their impact on content owners’ exclusive control over distribution decisions for film and television productions. On June 8, 2017, the Portability Regulation came into force, requiring online content providers to ensure that their subscribers can access content while temporarily in another EU country. Another regulation currently under consideration by the EU Parliament and Council seeks to extend the EU Satellite and Cable Directive

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to permit EU-wide licenses for rights included in broadcasters’ online ancillary services, with the aim of making it easier for platforms to respond to passive sales requests for those services from other EU countries without contravening copyright law. A further proposal would entitle talent to seek additional non-contractual compensation through the courts for highly-successful works, which would raise our operating expenses.
The EC will be making a number of reforms to the Audio-Visual Media Services Directive, which sets content and advertising rules for European broadcasters. A liberalization of advertising minutage restrictions on linear channels could cause shifts of advertising spending between broadcasters with an adverse impact on some international channels in certain EU countries. In addition, changes to the operation of the ‘country of origin’ rule, which allows pan-EU broadcasters to be regulated in a single EU jurisdiction, could increase scrutiny of our licensing location decisions, and allow countries to impose levies on services licensed outside of their jurisdiction. The reforms are currently the subject of EU Parliamentary and Council scrutiny, with final agreement expected in the first half of 2018.
Restrictions on Film Distribution
In addition to the regulations regarding territorial licensing in the EU discussed above, numerous countries around the world impose restrictions on the number and nature of films that may be distributed in that country. Such regulations in China have the greatest impact, as only 34 foreign films can be distributed annually on a revenue share basis based on box office performance. Those films are selected by relevant authorities in China.
Personal Data Transfers from the EU to the U.S and EU Data Protection Laws
Viacom’s operations rely upon the ability to access or transfer personal data internationally, including between the EU and the U.S. The EU-U.S. Privacy Shield (“Privacy Shield”) is a framework that became effective in July 2016 for the permitted transfer of personal data from the EU to the U.S. Viacom self-certified to the Privacy Shield effective October 28, 2016. Nevertheless, some of the mechanisms permitting transfer of personal data from the EU to the U.S. have been subject to legal challenges, the outcomes of which remain uncertain. Moreover, the Privacy Shield framework is subject to annual review by the relevant EU and U.S. authorities and the outcome of such future reviews is uncertain. In addition, the new EU General Data Protection Regulation, which becomes enforceable on May 25, 2018, will continue to regulate international data transfers while expanding other data protection compliance obligations and authorizing significantly increased fines for noncompliance, requiring additional compliance resources and efforts on our part.
Program Access
Under the U.S. Communications Act of 1934, as amended, vertically integrated cable programmers are generally prohibited from entering into exclusive distribution arrangements or offering different prices, terms or conditions to competing MVPDs unless the differential is justified by certain permissible factors set forth in the regulations promulgated by the FCC. Our wholly-owned program services are not currently subject to these program access rules. Because we and CBS are under common control, each company’s businesses, as well as the businesses of any other commonly controlled company, may be attributable to the other companies for purposes of the program access rules, and therefore the businesses and conduct of CBS could have the effect of making us subject to the rules. In September 2016, the FCC proposed to expand the scope of its rules implementing the program access provisions of the Communications Act. If Viacom or its programming agreements were to become subject to the program access rules, our flexibility to negotiate the most favorable terms available for our content and our ability to offer cable television operators exclusive programming could be adversely affected.
Protecting our Content from Copyright Theft
The unauthorized reproduction, distribution, exhibition or other exploitation of copyrighted material interferes with the market for copyrighted works and disrupts our ability to distribute and monetize our content. The theft of motion pictures, television and other entertainment content presents a significant challenge to our industry, and we take a number of steps to address this concern. Where possible, we make use of technological protection tools, such as encryption, to protect our content. We are actively engaged in enforcement and other activities to protect our intellectual property, including: monitoring online destinations that distribute or otherwise infringe our content and sending takedown or cease and desist notices in appropriate circumstances; using filtering technologies employed by some user-generated content sites; and pursuing litigation and referrals to law enforcement with respect to websites and other online platforms that distribute or facilitate the distribution and exploitation of our content without authorization. We also are actively engaged in educational outreach to the creative community, labor unions, state and federal government officials and other stake holders in an effort to marshal greater resources to combat copyright theft. Additionally, we participate in various industry-wide enforcement initiatives, public relations programs and legislative activities on a worldwide basis. We have had notable success with site-blocking efforts in Europe and Asia, which can be effective in diverting consumers from piracy platforms to legitimate platforms.
Notwithstanding these efforts and the many legal protections that exist to combat piracy, the proliferation of content theft and technological tools with which to carry it out continue to be a challenge. The failure to maintain enhanced legal protections and

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enforcement tools and to update those tools as threats evolve could make it more difficult for us to adequately protect our intellectual property, which could negatively impact its value and further increase the costs of enforcing our rights as we continue to expend substantial resources to protect our content.
INTELLECTUAL PROPERTY
We create, own and distribute intellectual property worldwide. It is our practice to protect our motion pictures, programs, content, brands, formats, characters, games, publications and other original and acquired works, and ancillary goods and services. The following brands, logos, trade names, trademarks and related trademark families are a few of those strongly identified with the product lines they represent and are significant assets of the Company: Viacom®, Nickelodeon®, Nick Jr.®, MTV®, BET®, Comedy Central®, Paramount Network™, SPIKE®, Nick at Nite®, Nicktoons®, TeenNick®, MTV2®, MTV Classic®, VH1®, CMT®, TV Land®, Logo®, Channel 5® (UK), Telefe® (Argentina), Colors®, Paramount Channel™, mtvU®, Palladia®, BET Networks®, BET HerTM, BET Gospel®, BET Hip Hop®, BET.com®, BET Mobile®, Tr3s®, Paramount Pictures®, Paramount Vantage®, Paramount Classics®, Paramount Animation®, Paramount Players™, Insurge Pictures®, MTV Films®, Nickelodeon Movies™, Paramount Television™ and other domestic and international program services and digital properties.
EMPLOYEES AND LABOR MATTERS
As of September 30, 2017, we employed approximately 10,750 full-time and part-time employees worldwide, and had approximately 900 additional project-based staff on our payroll. We also use many other temporary employees in the ordinary course of our business.
Our Filmed Entertainment segment, through in-house, affiliated and third-party production service companies, engages the services of writers, directors, performers, musicians and various crew members who are subject to certain industry-wide and/or specially negotiated collective bargaining agreements. The Alliance of Motion Picture and Television Producers (“AMPTP”) is a multi-employer trade association, which, along with and on behalf of hundreds of member companies including Paramount Pictures, negotiates the industry-wide collective bargaining agreements with these parties. The AMPTP agreements with the crew (U.S. and British Columbia), musicians and Canadian performers and directors expire in fiscal year 2018. Certain collective bargaining agreements that apply to specific companies have been negotiated in the past, and we expect will be negotiated as the need arises in the future.
Our Media Networks segment, through in-house and third-party production service companies, engages for certain of our productions the services of writers, directors, performers, musicians and various crew members who are subject to certain specially negotiated collective bargaining agreements or one-off agreements. Since these agreements are entered into on a per-channel or per-project basis, negotiations occur on various agreements throughout the year.
Any dispute with the labor organizations that represent any of these parties could disrupt our operations and reduce our revenues.
FINANCIAL INFORMATION ABOUT SEGMENTS AND FOREIGN AND DOMESTIC OPERATIONS
For a description of risks attendant to our foreign operations, see “Item 1A. Risk Factors.” Financial and other information by reportable segment and revenues by geographic area for fiscal years 2017, 2016 and 2015 are set forth in Note 19 to our Consolidated Financial Statements.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy and information statements and other information with the Securities and Exchange Commission (the “SEC”). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to such reports filed with or furnished to the SEC pursuant to the Securities Exchange Act of 1934, as amended, will be available free of charge on our website at www.viacom.com (under “Investor Relations”) as soon as reasonably practicable after the reports are filed with the SEC. These documents are also available on the SEC’s website at www.sec.gov.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition,” contains both historical and forward-looking statements. All statements that are not statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements reflect our current expectations concerning future results, objectives, plans and goals, and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause future results, performance or achievements to differ. These risks, uncertainties and other factors are discussed in “Item 1A. Risk Factors” below. Other risks, or updates to the risks discussed

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below, may be described in our news releases and filings with the SEC, including but not limited to our reports on Form 10-Q and Form 8-K. The forward-looking statements included in this document are made only as of the date of this document, and we do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.
OUR EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each person who serves as a Viacom executive officer.
Name
Age
Position
Robert M. Bakish
53
President and Chief Executive Officer; Director
Christa A. D’Alimonte
48
Executive Vice President, General Counsel and Secretary
Wade Davis
45
Executive Vice President, Chief Financial Officer
Katherine Gill-Charest
53
Senior Vice President, Controller and Chief Accounting Officer
DeDe Lea
53
Executive Vice President, Global Government Affairs
Scott Mills
49
Executive Vice President, Chief Administrative Officer
Information about each of our executive officers is set forth below.
Robert M. Bakish
Mr. Bakish has been our President and Chief Executive Officer, and a member of our Board of Directors, since December 2016, having served as Acting President and Chief Executive Officer beginning November 2016. Mr. Bakish joined the predecessor of Viacom in 1997 and has held leadership positions throughout the organization, including as President and Chief Executive Officer of Viacom International Media Networks and its predecessor company, MTV Networks International, from 2007 to 2016. He served as Executive Vice President, Operations and Viacom Enterprises of Viacom’s predecessor; as Executive Vice President and Chief Operating Officer of MTV Networks Advertising Sales; and as Senior Vice President, Planning, Development and Technology at Viacom’s predecessor. Before joining Viacom’s predecessor in 1997, Mr. Bakish was a partner with Booz Allen & Hamilton in its Media and Entertainment practice. Mr. Bakish has served as a director of Avid Technology, Inc. since 2009.
Christa A. D’Alimonte
Ms. D’Alimonte has been our Executive Vice President, General Counsel and Secretary since April 2017. Prior to that, she was Senior Vice President, Deputy General Counsel and Assistant Secretary beginning in November 2012. Prior to joining Viacom, Ms. D’Alimonte was a partner of Shearman & Sterling LLP, where she was Deputy Practice Group Leader of the Firm’s Global Mergers & Acquisitions group. She first joined Shearman & Sterling in 1993 and became a partner in 2001.
Wade Davis
Mr. Davis has been our Executive Vice President, Chief Financial Officer since November 2012. Prior to that, he served as Executive Vice President, Strategy and Corporate Development beginning in August 2009, as Senior Vice President, Mergers & Acquisitions and Strategic Planning from January 2007 to August 2009 and as Senior Vice President of Mergers & Acquisitions beginning January 2006. Prior to joining Viacom, Mr. Davis was an investment banker in the technology and media sectors for more than a decade.
Katherine Gill-Charest
Ms. Gill-Charest has been our Senior Vice President, Controller and Chief Accounting Officer since October 2010. Prior to that, she was Senior Vice President, Deputy Controller beginning in April 2010 and Vice President, Deputy Controller from May 2007 to April 2010. Prior to joining Viacom, Ms. Gill-Charest served as Chief Accounting Officer of WPP Group USA from November 2005 to May 2007 and as its Vice President, Group Reporting from February 2001 to November 2005.
DeDe Lea
Ms. Lea has been our Executive Vice President, Global Government Affairs since January 2013, having previously served as Executive Vice President, Government Relations beginning in November 2005. Prior to that, she was Senior Vice President, Government Relations of the predecessor of Viacom beginning in September 2005. Prior to that, she served as Vice President of Government Affairs at Belo Corp. from 2004 to 2005 and as Vice President, Government Affairs of Viacom’s predecessor from 1997 to 2004.

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Scott Mills
Mr. Mills has been our Executive Vice President, Chief Administrative Officer since May 2015. Previously, he was Executive Vice President, Human Resources and Administration beginning in October 2012. Prior to that, he was President and Chief Operating Officer of BET Networks beginning in July 2007, its President of Digital Media from August 2006 to July 2007 and its Chief Financial Officer beginning in 2003. He first joined BET Networks in 1997, serving as Senior Vice President of Strategy & Business Development, and served as Executive Vice President and Chief Operating Officer of BET Interactive from 1999 to 2003. Mr. Mills has served as a director of Principal Financial Group Inc. since July 2016.
Item 1A. Risk Factors.
A wide range of risks may affect our business and financial condition and results of operations, now and in the future. We consider the risks described below to be the most significant. There may be other currently unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results.
Our Success Depends on Our Ability to Maintain Attractive Brands and Produce Popular Programming, Motion Pictures and Other Entertainment Content, which is Difficult to Predict
Our ability to maintain attractive brands and generate popular entertainment content, successful tentpole events and consumer-oriented retail and hospitality offerings are key to the success of our business and our ability to generate revenues. The production and distribution of programming, motion pictures and other entertainment content is inherently risky because the revenues we derive from various sources primarily depend on our ability to satisfy consumer tastes and expectations in a consistent manner. The popularity of our content is affected by our ability to maintain or develop strong brand awareness and target key audiences, the quality and attractiveness of competing entertainment content and the availability of alternative forms of entertainment and leisure time activities, including online, mobile and other offerings. Audience tastes change frequently and it is a challenge to anticipate what offerings will be successful at any point in time. We invest substantial capital in our content, including in the production of original content on our networks, in our motion pictures and in our television production business, before learning the extent to which it will garner critical success and popularity with consumers. In addition, general economic conditions affect our audience’s discretionary spending and therefore their willingness to access our content.
In our Media Networks businesses, the popularity of our brands and programming has a significant impact on the revenues we are able to generate from advertising, affiliate fees, consumer products, and other licensing activities. Our ability to successfully predict and adapt to changing consumer tastes and preferences outside the U.S. also impacts our ability to expand our presence internationally. In our Filmed Entertainment business, the theatrical performance of a motion picture affects not only the theatrical revenues we receive but also those from other distribution channels, such as home entertainment, television, various other platforms and apps and licensed consumer products. As a result, a lack of popularity of our offerings could have a material adverse effect on our results of operations in a particular period or over a longer term.
New Technologies, Distribution Platforms and Packaging, as Well as Changes in Consumer Behavior, May Negatively Affect Our Viewership, Revenue and Profitability
Technology and business models in our industry continue to evolve rapidly and new distribution platforms, and increased competition from new entrants and emerging technologies, have added to the complexity of maintaining predictable revenue streams.
Technological advancements have driven changes in consumer behavior and have empowered consumers to seek more control over when, where and how they consume content. For example, consumers are increasingly using time-shifting and advertising blocking technologies that enable users to fast-forward or circumvent advertisements. Substantial use of these technologies could impact the attractiveness of our programming to advertisers, adversely affecting our advertising revenues. In addition, the evolution of consumer preferences away from linear pay television, away from physical towards digital services, and away from rental and purchased services towards subscription services, and the substantial increase in availability of programming without advertising or measurement, may continue to have an adverse impact on our revenues.
In addition, in response to perceived consumer demand, distributors of programming and program services are continuing to develop alternative offerings for consumers, including smaller programming packages known as “skinny bundles,” which are delivered at lower costs than traditional offerings and sometimes allow the consumer to create a customized package of networks; subscription video-on-demand services; ad-supported, free online video products; and original programming hosted on social media platforms. If these alternative offerings continue to gain traction and our networks are not included in those packages, or if consumers increasingly favor alternative offerings over traditional cable subscriptions, we may experience a decline in viewership and ultimately demand for our programming, which could lead to lower affiliate and advertising

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revenues. These changing distribution models may also impact our ability to negotiate carriage deals on terms favorable to us, thereby having an adverse impact on our revenues.
The Loss of Affiliation Agreements, Renewal on Less Favorable Terms or Adverse Interpretations Could Cause Our Revenues to Decline, and Consolidation Among Distributors Could Continue to Have an Adverse Effect on Our Revenue and Profitability
We are dependent upon our agreements with cable television, direct-to-home satellite television and telecommunications operators, subscription and advertising supported video-on-demand services, and other distributors of our programming and program services. Our affiliate agreements generally have fixed terms that vary by market and distributor, and there can be no assurance that these agreements will be renewed in the future, or renewed on favorable terms, including but not limited to those related to pricing and programming tiers. The loss of favorable packaging and positioning, the loss of carriage on the most widely available cable and satellite programming tiers or the failure to renew our agreements with any distributor could reduce the distribution of our programming and program services and decrease the potential audience for our programs, thereby negatively affecting our growth prospects and revenues from both advertising and affiliate fees.
Similarly, our revenues are dependent on the compliance of major distributors with the terms of our affiliation agreements. As these agreements have grown in complexity, the number of disputes regarding the interpretation, and even validity, of the agreements has grown, resulting in greater uncertainty and, from time to time, litigation seeking to circumscribe enforcement of our rights. For example, some of our distribution agreements may contain “most favored nation” (“MFN”) clauses, which provide that if we enter into an agreement with a distributor and such agreement includes specified terms that are more favorable than those held by a distributor holding an MFN right, we must offer some of those terms to the distributor holding the MFN right. These clauses are generally complex and may lead to disagreement over interpretation and application of such clause. In addition, disagreements with a distributor on the interpretation or validity of an agreement could adversely impact our revenues from both advertising and affiliate fees, as well as our relationship with that distributor.
In addition, consolidation among cable and satellite distributors and telecommunications operators has given the largest operators considerable leverage and market power in their relationships with programmers. We currently have agreements in place with the major U.S. cable and satellite operators and this consolidation has affected, and could continue to affect, our ability to maximize the value of our content through those distributors. In addition, many of the countries and territories in which we distribute our networks also have a small number of dominant distributors. Continued consolidation within the industry could reduce the number of distributors that carry our programming, subject our affiliate revenues to greater volume discounts, impact our ability to effectively compete for audiences, advertising revenue, and distribution, and further increase the negotiating leverage of the cable and satellite television system operators.
All of these factors could have an adverse effect on our business, financial condition or results of operations.
Advertising Market Conditions Could Cause Our Revenues and Operating Results to Decline Significantly
We derive substantial revenues from the sale of advertising on a variety of platforms, and a decline in advertising expenditures could have a significant adverse effect on our revenues and operating results in any given period. The strength of the advertising market can fluctuate in response to the economic prospects of specific advertisers or industries, advertisers’ current spending priorities and the economy in general, and this may adversely affect our advertising revenues. Natural and other disasters, acts of terrorism, political uncertainty or hostilities could lead to a reduction in advertising expenditures as a result of disrupted programming and services, uninterrupted news coverage and economic uncertainty. Our ability to generate advertising revenue is also dependent on demand for our content, the consumers in our targeted demographics, advertising rates and results observed by advertisers. In addition, the pricing and volume of advertising may be affected by shifts in spending toward online and mobile offerings from more traditional media, or toward new ways of purchasing advertising, such as through automated purchasing and advertising exchanges, some or all of which may not be as advantageous to the Company as current advertising methods.
Deficiencies in Audience Measurement on Various Platforms May Adversely Impact Our Advertising Revenues
Advertising sales are largely dependent on audience measurement, and the results of audience measurement techniques can vary for a variety of reasons, including the platforms on which viewing is measured and variations in the employed statistical sampling methods. While Nielsen’s statistical sampling method is the primary measurement technique used in our television advertising sales, we measure and monetize our campaign reach and frequency on and across digital platforms based on other third-party data as well as first-party data using a variety of methods including the number of impressions served and demographics. In addition, multi-platform campaign verification remains in its infancy, and viewership on tablets, smartphones

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and other mobile devices, which continues to grow rapidly, still is not measured by any one consistently applied method. These variations and changes could have a significant effect on our advertising revenues.
Our New Strategic Direction May Not be Effective in Achieving Our Strategic and Operating Objectives, and Our Efforts May Increase Costs or Otherwise Adversely Affect our Business, Results of Operations and Financial Condition
In February 2017, following significant changes in our senior leadership and a comprehensive review of our operations and performance, we announced a new strategy centered on the following initiatives: focusing on six flagship brands, elevating our approach to content and talent, deepening our partnerships to drive new distribution and advertising revenue, extending the reach of our brands in the digital and physical world, and continuing to optimize and energize our organization. We may not be successful in achieving our strategic and operating objectives and generating revenues and operating income, and our efforts to execute our strategic plan may increase costs or otherwise adversely affect the profitability of our business.
For example:
The reallocation of resources to the six flagship brands, and revamped programming strategies at the brands, may not be effective in generating improved ratings and market share.
Ongoing efforts to improve relationships with distribution partners may stall or fail to generate sufficient cooperation, leaving us unable to expand our relationships with these parties.
Steps taken by Paramount’s new leadership team to revamp upcoming film slates may not lead to the anticipated turnaround in a timely manner.
Efforts to de-lever our balance sheet to help maintain an investment grade rating may not succeed or yield the anticipated benefits.
The success of our business also depends on achieving our inorganic strategic objectives, including through mergers and acquisitions, which may present risks that could impact our operations and earnings. Pursuing and completing such acquisition transactions may involve significant time, effort and resources, and there can be no assurance that such transactions will be successfully implemented.
Service Disruptions or Failures of, or Intrusions Upon, the Company’s or its Vendors’ Networks, Information Systems and Other Technologies Could Result in the Disclosure of Confidential or Valuable Business Information, Disruption of Our Businesses, Damage to Our Brands and Reputation, Legal Exposure and Financial Losses
Networks, information systems and other technologies, including technology systems used in connection with the production and distribution of our programming and motion pictures by the Company or our third-party vendors (“Systems”) are critical to our business activities, and shutdowns or service disruptions of, and intrusions upon, these Systems pose increasing risks. Such shutdowns, disruptions and intrusions may be caused by third-party hacking of computers and systems; dissemination of computer viruses, worms, malware, ransomware and other destructive or disruptive software; denial of service attacks and other bad acts; human error; and power outages, natural disasters, extreme weather, terrorist attacks or other similar events. Shutdowns, disruptions and intrusions from such events could have an adverse impact on the Company, its employees and its audiences, including degradation or disruption of service, loss of data and damage to equipment and data. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery and business continuity planning may not be sufficient to cover everything that could happen. Significant events could result in a disruption of the Company’s operations, reduced revenues, the loss of or damage to the integrity of data used by management to make decisions and operate the Company’s businesses, viewer or advertiser dissatisfaction or a loss of viewers or advertisers, and damage to the Company’s reputation or brands. The Company may not have adequate insurance coverage to compensate it for any losses associated with such events.
The Company is also subject to risks caused by the misappropriation, misuse, falsification or intentional or accidental release or loss of data or programming content maintained in the Systems of the Company or our third-party vendors, including proprietary and personal information (of third parties, employees and users of our online, mobile and app offerings), business information including intellectual property, or other confidential information. Outside parties may attempt to penetrate the Company’s Systems or those of our third-party vendors or fraudulently induce employees, partners or users of our online, mobile and app offerings to disclose sensitive or confidential information in order to gain access to our data or our users’ data, or our programming. The number and sophistication of attempted and successful information security breaches in the U.S. have increased in recent years. If a material breach of the Company’s Systems or those of our third-party vendors occurs, the market perception of the effectiveness of the Company’s information security measures could be harmed, the Company could lose

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advertisers as well as users of our online, mobile and app offerings and viewers, and our reputation, brands and credibility could be damaged. In addition, if a material breach of the Company’s Systems occurs, the Company could be required to expend significant amounts of money and other resources to repair or replace such Systems or to comply with notification requirements. The Company could also be subject to actions by regulatory authorities and claims asserted in private litigation in the event of a breach of the Company’s or our third-party vendors’ Systems.
Because the techniques used to obtain unauthorized access to, or disable, degrade or sabotage, these Systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques, implement adequate preventative measures or remediate any intrusion on a timely or effective basis. Moreover, the development and maintenance of these preventative and detective measures is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Despite the Company’s efforts, the possibility of these events occurring cannot be eliminated.
Theft of Our Content, Including Digital Copyright Theft and Other Unauthorized Exhibitions of Our Content, May Decrease Revenue Received from Our Programming, Motion Pictures and Other Entertainment Content and Adversely Affect Our Businesses and Profitability
The success of our businesses depends in part on our ability to maintain and monetize our intellectual property rights in our entertainment content. We are fundamentally a content company and theft of our brands, motion pictures and home entertainment products, television programming, digital content and other intellectual property affects us and the value of our content. Copyright theft is particularly prevalent in many parts of the world that lack effective copyright and technical protective measures similar to those existing in the U.S. and Europe and/or that lack effective enforcement of such measures. Such foreign copyright theft often creates a supply of pirated content for major markets as well. The interpretation of copyright, piracy and other laws as applied to our content, and our piracy detection and enforcement efforts, remain in flux, and some methods of copyright enforcement have encountered political opposition. The failure to appropriately enforce and/or the weakening of existing intellectual property laws could make it more difficult for us to adequately protect our intellectual property and negatively affect its value.
Content theft is made easier by the wide availability of higher bandwidth and reduced storage costs, as well as tools that undermine encryption and other security features and enable infringers to cloak their identities online. In addition, we and our numerous production and distribution partners operate various technology systems in connection with the production and distribution of our programming and motion pictures, and intentional or unintentional acts could result in unauthorized access to our content. The increasing use of digital formats and technologies heightens this risk. For example, new mobile broadcasting tools enable users to livestream content, including copyrighted content, which can lead to content theft and could have an adverse impact on the monetization of our content. Unauthorized access to our content could result in the premature release of motion pictures or television shows as well as a reduction in legitimate audiences, which would likely have significant adverse effects on the value of the affected programming.
Copyright theft has an adverse effect on our business because it reduces the revenue that we are able to receive from the legitimate sale and distribution of our content, undermines lawful distribution channels, reduces the public’s perceived value of our content and inhibits our ability to recoup or profit from the costs incurred to create such works. While legal protections exist, piracy and technological tools with which to engage in copyright theft continue to escalate, evolve and present challenges for enforcement. We are actively engaged in enforcement and other activities to protect our intellectual property, and it is likely that we will continue to expend substantial resources in connection with these efforts. Efforts to prevent the unauthorized reproduction, distribution and exhibition of our content may affect our profitability and may not be successful in preventing harm to our business.
Increased Costs for Programming, Motion Pictures and Other Rights, and Judgments We Make on the Potential Performance of our Content, May Adversely Affect Our Profits
In our Media Networks segment, we have historically produced a significant amount of original programming and other content, and as part of our business strategy we are reallocating resources to our flagship brands, in part with the aim of developing higher quality and quantity of original content. The Filmed Entertainment segment’s core business involves the production, marketing and distribution of motion pictures and television series, the costs of which are significant.
We also acquire programming, motion pictures and television series, as well as a variety of digital content and other ancillary rights such as consumer and home entertainment product offerings, and we pay license fees, royalties and/or contingent

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compensation in connection with these acquired rights. We also license various music rights from the major record companies, music publishers and performing rights organizations, and some of these sources are highly consolidated.
Our investments in original and acquired programming are significant and involve complex negotiations with numerous third parties, and rapid changes in consumer behavior have increased the risk associated with the success of all kinds of programming. As such, there can be no assurance that we will recoup our investments in programming, motion pictures and other content when the content is broadcast or distributed.
The accounting for the expenses we incur in connection with our programming, motion pictures and other content requires that we make judgments about the potential success and useful life of the program or motion picture. If our estimates prove to be incorrect, it may result in decreased profitability and the accelerated recognition of the expense and/or write-down of the value of the asset. For example, we estimate the ultimate revenues of a motion picture before it is released based on a number of factors, and we then update our estimate of ultimate revenues, including following a film’s initial theatrical release, based on expected future and actual results. If we reduce our estimate of ultimate revenues, it may result in the accelerations of capitalized film cost amortization. Similarly, if we determine it is no longer advantageous for us to air a program on our media networks, we would accelerate our amortization of the program costs.
The Loss of Key Talent Could Disrupt Our Business and Adversely Affect Our Revenues
Our business depends upon the continued efforts, abilities and expertise of not only our corporate and divisional executive teams, but also the various creative talent and entertainment personalities with whom we work. For example, we employ or contract with several entertainment personalities with loyal audiences and we produce motion pictures with highly regarded directors, producers, writers, actors and other talent. These individuals are important to achieving the success of our programs, motion pictures and other content. There can be no assurance that these individuals will remain with us or will retain their current appeal, or that the costs associated with retaining this and new talent will be reasonable. If we fail to retain these individuals on current terms or if our entertainment personalities lose their current appeal or we fail to attract new talent, our revenues and profitability could be adversely affected.
Our Businesses Operate in Highly Competitive Industries
Companies in the cable network, motion picture, digital and consumer product industries depend on the popularity of content, appeal to advertisers and solid distribution relationships. Competition for content, audiences, advertising and distribution is intense and comes from broadcast television, other cable networks (including our own), OTT distributors, social media content distributors, movie studios and independent film producers and distributors, consumer products companies and other entertainment outlets and platforms, as well as from search, social networks, program guides and “second screen” applications. Competition also comes from pirated content.
Increased competition from additional entrants into the market for development and production of original programming, such as Apple, Facebook, YouTube, Netflix, Amazon and Hulu, increases our content costs as creating competing high quality, original content can require significant investment. In addition, as competition with these entrants for the creation and acquisition of quality programming continues to escalate, the complexity of negotiations over acquired rights to the content and the value of the rights we acquire or retain may increase, leading to increased acquisition costs, and our ability to successfully acquire content of the highest quality may face greater uncertainty.
Our ability to compete successfully depends on a number of factors, including our ability to create or acquire high quality and popular programs and films, adapt to new technologies and distribution platforms, and achieve widespread distribution for our content. More content consumption options increase competition for viewers as well as for programming and creative talent, which can decrease our audience ratings, and therefore potentially our advertising revenues.
In addition, our competitors include market participants with interests in multiple media businesses that are often vertically integrated, whereas our Media Networks businesses generally rely on distribution relationships with third parties. As more cable and satellite operators, Internet service providers, other content distributors, aggregators and search providers create or acquire their own content, they may have significant competitive advantages, which could adversely affect our ability to negotiate favorable terms and distribution or otherwise compete effectively in the delivery marketplace. Our competitors could also have preferential access to important technologies, customer data or other competitive information.
There can be no assurance that we will be able to compete successfully in the future against existing or new competitors, or that competition will not have a material adverse effect on our business, financial condition or results of operations.

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Our Revenues, Expenses and Operating Results May Vary Based on the Timing, Mix, Number and Availability of Our Motion Pictures and Other Programming and on Seasonal Factors
Our revenues, expenses and operating results fluctuate due to the timing, mix, number and availability of our theatrical motion pictures, home entertainment releases and programs for licensing. For example, our operating results may increase or decrease during a particular period relative to the corresponding period in the prior year due to differences in the number and/or mix of films released and the timing of delivery of programming to television and digital distributors. Our operating results also fluctuate due to the timing of the recognition of marketing expenses, which are typically largely incurred prior to the release of motion pictures, with the recognition of related revenues in later periods.
Our business also has experienced and is expected to continue to experience seasonality due to, among other things, seasonal advertising patterns and seasonal influences on audiences’ viewing habits and attendance. Typically, our revenue from advertising is highest in the first quarter of our fiscal year due to the holiday season, among other factors, and revenue from motion pictures is highest in the summer and around holidays. The effects of these variances make it difficult to estimate future operating results based on the results of any specific quarter.
The Failure, Destruction and/or Breach of Satellites and Facilities that We Depend Upon to Distribute Our Programming Could Adversely Affect Our Business and Results of Operations
We use satellite systems, fiber and other methods to transmit our program services to cable television operators and other distributors worldwide. The distribution facilities include uplinks, communications satellites and downlinks. Notwithstanding certain back-up and redundant systems, transmissions may be disrupted as a result of power outages, natural disasters, extreme weather, terrorist attacks, failures or impairments of communications satellites or on-ground uplinks or downlinks used to transmit programming or other similar events. Currently, there are a limited number of communications satellites available for the transmission of programming. If a disruption occurs, we may not be able to secure alternate distribution facilities in a timely manner. Failure to do so could have a material adverse effect on our business and results of operations. There can be no assurance that such failure or breach would not have an adverse effect on our business, financial condition or results of operations.
Political and Economic Conditions in a Variety of Markets around the World Could Have an Adverse Effect on Our Businesses and Harm Our Financial Condition
Our businesses operate and have customers, partners and audiences worldwide, and we are focused on expanding our international operations in key markets, some of which are emerging markets. For that reason, economic conditions in many different markets around the world affect a number of aspects of our businesses, in particular revenues in both domestic and international markets derived from advertising sales, theatrical releases, home entertainment distribution, television licensing and sales of consumer products. Economic conditions in each market can also impact the businesses of our partners who purchase advertising on our networks by causing them to reduce their spending on advertising, and can impact our audience’s discretionary spending. In addition, as we have expanded our international operations, our exposure to foreign currency fluctuations against the U.S. dollar has increased. Such fluctuations could have an adverse effect on our results of operations and net asset balances, and there is no assurance that downward trending currencies will rebound or that stable currencies will remain stable in any period.
In addition, our businesses are exposed to certain political and economic risks inherent in conducting a global business. These include, among others:
changes in the regulatory environment in the markets where we operate, including the imposition of new regulations or changed interpretations of existing regulations, particularly regarding repatriation of profits, taxation rules and procedures, tariffs or other trade barriers, currency exchange controls, permit requirements, restrictions on foreign ownership or investment, export and market access restrictions, privacy and data protection regulations, exceptions and limitations on copyright and censorship;
retaliatory actions by governments reacting to changes in other countries, including in the U.S.;
potential for longer payment cycles;
issues related to the presence of corruption in certain markets and changes in anti-corruption laws and regulations;

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increased risk of political instability in some markets as well as conflict and sanctions preventing us from accessing those markets;
wars, acts of terrorism or other hostilities; and
other financial, political, economic or other uncertainties.
For example, the formal two-year process governing the UK’s departure from the EU (“Brexit”) began on March 29, 2017. Depending upon the ultimate terms of Brexit, the UK could lose access to the single EU market and to the global trade deals negotiated by the EU on behalf of its members. The effects of the Brexit vote and the perceptions as to the impact of the withdrawal of the UK from the EU may adversely affect business activity, political stability and economic and market conditions in the UK, the Eurozone, the EU and elsewhere and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the Euro and the British Pound. In addition, Brexit could lead to additional political, legal and economic instability and uncertainty in the EU, including changes in the regulatory environment, which could impact our ability to use UK law under “country of origin” rules for programming in the EU, potential trade barriers between the UK and the EU and between the UK and other countries, and potential content production quota regulations. Given that a portion of our business is conducted in the EU, including the UK, any of these effects of Brexit, and others we cannot anticipate, could have a material adverse effect on our business, operating results, financial condition and cash flows.
These political and economic risks could create instability in any of the markets where our businesses derive revenues, which could result in a reduction of revenue or loss of investment that adversely affects our businesses and harms our financial condition.
Changes in U.S. or Foreign Laws or Regulations May Have an Adverse Effect on Our Business
Our program services and online, mobile and app properties are subject to a variety of laws and regulations, including those relating to intellectual property, content regulation, user privacy, data protection and consumer protection, among others. For example, privacy regulations make it difficult to measure viewership by children. In addition, federal legislators and regulators have proposed voluntary guidelines on advertising to children in an effort to combat unhealthy eating and childhood obesity, and have considered imposing limitations on the marketing of certain movies and regulating product placement and other program sponsorship arrangements. All of these regulations affect our Nickelodeon businesses in particular. The threat of regulatory action or increased scrutiny that deters certain advertisers from advertising or reaching their intended audiences could adversely affect advertising revenue. In addition, the U.S. Congress, the FCC and certain foreign governments currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could directly or indirectly affect the operations or ownership of our media properties.
Our businesses are also impacted by the laws and regulations of the foreign jurisdictions in which we or our partners operate, including operating license requirements, quotas, tax regimes, currency restrictions and data protection regimes. Laws in some non-U.S. jurisdictions differ in significant respects from those in the U.S., and the enforcement of such laws can be inconsistent and unpredictable. This could impact our ability to expand our operations and undertake activities that we believe are beneficial to our business.
Our businesses could be adversely affected by new laws and regulations, the threat that additional laws or regulations may be forthcoming, as well as our ability to enforce legal rights and changes in existing laws (or changes in interpretation) by courts and regulators. We could be required to change or limit certain of our business practices, which could impact our ability to generate revenues. We could also incur substantial costs to comply with new laws and regulations, or substantial fines and penalties or other liabilities if we fail to comply with new or existing laws or regulations.
We Could be Subject to Material Liabilities as a Result of Changes in Tax Laws, Regulations and Administrative Practices, Interpretations and Policies
We are subject to taxation in the U.S. and numerous international jurisdictions. Our tax rates are impacted by the tax laws, regulations and administrative practices, interpretations and policies in federal, state and local and international territories where our businesses operate, and may be subject to significant change. In addition, our tax returns are routinely audited and litigation or settlements may occur. Such changes, audit settlements or litigation may result in the recognition of an additional charge to our income tax provision in the period and may adversely affect our effective income tax rate or cash payments and may therefore affect our results of operations, financial condition and cash flows.

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Our Obligations Related to Litigation and Joint Ventures Could Adversely Impact Our Financial Condition
We are involved in pending and threatened legal proceedings from time to time, the outcome of which is inherently uncertain and difficult to predict. We have also made certain investments in joint ventures and have future funding obligations, which may not be recouped until well after our initial investment, if at all. It is uncertain at what point any of these or new liabilities may affect us, and there can be no assurance that our reserves are sufficient to cover these liabilities in their entirety or any one of these liabilities when it becomes due. Therefore, there can be no assurance that these liabilities will not have an adverse effect on our financial condition.
We Could Be Adversely Affected by Strikes and Other Union Activity
We and our business partners engage the services of writers, directors, actors and other talent, trade employees and others who are subject to collective bargaining agreements. Some of our collective bargaining agreements are industry-wide agreements, and we may lack practical control over the negotiations and terms of the agreements. In addition, any labor disputes may disrupt our operations and reduce our revenues, and we may not be able to negotiate favorable terms for a renewal, which could increase our costs.
Through National Amusements’ Voting Control of Viacom and CBS, Certain Directors and Stockholders May Face Actual or Potential Conflicts of Interest, and National Amusements is in a Position to Control Actions that Require, or May be Accomplished by, Stockholder Approval
National Amusements, directly and indirectly, is the controlling stockholder of both Viacom and CBS. National Amusements owns shares in Viacom representing approximately 79.8% of the voting interest in Viacom and approximately 10% of Viacom’s combined common stock. National Amusements is controlled by Sumner M. Redstone, our Chairman Emeritus, who is the Chairman and Chief Executive Officer of National Amusements, through the Sumner M. Redstone National Amusements Trust (the “SMR Trust”), which owns shares in National Amusements representing 80% of the voting interest of National Amusements. The shares representing the other 20% of the voting interest of National Amusements are held through a trust controlled by Shari E. Redstone, who is Mr. Redstone’s daughter and the non-executive Vice Chair of Viacom’s Board of Directors and the President and a member of the Board of Directors of National Amusements. The shares of National Amusements held by the SMR Trust are voted solely by Mr. Redstone until such time as his incapacity or death. Upon Mr. Redstone’s incapacity or death, (1) Ms. Redstone will also become a trustee of the SMR Trust and (2) the shares of National Amusements held by the SMR Trust will be voted by the trustees of the SMR Trust. The current trustees include Mr. Redstone and David R. Andelman, a member of the boards of directors of National Amusements and CBS. The current Board of Directors of National Amusements includes Mr. Redstone, Ms. Redstone and Mr. Andelman. In addition, Mr. Redstone serves as Chairman Emeritus of CBS and Ms. Redstone serves as non-executive Vice Chair of CBS.
The National Amusements ownership structure and the common directors among National Amusements, Viacom and CBS could create, or appear to create, potential conflicts of interest when the directors and controlling stockholder of the commonly controlled entities face decisions that could have different implications for each entity. For example, potential conflicts of interest, or the appearance thereof, could arise in connection with the resolution of any dispute between us and CBS, or when we and CBS enter into any commercial arrangements with each other, despite review by our directors not affiliated with CBS. Our certificate of incorporation and the CBS certificate of incorporation both contain provisions related to corporate opportunities that may be of interest to us and to CBS, and these provisions create the possibility that a corporate opportunity of one company may be used for the benefit of the other company.
In addition, National Amusements’ voting control of us allows it to control the outcome of corporate actions that require, or may be accomplished by, stockholder approval, including the election and removal of directors and transactions involving a change in control. For so long as National Amusements retains voting control of us, our stockholders other than National Amusements will be unable to affect the outcome of any corporate actions. The interests of National Amusements may not be the same as the interests of our other stockholders, who must rely on our independent directors to represent their interests.
We, National Amusements and CBS, and our Respective Businesses, Are Attributable to Each Other for Certain Regulatory Purposes, Which May Limit Business Opportunities or Impose Additional Costs
So long as we, National Amusements and CBS are under common control, each company’s businesses, as well as the businesses of any other commonly controlled company, may be attributable to the other companies for purposes of U.S. and non-U.S. antitrust rules and regulations, certain rules and regulations of the FCC, certain rules under the Employee Retirement Income Security Act of 1974 and certain rules regarding political campaign contributions in the U.S., among others. The businesses of each company may continue to be attributable to the other companies for FCC and other purposes even after the

26


companies cease to be commonly controlled, if the companies share common officers, directors, or attributable stockholders. As a result, the businesses and conduct of any of these other companies may have the effect of limiting the activities or strategic business alternatives available to us, including limitations to which we contractually agreed in connection with our separation from CBS, or may impose additional costs on us.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
In addition to the properties described below, we own and lease office, studio, production and warehouse space and broadcast, antenna and satellite transmission facilities throughout the U.S. and around the world for our businesses. We consider our properties adequate for our present needs.
Viacom
Our world headquarters is located at 1515 Broadway, New York, New York, where we lease approximately 1.4 million square feet for executive, administrative and business offices for the Company and certain of our operating divisions. The lease runs through June 2031, with two renewal options based on market rates at the time of renewal for ten years each.
Media Networks
In addition to occupying space at 1515 Broadway in New York, we lease the following major office facilities: (a) approximately 400,000 square feet at 345 Hudson Street, New York, New York, through 2022, (b) approximately 278,000 square feet at 1540 Broadway, New York, New York, through 2021, and (c) approximately 210,000 square feet of office space at 1575 North Gower Street, Los Angeles, California, through 2028.
Viacom Media Networks’ Network Operations Center in Hauppauge, New York contains approximately 65,000 square feet of floor space on approximately nine acres of owned land. Its Global Business Services Center in Franklin, Tennessee contains approximately 23,000 square feet of office space under a lease that expires in 2022, and its Global Business Services Center in Budapest, Hungary contains approximately 40,500 square feet of office space under a lease that expires in 2020.
The Nickelodeon Animation Studio at 203-231 West Olive Avenue, Burbank, California contains approximately 180,000 square feet of studio and office space, leased under 2 leases expiring in 2036.
Nickelodeon’s Live Action Studio contains approximately 108,000 square feet of stage and office space at Burbank Studios, 3000 West Alameda Avenue, Burbank, California, under a lease expiring in 2024.
Viacom International Studios located at 50 NW 14th Street, Miami, Florida, contains approximately 60,000 square feet of sound stages, production facilities and office space, under a facilities license agreement expiring in 2018.
CMT’s headquarters in Nashville, Tennessee occupies approximately 86,000 square feet of space for CMT’s executive, administrative and business offices and its studios, under leases expiring in 2020.
Internationally, we occupy approximately 140,000 square feet of space at our owned and leased Hawley Crescent facilities in London, and Telefe occupies approximately 362,000 square feet of office, studio and production space at its owned and leased facilities in Buenos Aires.
Filmed Entertainment
Paramount owns the Paramount Pictures Studio situated at 5555 Melrose Avenue, Los Angeles, California, located on approximately 62 acres of land, and containing approximately 1.85 million square feet of floor space used for executive, administrative and business offices, sound stages, production facilities, theatres, equipment facilities and other ancillary uses. Paramount has embarked on a planned 25-year expansion and revitalization project for the studio.

27


Paramount Pictures International has offices in Chiswick, West London, where it leases approximately 33,000 square feet of space used for executive, administrative and business offices and a viewing cinema through 2024.
Item 3. Legal Proceedings.
Litigation is inherently uncertain and always difficult to predict. However, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the legal matters described below and other litigation to which we are a party are not likely, in the aggregate, to have a material adverse effect on our results of operations, financial position or operating cash flows.
Purported Derivative Action
On July 20, 2016, a purported derivative action was commenced in Delaware Chancery Court by a purported Viacom stockholder against Viacom and its directors. The complaint alleged that Viacom’s directors breached their fiduciary duties to Viacom in connection with compensation paid to Mr. Redstone and that these breaches permitted a waste of corporate assets and the unjust enrichment of Mr. Redstone. On October 25, 2017, the Court granted Viacom’s motion to dismiss the action.
Item 4. Mine Safety Disclosures.
Not applicable.

28


PART II
Item 5. Market for Viacom Inc.’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our voting Class A common stock and non-voting Class B common stock are listed and traded on The NASDAQ Global Select Market under the symbols “VIA” and “VIAB”, respectively.
The table below shows, for the periods indicated, the high and low sales prices per share of our Class A and Class B common stock as reported in FactSet markets services.
 
Sales Price
 
Low
 
High
Class A common stock – Fiscal 2017
 
 
 
4th Quarter
$
36.35

 
$
42.55

3rd Quarter
$
36.25

 
$
49.00

2nd Quarter
$
38.60

 
$
48.80

1st Quarter
$
38.05

 
$
43.55

Class A common stock – Fiscal 2016
 
 
 
4th Quarter
$
38.61

 
$
50.40

3rd Quarter
$
37.90

 
$
50.81

2nd Quarter
$
33.88

 
$
50.55

1st Quarter
$
41.30

 
$
54.69

Class B common stock – Fiscal 2017
 
 
 
4th Quarter
$
26.65

 
$
36.77

3rd Quarter
$
33.30

 
$
46.70

2nd Quarter
$
35.50

 
$
46.72

1st Quarter
$
33.94

 
$
39.93

Class B common stock – Fiscal 2016
 
 
 
4th Quarter
$
34.11

 
$
46.69

3rd Quarter
$
34.40

 
$
46.29

2nd Quarter
$
30.11

 
$
47.47

1st Quarter
$
39.01

 
$
53.35

 
 
 
 
During fiscal 2017 and 2016, our Board of Directors declared the following cash dividends to stockholders of record on both our voting Class A common stock and non-voting Class B common stock:
Declaration Date
Dividend
per Share
 
Record Date
 
Payment Date
August 2, 2017
$0.20
 
September 15, 2017
 
October 2, 2017
May 18, 2017
$0.20
 
June 15, 2017
 
July 3, 2017
February 6, 2017
$0.20
 
March 15, 2017
 
April 3, 2017
October 31, 2016
$0.20
 
December 15, 2016
 
January 3, 2017
 
 
 
 
 
 
September 21, 2016
$0.20
 
September 26, 2016
 
October 3, 2016
May 18, 2016
$0.40
 
June 15, 2016
 
July 1, 2016
January 14, 2016
$0.40
 
March 13, 2016
 
April 1, 2016
November 11, 2015
$0.40
 
December 15, 2015
 
January 4, 2016
As of October 31, 2017, there were 1,330 record holders of our Class A common stock and 19,524 record holders of our Class B common stock.

29


Performance Graph
The following graph compares the cumulative total stockholder return of our Class A common stock and our Class B common stock with the cumulative total stockholder return of the companies listed in the Standard & Poor’s 500 Index and a peer group of companies comprised of The Walt Disney Company, Twenty-First Century Fox Inc. (News Corporation prior to June 2013), Time Warner Inc., CBS Corporation, Discovery Communications, Inc. and Scripps Networks Interactive Inc.
The performance graph assumes $100 invested on September 30, 2012 in each of our Class A common stock, our Class B common stock, the S&P 500 Index and the stock of our peer group companies, including reinvestment of dividends, for the years ended September 30, 2013, 2014, 2015, 2016 and 2017.
Total Cumulative Stockholder Return
For the Years Ended September 30, 2013, 2014, 2015, 2016 and 2017
via2017093_chart-06826.jpg
 
 
 
9/30/12
 
9/30/13
 
9/30/14
 
9/30/15
 
9/30/16
 
9/30/17
Class A Common
 
$100
 
$156
 
$146
 
$86
 
$86
 
$76
Class B Common
 
$100
 
$158
 
$148
 
$86
 
$79
 
$59
S&P 500
 
$100
 
$117
 
$137
 
$133
 
$151
 
$175
Peer Group
 
$100
 
$136
 
$158
 
$161
 
$166
 
$189
Equity Compensation Plan Information
Information required by this item will be contained in the Proxy Statement for our 2018 Annual Meeting of Stockholders under the heading “Equity Compensation Plan Information,” which information is incorporated herein by reference.

30


Item 6. Selected Financial Data.
The selected Consolidated Statement of Earnings data for the years ended September 30, 2017, 2016 and 2015 and the Consolidated Balance Sheet data as of September 30, 2017 and 2016 should be read in conjunction with the audited financial statements, Management’s Discussion and Analysis of Results of Operations and Financial Condition and other financial information presented elsewhere in this report. The selected Consolidated Statement of Earnings for the years ended September 30, 2014 and 2013 and the Consolidated Balance Sheet data as of September 30, 2015, 2014 and 2013 have been derived from audited financial statements not included herein.
CONSOLIDATED STATEMENT OF EARNINGS DATA
 
Year Ended September 30,
(in millions, except per share amounts)
2017
 
2016
 
2015
 
2014
 
2013
Revenues
$
13,263

 
$
12,488

 
$
13,268

 
$
13,783

 
$
13,794

Operating income
$
2,489

 
$
2,526

 
$
3,112

 
$
4,082

 
$
3,836

Net earnings from continuing operations (Viacom and noncontrolling interests)
$
1,919

 
$
1,471

 
$
2,002

 
$
2,464

 
$
2,449

Net earnings from continuing operations attributable to Viacom
$
1,871

 
$
1,436

 
$
1,922

 
$
2,392

 
$
2,407

Net earnings from continuing operations per share attributable to Viacom:
 
 
 
 
 
 
 
 
 
Basic
$
4.68

 
$
3.62

 
$
4.78

 
$
5.54

 
$
4.95

Diluted
$
4.67

 
$
3.61

 
$
4.73

 
$
5.43

 
$
4.86

Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
399.9

 
396.5

 
402.2

 
432.1

 
486.2

Diluted
400.6

 
398.0

 
406.0

 
440.2

 
494.8

Dividends declared per share of Class A and Class B common stock
$
0.80

 
$
1.40

 
$
1.46

 
$
1.26

 
$
1.15


CONSOLIDATED BALANCE SHEET DATA
 
September 30,
(in millions)
2017
 
2016
 
2015
 
2014
 
2013
Total assets
$
23,698

 
$
22,508

 
$
22,143

 
$
22,985

 
$
23,710

Total debt
$
11,119

 
$
11,913

 
$
12,285

 
$
12,699

 
$
11,818

Total Viacom stockholders’ equity
$
6,035

 
$
4,277

 
$
3,538

 
$
3,719

 
$
5,193

Total equity
$
6,119

 
$
4,330

 
$
3,599

 
$
3,747

 
$
5,190


31


Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition.
Management’s discussion and analysis of results of operations and financial condition is provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes to enhance the understanding of our results of operations, financial condition and cash flows. References in this document to “Viacom,” “Company,” “we,” “us” and “our” mean Viacom Inc. and our consolidated subsidiaries, unless the context requires otherwise.
Significant components of the management’s discussion and analysis of results of operations and financial condition section include:
 
 
Page
Overview: The overview section provides a summary of Viacom and our reportable business segments and the principal factors affecting our results of operations.
 
 
 
Results of Operations: The results of operations section provides an analysis of our results on a consolidated and reportable segment basis for the three years ended September 30, 2017. In addition, we provide a discussion of items that affect the comparability of our results of operations.
 
 
 
Liquidity and Capital Resources: The liquidity and capital resources section provides a discussion of our cash flows for the three years ended September 30, 2017, and of our outstanding debt, commitments and contingencies existing as of September 30, 2017.
 
 
 
Market Risk: The market risk section discusses how we manage exposure to market and interest rate risks.
 
 
 
Critical Accounting Policies and Estimates: The critical accounting policies and estimates section provides detail with respect to accounting policies that are considered by management to require significant judgment and use of estimates and that could have a significant impact on our financial statements.
 
 
 
Other Matters: The other matters section provides a discussion of related party transactions and agreements.
 
OVERVIEW
Summary
We are home to premier global media brands that create compelling entertainment content - including television programs, motion pictures, short-form content, games, consumer products, podcasts, live events and social media experiences - for audiences in more than 180 countries on various platforms and devices.
In fiscal year 2017, following significant changes in our senior leadership and a comprehensive review of our operations and performance, we began to execute against a new business strategy that includes, among other things, the designation of six brands - Nickelodeon, Nick Jr., MTV, BET, Comedy Central and Paramount - as our highest priority, “flagship” brands.
We operate through two reportable segments: Media Networks and Filmed Entertainment. Our measure of segment performance is adjusted operating income. We define adjusted operating income for our segments as operating income, before equity-based compensation and certain other items identified as affecting comparability, when applicable. Equity-based compensation is excluded from our segment measure of performance since it is set and approved by the Compensation Committee of Viacom’s Board of Directors in consultation with corporate executive management, and is included as a component of consolidated adjusted operating income.
Media Networks
Our Media Networks segment provides entertainment content, services and related branded products for consumers in targeted demographics attractive to advertisers, content distributors and retailers. We create, acquire and distribute programming and other content for our audiences worldwide, distributed through cable, satellite and broadband services, on linear, streaming and on-demand bases, via a variety of owned and third party platforms, including televisions, branded apps and sites, for viewing on a wide range of devices such as connected televisions, PCs, tablets, smartphones and other connected devices. The Media Networks segment also licenses its brands for consumer products and recreational opportunities, and produces live events.

32

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Our Media Networks segment operates globally as Viacom Media Networks through three brand groups, our Global Entertainment Group, the Nickelodeon Group and BET Networks. Globally, our program services reach approximately 4.3 billion cumulative television subscribers in 183 countries and 43 languages, via 300 locally programmed and operated television channels, including Nickelodeon, Nick Jr., MTV, BET, Comedy Central, SPIKE (which will be rebranded as Paramount Network in the United States in January 2018), VH1, TV Land, CMT, Logo and our program services created specifically for international audiences, such as British public service broadcaster Channel 5 (in the United Kingdom), Telefe (in Argentina), Colors (in India) and Paramount Channel (in a variety of territories). Cumulative television subscribers aggregate total subscribers to each Viacom owned and operated, joint venture and licensee channel.
Our Media Networks segment generates revenues in three categories: (i) the sale of advertising and marketing services, (ii) affiliate fees from distributors of our programming and program services and (iii) ancillary activities such as consumer products.
Advertising Revenues
Our Media Networks segment generates revenues from the sale of advertising and from marketing services. Our advertising revenues generally depend on the number of viewers and viewership demographics. Demand and pricing for our advertising depend on the attractiveness of our offerings to advertisers, viewership, and overall market conditions. We also drive additional demand through integrated sales of multi-platform advertising and marketing opportunities and through our integrated marketing services, providing unique branded entertainment and custom sponsorship opportunities to our advertisers. Our advertising revenues may be affected by the strength of advertising markets and general economic conditions, and may fluctuate depending on the success of our programming, as measured by viewership, at any given time. Measured viewership may vary due to the success of our programming (due to, among other things, the timing of availability of new episodes of popular programming and the performance of competing programs and other entertainment alternatives for viewers), the platforms on which our programming is available, as well as variations related to the methods used by third parties to measure viewership. Advertising revenues may also fluctuate due to seasonal variations, the timing of holidays and significant programming events such as awards shows and premieres. Typically, advertising revenues are highest in the first quarter of our fiscal year. We continue to invest in proprietary data platforms and advanced analytics that enable our customers to better target and measure the impact of their advertising, including our Viacom Vantage platform and the OpenAP consortium we created with Fox Networks Group and Turner. Additionally, we have a branded content agency, Viacom Velocity, that integrates clients’ brands into custom content across our platforms. We are also working with distributors of our programming to evolve our multi-platform advertising offerings to include targeting and customization through Vantage, Velocity and OpenAP.
Affiliate Revenues
Our affiliate revenues are generated through fees from distributors of our programming and program services, such as cable television operators, direct-to-home satellite television operators, mobile networks and subscription video-on-demand and other over-the-top (“OTT”) services. Our agreements with multichannel television service providers are generally multi-year carriage agreements with set rate increases. The amount of fees we receive is generally a function of the number of subscribers and the rates we receive per subscriber. Expirations of these affiliate agreements are staggered. We are also working with these distributors to create new and improved pay television revenue opportunities. Under subscription video-on-demand and other similar OTT agreements, we make certain programs available for distribution on one or more dates, and our revenue under these OTT agreements is recognized upon the availability of the programs licensed; therefore, revenue will fluctuate depending on the timing of when programming is made available throughout the license period.
Ancillary Revenues
Our Media Networks ancillary revenues are principally derived from (i) our consumer products activities, which include licensing our brands and intellectual property, as well as creation and publishing of interactive games across various platforms (including mobile, PC and console), (ii) recreational experiences and live events, (iii) viewing of our programming through electronic sell-through and download-to-rent services and the sale of DVDs and Blu-Ray discs and (iv) television syndication of our content. Our ancillary revenues vary based on consumer spending, the popularity of our programming, the volume of content available during a particular period and acceptance of our and our partners’ products.
Media Networks segment expenses consist of operating expenses, selling, general and administrative (“SG&A”) expenses and depreciation and amortization.
Operating expenses are comprised of costs related to original and acquired programming, including programming amortization, expenses associated with the distribution of home entertainment products and consumer products licensing, participations and residuals, royalties, integrated marketing expenses and other costs of sales. SG&A expenses consist primarily of employee compensation, marketing, research and professional service fees and facility and occupancy costs. Depreciation and

33

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


amortization expenses reflect depreciation of fixed assets, including transponders financed under capital leases, and amortization of finite-lived intangible assets.
Filmed Entertainment
Our Filmed Entertainment segment develops, produces, finances, acquires and distributes motion pictures, television programming and other entertainment content under the Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television divisions, in various markets and media worldwide, for itself and for third parties. It partners on various projects with key Viacom franchises, including Nickelodeon Movies and MTV Films.
Motion pictures produced, acquired and/or distributed by the Filmed Entertainment segment are generally first exhibited theatrically in domestic and/or international markets and then released in various markets through electronic sell-through, DVDs and Blu-ray discs, transactional video-on-demand, subscription video-on-demand, pay television, cable television and free television, free video-on-demand and by airlines and hotels. Paramount Television draws on Paramount’s extensive library of film properties and develops original programming for television and digital platforms.
Producing, marketing and distributing motion pictures and television programming can involve significant costs. The timing of a motion picture’s release can also cause our financial results to vary. For example, marketing costs are generally incurred before and throughout the theatrical release of a film and, to a lesser extent, other distribution windows, and are expensed as incurred. As a result, we typically incur losses with respect to a particular film prior to and during the film’s theatrical exhibition, and recoupment of investment as well as profitability for the film may not be realized until well after its theatrical release. Therefore, the results of the Filmed Entertainment segment can be volatile as films work their way through the various distribution windows.
Our Filmed Entertainment segment generates revenues in four categories: (i) the release and/or distribution of motion pictures theatrically, (ii) the release and/or distribution of film and television product through home entertainment, (iii) the licensing of film and television product to television and digital platforms and (iv) other ancillary activities.
 
Theatrical Revenues
Paramount generates revenues worldwide from the theatrical release and/or distribution of motion pictures, primarily from audience ticket sales. Each motion picture is a separate and distinct product with its revenues, and ultimate profitability, dependent upon many factors, among which audience response, domestically and internationally, is of fundamental importance. Theatrical revenues may also be affected by the number, timing and mix of releases and competitive offerings in any given period, consumer tastes and consumption habits, and overall economic conditions, including trends in discretionary spending. The theatrical success of a motion picture is a significant factor in determining the revenues it is likely to generate in home entertainment markets and licensing arrangements for television and other platforms. Revenues from motion picture theatrical releases tend to be cyclical with increases around the holidays that fall during the first quarter of our fiscal year, and in the summer months during our fourth quarter.
Home Entertainment Revenues
Home entertainment revenues are derived from the worldwide sales and distribution of DVDs and Blu-ray discs relating to the motion pictures released theatrically by Paramount and programming of other Viacom brands such as Nickelodeon, MTV, Comedy Central and BET, as well as certain acquired films and content distributed on behalf of third parties such as CBS Corporation (“CBS”). Home entertainment revenues are also derived from the viewing of our films on a “transactional” basis through transactional video-on-demand and electronic sell-through services around the world, for a fee and/or on a revenue sharing basis. Our home entertainment revenues may be affected by the number, timing and mix of releases and competitive offerings in any given period, consumer tastes and consumption habits, the prominence given by distributors and retailers to our releases compared to those of our competitors, and overall economic conditions, including trends in discretionary spending.
Licensing Revenues
Paramount generates fees by licensing, around the world on a territory by territory basis, films and television programs produced, acquired or distributed by Paramount, for a fee or on a revenue sharing basis, to subscription video-on-demand, pay and basic cable television, free television and free video-on-demand services. Revenue from the licensing of film and television exhibition rights is recognized upon availability for airing by the licensee and will fluctuate depending on the number and mix of available titles in any given territory.

34

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Ancillary Revenues
Paramount generates ancillary revenues by providing production and facilities services to third parties, primarily at Paramount’s studio lot. Paramount also generates ancillary revenues by licensing its brands for consumer products, themed restaurants, hotels and resorts, live stage plays, film clips and theme parks and other location-based entertainment projects.
Filmed Entertainment segment expenses consist of operating expenses, SG&A expenses and depreciation and amortization.
Operating expenses principally include the amortization of costs of our released feature films and television programming (including participations and residuals), print and advertising expenses and other distribution costs. SG&A expenses include employee compensation, facility and occupancy costs, professional service fees and other overhead costs. Depreciation and amortization expense principally consists of depreciation of fixed assets.
RESULTS OF OPERATIONS
Our summary consolidated results of operations are presented below for the years ended September 30, 2017, 2016 and 2015.
 
 
 
 
 
 
 
2017 vs. 2016
 
2016 vs. 2015
 
Year Ended September 30,
 
Better/(Worse)
 
Better/(Worse)
(in millions, except per share amounts)
2017
 
2016
 
2015
 
$
 
%
 
$
 
%
GAAP
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
13,263

 
$
12,488

 
$
13,268

 
$
775

 
6
 %
 
$
(780
)
 
(6
)%
Operating income
2,489

 
2,526

 
3,112

 
(37
)
 
(1
)
 
(586
)
 
(19
)
Net earnings from continuing operations attributable to Viacom
1,871

 
1,436

 
1,922

 
435

 
30

 
(486
)
 
(25
)
Diluted EPS from continuing operations
4.67

 
3.61

 
4.73

 
1.06

 
29

 
(1.12
)
 
(24
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP*
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted operating income
$
2,743

 
$
2,732

 
$
3,920

 
$
11

 

 
$
(1,188
)
 
(30
)%
Adjusted net earnings from continuing operations attributable to Viacom
1,511

 
1,465

 
2,210

 
46

 
3

 
(745
)
 
(34
)
Adjusted diluted EPS from continuing operations
3.77

 
3.68

 
5.44

 
0.09

 
2

 
(1.76
)
 
(32
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
* See “Factors Affecting Comparability” section below for a reconciliation of our reported results to our adjusted results, which are calculated on a non-GAAP basis.
Factors Affecting Comparability
The Consolidated Financial Statements reflect our results of operations, financial position and cash flows reported in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results have been affected by certain items identified as affecting comparability. Accordingly, when applicable, we use non-GAAP measures such as consolidated adjusted operating income, adjusted earnings from continuing operations before provision for income taxes, adjusted provision for income taxes, adjusted net earnings from continuing operations attributable to Viacom and adjusted diluted earnings per share (“EPS”) from continuing operations, among other measures, to evaluate our actual operating performance and for planning and forecasting of future periods. We believe that the adjusted results provide relevant and useful information for investors because they clarify our actual operating performance, make it easier to compare our results with those of other companies and allow investors to review performance in the same way as our management. Since these are not measures of performance calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, operating income, earnings from continuing operations before provision for income taxes, provision for income taxes, net earnings from continuing operations attributable to Viacom and diluted EPS from continuing operations as indicators of operating performance and they may not be comparable to similarly titled measures employed by other companies.

The following tables reconcile our reported results (GAAP) to our adjusted results (non-GAAP) for the years ended September 30, 2017, 2016 and 2015. The tax impacts included in the tables below have been calculated using the rates applicable to the adjustments presented.

35

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


2017
 
Year Ended 
 September 30, 2017
(in millions, except per share amounts)
Operating
Income
 
Earnings from Continuing Operations Before Provision for Income Taxes
 
Provision for Income Taxes
 
Net Earnings
from Continuing
Operations
Attributable to
Viacom
 
Diluted EPS
from Continuing
Operations
Reported results (GAAP)
$
2,489

 
$
2,212

 
$
293

 
$
1,871

 
$
4.67

Factors Affecting Comparability:
 
 
 
 
 
 
 
 
 
Restructuring and programming charges
381

 
381

 
135

 
246

 
0.61

Gain on asset sales
(127
)
 
(412
)
 
(116
)
 
(285
)
 
(0.71
)
Loss on extinguishment of debt

 
20

 
7

 
13

 
0.03

Investment impairment

 
10

 
4

 
6

 
0.01

Discrete tax benefit

 

 
340

 
(340
)
 
(0.84
)
Adjusted results (Non-GAAP)
$
2,743

 
$
2,211

 
$
663

 
$
1,511

 
$
3.77

 
 
 
 
 
 
 
 
 
 
Restructuring and programming charges: We recognized a pre-tax charge of $381 million, reflecting $237 million of restructuring charges and $144 million of programming charges resulting from the execution of our flagship brand strategy and strategic initiatives at Paramount. See Note 14 of the Consolidated Financial Statements for additional information. As we continue to evaluate our strategic initiatives, we may incur additional restructuring and other charges in fiscal 2018.
Gain on asset sales: In 2017, a consolidated entity completed the sale of broadcast spectrum in connection with the FCC’s broadcast spectrum auction. The sale resulted in a pre-tax gain of $127 million recorded within Operating income, with $11 million attributable to the noncontrolling interest. We also completed the sale of our 49.76% interest in EPIX in 2017, resulting in a pre-tax gain of $285 million recorded within non-operating gains and losses in the Consolidated Statement of Earnings.
Loss on extinguishment of debt: We redeemed senior notes and debentures totaling $3.3 billion in 2017, resulting in the recognition of a net pre-tax extinguishment loss of $20 million within Other Items, net in the Consolidated Statement of Earnings.
Investment impairment: We recognized a $10 million impairment loss included within Other items, net in the Consolidated Statement of Earnings in connection with the write-down of a cost method investment in 2017.
Discrete tax benefit: The net discrete tax benefit was principally related to the recognition of foreign tax credits realized during the fourth fiscal quarter of 2017 on the distribution to Viacom’s U.S. group of certain securities, the reversal of a valuation allowance on capital loss carryforwards in connection with the sale of our investment in EPIX and the release of tax reserves with respect to certain effectively settled tax positions.
2016
 
Year Ended 
 September 30, 2016
 (in millions, except per share amounts)
Operating
Income
 
Earnings from Continuing Operations Before Provision for Income Taxes
 
Provision for Income Taxes
 
Net Earnings
from Continuing
Operations
Attributable to
Viacom
 
Diluted EPS
from Continuing
Operations
Reported results (GAAP)
$
2,526

 
$
1,990

 
$
519

 
$
1,436

 
$
3.61

Factors Affecting Comparability:
 
 
 
 
 
 
 
 
 
Restructuring
206

 
206

 
75

 
131

 
0.33

Discrete tax benefit

 

 
102

 
(102
)
 
(0.26
)
Adjusted results (Non-GAAP)
$
2,732

 
$
2,196

 
$
696

 
$
1,465

 
$
3.68

 
 
 
 
 
 
 
 
 
 
Restructuring charge: We recognized a pre-tax restructuring charge of $206 million in connection with the separation of certain senior executives. The restructuring charge includes the cost of separation payments of $138 million and the acceleration of equity-based compensation expense of $68 million. See Note 14 of the Consolidated Financial Statements for additional information.

36

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Discrete tax benefit: The net discrete tax benefit was principally related to a tax accounting method change granted by the Internal Revenue Service, the release of tax reserves with respect to certain effectively settled tax positions and the recognition of capital loss carryforwards, partially offset by a reduction in qualified production activity tax benefits as a result of retroactively reenacted legislation.
2015
 
Year Ended 
 September 30, 2015
 (in millions, except per share amounts)
Operating
Income
 
Earnings from Continuing Operations Before Provision for Income Taxes
 
Provision for Income Taxes
 
Net Earnings
from Continuing
Operations
Attributable to
Viacom
 
Diluted EPS
from Continuing
Operations
Reported results (GAAP)
$
3,112

 
$
2,503

 
$
501

 
$
1,922

 
$
4.73

Factors Affecting Comparability:
 
 
 
 
 
 
 
 
 
Restructuring and programming charges
784

 
784

 
264

 
520

 
1.28

Loss on pension settlement
24

 
24

 
9

 
15

 
0.04

Loss on extinguishment of debt

 
18

 
7

 
11

 
0.03

Discrete tax benefit

 

 
258

 
(258
)
 
(0.64
)
Adjusted results (Non-GAAP)
$
3,920

 
$
3,329

 
$
1,039

 
$
2,210

 
$
5.44

 
 
 
 
 
 
 
 
 
 
Restructuring and programming charges: We recognized a pre-tax charge of $784 million, reflecting $578 million of programming charges and a $206 million restructuring charge associated with workforce reductions. See Note 14 of the Consolidated Financial Statements for additional information.
Loss on pension settlement: The pre-tax non-cash charge of $24 million was driven by the settlement of pension benefits of certain participants of our funded pension plan.
Loss on extinguishment of debt: In September 2015, we redeemed $550 million of the total $918 million outstanding of our 6.250% Senior Notes due April 2016, at a redemption price equal to the sum of the principal amount and a make-whole amount, together totaling $568 million, and accrued interest of $14 million. As a result of the redemption, we recognized a pre-tax extinguishment loss of $18 million within Other Items, net in the Consolidated Statement of Earnings.
Discrete tax benefit: During 2015, we reorganized certain non-U.S. subsidiaries in order to facilitate a more efficient movement of non-U.S. cash and to support the expansion of key areas for growth internationally. The net discrete tax benefit was principally related to excess foreign tax credits attributable to a taxable repatriation of non-U.S. earnings from reorganized entities and the release of tax reserves with respect to certain effectively settled tax positions.
YEAR ENDED SEPTEMBER 30, 2017 vs. 2016
Consolidated Results of Operations
Revenues
Worldwide revenues increased $775 million, or 6%, to $13.263 billion in the year ended September 30, 2017. Filmed Entertainment revenues increased $627 million, or 24%, and Media Networks revenues increased $154 million, or 2%, with both segments reflecting increases across all revenue streams.
Expenses
Total expenses increased $939 million, or 9%, to $10.901 billion in the year ended September 30, 2017, principally reflecting higher segment expenses, as well as current year restructuring and programming charges of $381 million, compared with $206 million of restructuring charges in the prior year. Filmed Entertainment expenses increased $462 million, or 15%, primarily reflecting higher operating expenses. Media Networks expenses increased $341 million, or 5%, principally driven by higher operating and SG&A expenses.
Operating
Operating expenses increased $752 million, or 11%, to $7.436 billion in the year ended September 30, 2017. Consolidated operating expenses include a programming charge of $144 million in the current year, as described in more detail in “Factors Affecting Comparability”. Filmed Entertainment operating expenses increased $445 million, or 16%, and Media Networks operating expenses increased $169 million, or 4%.

37

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Selling, General and Administrative
SG&A expenses increased $154 million, or 5%, to $3.005 billion in the year ended September 30, 2017, reflecting higher segment expenses of $186 million, partially offset by a decrease in equity-based compensation of $41 million, primarily driven by management changes. Media Networks SG&A expenses increased $163 million, or 7%, and Filmed Entertainment SG&A expenses increased $23 million, or 7%.

Restructuring
As discussed in “Factors Affecting Comparability”, restructuring charges of $237 million and $206 million were recognized in the years ended September 30, 2017 and 2016, respectively.

Gain on Asset Sale
As discussed in “Factors Affecting Comparability”, the year ended September 30, 2017 includes a $127 million gain on the sale of broadcast spectrum.
Operating Income
Operating income decreased $37 million, or 1%, to $2.489 billion in the year ended September 30, 2017, reflecting the operating results discussed above. Excluding the items discussed in “Factors Affecting Comparability”, adjusted operating income increased $11 million to $2.743 billion in the year ended September 30, 2017. Filmed Entertainment adjusted operating results improved $165 million, or 37%, principally reflecting the lapping of a prior year film impairment charge and higher profits from Paramount Television productions. Media Networks adjusted operating income decreased $187 million, or 5%, to $3.297 billion, as higher revenues were more than offset by increased expenses.
Income Taxes
Our effective income tax rate was 13.2% in the year ended September 30, 2017. The net discrete tax benefit of $340 million, taken together with the discrete tax impact of the other factors affecting comparability, reduced the effective income tax rate by 16.8 percentage points. Excluding the impact of discrete tax items, our adjusted effective income tax rate was 30.0% in 2017, a decline of 1.7 percentage points from the prior year, primarily driven by the change in the mix of domestic and international income.

Our effective income tax rate was 26.1% in the year ended September 30, 2016. The net discrete tax benefit of $102 million, taken together with the discrete tax impact of the restructuring charge, reduced the effective income tax rate by 5.6 percentage points. Excluding the impact of discrete tax items, our adjusted effective income tax rate was 31.7% in 2016.
Net Earnings from Continuing Operations Attributable to Viacom
Net earnings from continuing operations attributable to Viacom increased $435 million, or 30%, to $1.871 billion in the year ended September 30, 2017, principally due to gains on asset sales. Excluding the items discussed in “Factors Affecting Comparability”, adjusted net earnings from continuing operations attributable to Viacom increased $46 million, or 3%, to $1.511 billion in the year ended September 30, 2017, driven by the decrease in adjusted effective tax rate and increase in adjusted operating income.
Diluted Earnings Per Share from Continuing Operations
Diluted EPS from continuing operations increased $1.06 per diluted share to $4.67 in the year ended September 30, 2017, reflecting the impact of net earnings. Excluding the items discussed in “Factors Affecting Comparability”, adjusted diluted EPS from continuing operations increased $0.09 per diluted share to $3.77. Foreign exchange had an unfavorable $0.05 impact on diluted and adjusted diluted EPS from continuing operations.
Segment Results of Operations
Transactions between reportable segments are accounted for as third-party arrangements for the purposes of presenting segment results of operations. Typical intersegment transactions include the purchase of advertising by the Filmed Entertainment segment on Media Networks’ properties and the purchase of Filmed Entertainment’s feature film and television content by Media Networks.

38

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Media Networks
 
Year Ended September 30,
 
Better/(Worse)
(in millions)
2017
 
2016
 
$
 
%
Revenues by Component
 
 
 
 
 
 
 
Advertising
$
4,862

 
$
4,809

 
$
53

 
1
 %
Affiliate
4,638

 
4,556

 
82

 
2

Ancillary
596

 
577

 
19

 
3

Total revenues by component
$
10,096

 
$
9,942

 
$
154

 
2
 %
Expenses
 
 
 
 
 
 
 
Operating
$
4,232

 
$
4,063

 
$
(169
)
 
(4
)%
Selling, general and administrative
2,392

 
2,229

 
(163
)
 
(7
)
Depreciation and amortization
175

 
166

 
(9
)
 
(5
)
Total expenses
$
6,799

 
$
6,458

 
$
(341
)
 
(5
)%
Adjusted Operating Income
$
3,297

 
$
3,484

 
$
(187
)
 
(5
)%
 
 
 
 
 
 
 
 
Revenues
Worldwide revenues increased $154 million, or 2%, to $10.096 billion in the year ended September 30, 2017. Worldwide revenues include a 3-percentage point favorable impact from the acquisition of Televisión Federal S.A. (“Telefe”). Domestic revenues decreased $70 million, or 1%, to $7.969 billion. International revenues increased $224 million, or 12%, to $2.127 billion. Excluding a 5-percentage point unfavorable impact from foreign exchange, international revenues increased 17%, primarily driven by an 11-percentage point favorable impact from the Telefe acquisition.
Advertising
Worldwide advertising revenues increased $53 million, or 1%, to $4.862 billion in the year ended September 30, 2017. Foreign exchange had a 2-percentage point unfavorable impact on worldwide advertising revenues. Worldwide advertising revenues include a 4-percentage point favorable impact from the acquisition of Telefe. Domestic advertising revenues decreased $85 million, or 2%, to $3.753 billion, reflecting higher pricing, more than offset by lower impressions. International advertising revenues increased $138 million, or 14%, to $1.109 billion. Excluding an 8-percentage point unfavorable impact from foreign exchange, international advertising revenues increased 22%, primarily driven by an 18-percentage point favorable impact from the Telefe acquisition, as well as growth in Europe.
Affiliate
Worldwide affiliate revenues increased $82 million, or 2%, to $4.638 billion in the year ended September 30, 2017. Domestic affiliate revenues increased $39 million, or 1%, to $3.920 billion, principally reflecting rate increases and higher revenues from subscription video-on-demand and other OTT agreements, partially offset by a decline in subscribers. We expect domestic affiliate revenues to decline at a high single-digit rate in the first and second quarters of fiscal 2018 due to the impact of subscriber declines, renewal rate resets with certain distributors and lower subscription video-on-demand revenues, with improvement in the second half of the year resulting in a mid-single-digit rate decline for fiscal 2018. International affiliate revenues increased $43 million, or 6%, to $718 million. Excluding a 3-percentage point unfavorable impact from foreign exchange, international affiliate revenues increased 9%, driven by the impact of rate increases, subscriber growth, new channel launches and subscription video-on-demand and other OTT agreements, as well as a 2-percentage point favorable impact from the Telefe acquisition.
Ancillary
Worldwide ancillary revenues increased $19 million, or 3%, to $596 million in the year ended September 30, 2017. Worldwide ancillary revenues include a 2-percentage point favorable impact from the acquisition of Telefe. Domestic ancillary revenues decreased $24 million, or 8%, to $296 million, principally driven by lower consumer product revenue. International ancillary revenues increased $43 million, or 17%, to $300 million, principally driven by higher consumer product revenue and the acquisition of Telefe, which had a 6-percentage point favorable impact on international ancillary revenues.
Expenses
Media Networks segment expenses increased $341 million, or 5%, to $6.799 billion in the year ended September 30, 2017. Worldwide expenses include an unfavorable 3-percentage point impact from the acquisition of Telefe.

39

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Operating
Operating expenses increased $169 million, or 4%, to $4.232 billion in the year ended September 30, 2017. Programming costs increased $127 million, or 3%, primarily due to the acquisition of Telefe. Distribution and other expenses increased $42 million, or 10%, driven by increased participation and royalty costs on certain distribution and advertising agreements.
Selling, General and Administrative
SG&A expenses increased $163 million, or 7%, to $2.392 billion in the year ended September 30, 2017, reflecting a 3-percentage point increase due to the acquisition of Telefe, and higher employee-related and advertising and promotion costs.
Adjusted Operating Income
Adjusted operating income decreased $187 million, or 5%, to $3.297 billion in the year ended September 30, 2017, reflecting the operating results discussed above.
Filmed Entertainment
 
Year Ended September 30,
 
Better/(Worse)
(in millions)
2017
 
2016
 
$
 
%
Revenues by Component
 
 
 
 
 
 
 
Theatrical
$
808

 
$
605

 
$
203

 
34
 %
Home entertainment
849

 
783

 
66

 
8

Licensing
1,315

 
1,100

 
215

 
20

Ancillary
317

 
174

 
143

 
82

Total revenues by component
$
3,289

 
$
2,662

 
$
627

 
24
 %
Expenses
 
 
 
 
 
 
 
Operating
$
3,183

 
$
2,738

 
$
(445
)
 
(16
)%
Selling, general and administrative
342

 
319

 
(23
)
 
(7
)
Depreciation and amortization
44

 
50

 
6

 
12

Total expenses
$
3,569

 
$
3,107

 
$
(462
)
 
(15
)%
Adjusted Operating Loss
$
(280
)
 
$
(445
)
 
$
165

 
37
 %
 
 
 
 
 
 
 
 
Revenues
Worldwide revenues increased $627 million, or 24%, to $3.289 billion in the year ended September 30, 2017. Domestic revenues increased $267 million, or 20%, to $1.628 billion. International revenues increased $360 million, or 28%, to $1.661 billion.
Theatrical
Worldwide theatrical revenues increased $203 million, or 34%, to $808 million in the year ended September 30, 2017, principally driven by the release of Transformers: The Last Knight. Other significant current year releases included xXx: Return of Xander Cage, Baywatch, Ghost in the Shell, Jack Reacher: Never Go Back and Arrival, compared with Star Trek Beyond, Daddys HomeTeenage Mutant Ninja Turtles: Out of the Shadows and The Big Short in the prior year. Domestic theatrical revenues decreased 9%, while international theatrical revenues increased 86%, due to the strong international performance of Transformers: The Last Knight.
Home Entertainment
Worldwide home entertainment revenues increased $66 million, or 8%, to $849 million in the year ended September 30, 2017, primarily reflecting higher carryover revenues, driven by Teenage Mutant Ninja Turtles: Out of the Shadows, as well as catalog distribution revenues. Significant current year releases included Star Trek Beyond, Jack Reacher: Never Go Back and Arrival, while prior year releases included Mission: Impossible - Rogue Nation, Terminator: Genisys and Daddy’s Home. Foreign exchange had a 4-percentage point unfavorable impact on international home entertainment revenues. Domestic and international home entertainment revenues increased 11% and 3%, respectively.
Licensing
Licensing revenues increased $215 million, or 20%, to $1.315 billion in the year ended September 30, 2017, primarily driven by Paramount Television productions, including Shooter, 13 Reasons Why and Berlin Station. Domestic and international licensing revenues increased 32% and 13%, respectively.

40

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Ancillary
Ancillary revenues increased $143 million, or 82%, to $317 million in the year ended September 30, 2017. Domestic ancillary revenues increased 89%, driven by the sale of a partial copyright interest in certain films released during the first half of the year in connection with an agreement then in place. International ancillary revenues increased 59%.
Expenses
Filmed Entertainment segment expenses increased $462 million, or 15%, to $3.569 billion in the year ended September 30, 2017.
Operating
Operating expenses increased $445 million, or 16%, to $3.183 billion in the year ended September 30, 2017. Distribution and other costs, principally print and advertising expenses, increased $426 million, or 37%, primarily driven by higher marketing costs for our current year film slate and a charge resulting from the termination of a slate financing agreement. Film costs increased $19 million, or 1%, primarily driven by the current year slate, including the release of Transformers: The Last Knight, partially offset by the lapping of a prior year impairment charge.
Selling, General and Administrative
SG&A expenses increased $23 million, or 7%, to $342 million in the year ended September 30, 2017, primarily driven by higher employee-related costs.
Adjusted Operating Loss
Adjusted operating loss was $280 million in the year ended September 30, 2017, compared with $445 million in 2016, an improvement of $165 million, or 37%, reflecting the operating results discussed above. Operating losses reflect the recognition of print and advertising expenses incurred in the period, generally before and throughout the theatrical release of a film, while revenues for the respective film are recognized as earned through its theatrical exhibition and subsequent distribution windows.
YEAR ENDED SEPTEMBER 30, 2016 vs. 2015
Consolidated Results of Operations
Revenues
Worldwide revenues decreased $780 million, or 6%, to $12.488 billion in the year ended September 30, 2016. Media Networks revenues decreased $548 million, or 5%, principally reflecting lower affiliate and advertising revenues. Filmed Entertainment revenues decreased $221 million, or 8%, principally driven by lower theatrical revenues.
Expenses
Total expenses decreased $194 million, or 2%, to $9.962 billion in the year ended September 30, 2016. The decrease in expenses results from a comparison with the $784 million of restructuring and programming charges and $24 million loss on pension settlement in the prior year, partially offset by higher segment expenses and a restructuring charge of $206 million in the current year. Filmed Entertainment expenses increased $335 million, or 12%, driven by higher operating expenses. Media Networks expenses increased $111 million, or 2%, principally driven by SG&A expenses.
Operating
Operating expenses decreased $184 million, or 3%, to $6.684 billion in the year ended September 30, 2016. The decrease in operating expenses results from a comparison with the $578 million programming charge in the prior year, partially offset by higher Filmed Entertainment operating expenses.
Selling, General and Administrative
SG&A expenses decreased $9 million to $2.851 billion in the year ended September 30, 2016. The decrease in SG&A expenses reflects a decline in Filmed Entertainment SG&A expenses of $50 million, or 14%, and a comparison with the $24 million loss on pension settlement in the prior year, partially offset by an increase of Media Networks SG&A expenses of $91 million, or 4%.
Operating Income
Operating income decreased $586 million, or 19%, to $2.526 billion in the year ended September 30, 2016, reflecting the operating results discussed above. Excluding the items discussed in “Factors Affecting Comparability”, adjusted operating income decreased $1.188 billion, or 30%, to $2.732 billion in the year ended September 30, 2016. Media Networks adjusted operating income decreased $659 million, or 16%, to $3.484 billion, primarily reflecting revenue declines and increased expenses. Filmed Entertainment adjusted operating results decreased $556 million, reflecting the underperformance of current

41

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


year films and an impairment charge related to the expected performance of an unreleased film. In addition, corporate expenses decreased $22 million, or 9%, principally due to lower employee-related costs partially offset by expenses resulting from corporate governance matters.
Income Taxes
Our effective income tax rate was 26.1% in the year ended September 30, 2016. The net discrete tax benefit of $102 million, taken together with the discrete tax impact of restructuring, reduced the effective income tax rate by 5.6 percentage points. Excluding the impact of discrete tax items, our adjusted effective income tax rate was 31.7% in 2016.

Our effective income tax rate was 20.0% in the year ended September 30, 2015. The net discrete tax benefit of $258 million, taken together with the discrete tax impact of the other factors affecting comparability, reduced the effective income tax rate by 11.2 percentage points. Excluding the impact of discrete tax items, our adjusted effective income tax rate was 31.2% in 2015.
Net Earnings from Continuing Operations Attributable to Viacom
Net earnings from continuing operations attributable to Viacom decreased $486 million, or 25%, to $1.436 billion in the year ended September 30, 2016, principally due to the decline in tax-effected operating income described above, partially offset by lower interest expense, foreign exchange losses and net earnings attributable to noncontrolling interests. Excluding the items discussed in “Factors Affecting Comparability”, adjusted net earnings from continuing operations attributable to Viacom decreased $745 million, or 34%, to $1.465 billion in the year ended September 30, 2016.
Diluted Earnings Per Share from Continuing Operations
Diluted EPS from continuing operations decreased $1.12 per diluted share to $3.61 in the year ended September 30, 2016, reflecting the impact of net earnings. Excluding the items discussed in “Factors Affecting Comparability”, adjusted diluted EPS from continuing operations decreased $1.76 per diluted share to $3.68. Foreign exchange had an unfavorable $0.05 impact on diluted and adjusted diluted EPS from continuing operations.
Segment Results of Operations
Media Networks
 
Year Ended September 30,
 
Better/(Worse)
(in millions)
2016
 
2015
 
$
 
%
Revenues by Component
 
 
 
 
 
 
 
Advertising
$
4,809

 
$
5,007

 
$
(198
)
 
(4
)%
Affiliate
4,556

 
4,908

 
(352
)
 
(7
)
Ancillary
577

 
575

 
2

 

Total revenues by component
$
9,942

 
$
10,490

 
$
(548
)
 
(5
)%
Expenses
 
 
 
 
 
 
 
Operating
$
4,063

 
$
4,047

 
$
(16
)
 
 %
Selling, general and administrative
2,229

 
2,138

 
(91
)
 
(4
)
Depreciation and amortization
166

 
162

 
(4
)
 
(2
)
Total expenses
$
6,458

 
$
6,347

 
$
(111
)
 
(2
)%
Adjusted Operating Income
$
3,484

 
$
4,143

 
$
(659
)
 
(16
)%
 
 
 
 
 
 
 
 
Revenues
Worldwide revenues decreased $548 million, or 5%, to $9.942 billion in the year ended September 30, 2016, driven primarily by lower affiliate and advertising revenues. Domestic revenues were $8.039 billion, a decrease of $596 million, or 7%. International revenues were $1.903 billion, an increase of $48 million, or 3%. Foreign exchange had a 7-percentage point unfavorable impact on international revenues.
Advertising
Worldwide advertising revenues decreased $198 million, or 4%, to $4.809 billion in the year ended September 30, 2016. Domestic advertising revenues decreased 5%. While pricing increased, softer ratings and reduced unit loads at certain of our networks contributed to lower audience delivery, reducing impressions and associated revenue. International advertising revenues were substantially flat. Excluding foreign exchange, which had a 9-percentage point unfavorable impact, international advertising revenues increased 9%, driven by growth in Europe.

42

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Affiliate
Worldwide affiliate revenues decreased $352 million, or 7%, to $4.556 billion in the year ended September 30, 2016. Domestic affiliate revenues decreased 9%, principally reflecting a difficult comparison to the prior year which included higher revenues from subscription video-on-demand and other OTT arrangements. Excluding the impact from the timing of product available under subscription video-on-demand and other OTT arrangements, domestic affiliate revenues declined in the low-single digits, due to a modest decline in subscribers and the impact of rate equalization due to the consolidation of certain distributor agreements, partially offset by rate increases across the remaining subscriber base. International revenues increased 3%. Excluding the impact of foreign exchange, which had a 7-percentage point unfavorable impact, international affiliate revenues increased 10%, driven by new channel launches, increased subscribers, rate increases and the completion of certain subscription video-on-demand and other OTT arrangements.
Ancillary
Worldwide ancillary revenues increased $2 million to $577 million in the year ended September 30, 2016. Domestic ancillary revenues decreased 6%, principally reflecting lower television syndication revenue. International ancillary revenues increased 9%. Excluding the impact of foreign exchange, which had a 5-percentage point unfavorable impact, international ancillary revenues increased 14%, driven by increased licensing revenue.
Expenses
Media Networks segment expenses increased $111 million, or 2%, to $6.458 billion in the year ended September 30, 2016.
Operating
Operating expenses increased $16 million to $4.063 billion in the year ended September 30, 2016. Programming costs increased $72 million, or 2%. Programming costs increased primarily reflecting 4-percentage points from our continuing investment in original content, partially offset by the net benefit attributable to abandoned or impaired programming. Distribution and other expenses decreased $56 million, or 11%, primarily driven by lower participation and residuals costs on subscription video-on-demand arrangements.
Selling, General and Administrative
SG&A expenses increased $91 million, or 4%, to $2.229 billion in the year ended September 30, 2016, principally driven by higher costs for advertising and promotion, severance and data research, partially offset by 3-percentage points of benefit from our 2015 restructuring.
Adjusted Operating Income
Adjusted operating income decreased $659 million, or 16%, to $3.484 billion in the year ended September 30, 2016, reflecting the operating results discussed above.
Filmed Entertainment
 
Year Ended September 30,
 
Better/(Worse)
(in millions)
2016
 
2015
 
$
 
%
Revenues by Component
 
 
 
 
 
 
 
Theatrical
$
605

 
$
841

 
$
(236
)
 
(28
)%
Home entertainment
783

 
871

 
(88
)
 
(10
)
Licensing
1,100

 
980

 
120

 
12

Ancillary
174

 
191

 
(17
)
 
(9
)
Total revenues by component
$
2,662

 
$
2,883

 
$
(221
)
 
(8
)%
Expenses
 
 
 
 
 
 
 
Operating
$
2,738

 
$
2,350

 
$
(388
)
 
(17
)%
Selling, general and administrative
319

 
369

 
50

 
14

Depreciation and amortization
50

 
53

 
3

 
6

Total expenses
$
3,107

 
$
2,772

 
$
(335
)
 
(12
)%
Adjusted Operating Income/(Loss)
$
(445
)
 
$
111

 
$
(556
)
 
NM

 
 
 
 
 
 
 
 
NM - Not Meaningful
 
 
 
 
 
 
 

43

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Revenues
Worldwide revenues decreased $221 million, or 8%, to $2.662 billion in the year ended September 30, 2016, principally driven by lower theatrical revenues. Domestic revenues were $1.361 billion, a decrease of $13 million, or 1%. International revenues were $1.301 billion, a decrease of $208 million, or 14%, with foreign exchange having a 3-percentage point unfavorable impact on international revenues.
Theatrical
Worldwide theatrical revenues decreased $236 million, or 28%, to $605 million in the year ended September 30, 2016. Revenues from our 2016 releases decreased $189 million principally due to the comparison with the performance of Mission: Impossible - Rogue Nation in the prior year. Significant 2016 releases included  Star Trek Beyond, Daddys HomeTeenage Mutant Ninja Turtles: Out of the ShadowsThe Big Short and 10 Cloverfield Lane, compared with Mission: Impossible - Rogue Nation, Terminator: Genisys, The SpongeBob Movie: Sponge Out of Water and Interstellar in the prior year. Carryover revenues decreased $47 million principally reflecting revenues in the prior year from Teenage Mutant Ninja Turtles. Domestic and international theatrical revenues decreased 13% and 41%, respectively. Foreign exchange had a 3-percentage point unfavorable impact on international theatrical revenues.
Home Entertainment
Worldwide home entertainment revenues decreased $88 million, or 10%, to $783 million in the year ended September 30, 2016, principally reflecting lower revenues associated with third-party distribution and catalog titles. Domestic home entertainment revenues remained substantially flat and international home entertainment revenues decreased 24%. Foreign exchange had a 4-percentage point unfavorable impact on international home entertainment revenues.
Licensing
Licensing revenues increased $120 million, or 12%, to $1.100 billion in the year ended September 30, 2016, primarily driven by subscription video-on-demand licensing fees. Domestic and international licensing revenues increased 11% and 13%, respectively.
Ancillary
Ancillary revenues decreased $17 million, or 9%, to $174 million in the year ended September 30, 2016. Domestic ancillary revenues remained flat, while international ancillary revenues decreased 30%, principally due to lower merchandising revenues from Transformers: Age of Extinction.
Expenses
Filmed Entertainment segment expenses increased $335 million, or 12%, to $3.107 billion in the year ended September 30, 2016.
Operating
Operating expenses increased $388 million, or 17%, to $2.738 billion in the year ended September 30, 2016. Distribution and other costs, principally print and advertising expenses, increased $225 million, or 24%, primarily driven by higher marketing costs for our 2016 film slate. Film costs increased $163 million, or 11%, including a $115 million impairment charge related to the expected performance of an unreleased film and higher television production costs.
Selling, General and Administrative
SG&A expenses decreased $50 million, or 14%, to $319 million in the year ended September 30, 2016, principally driven by lower employee costs, including 8-percentage points of benefit from our 2015 restructuring, and other discretionary cost decreases.
Adjusted Operating Income/(Loss)
Adjusted operating loss was $445 million in the year ended September 30, 2016, compared with adjusted operating income of $111 million in 2015. The decline in results reflects the underperformance of 2016 films, such as Teenage Mutant Ninja Turtles: Out of the Shadows and Zoolander 2, as well as the impairment charge discussed above. 

44

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Sources and Uses of Cash
Our primary source of liquidity is cash provided through the operations of our businesses. We have access to external financing sources such as our $2.5 billion five-year revolving credit facility and the capital markets. Our principal uses of cash from operations include the creation of new programming and film content, acquisitions of third-party content, and interest and income tax payments. We also use cash for the repayment of debt, quarterly cash dividends, capital expenditures and acquisitions of businesses, as well as discretionary share repurchases under our stock repurchase program, as deemed appropriate.
The Media Networks segment consistently generates a significant percentage of our cash flow from operating activities. Advertising is generally purchased by large media buying agencies and our affiliate revenues are earned from cable and direct-to-home satellite television operators and other distributors. The Filmed Entertainment segment’s operational results and ability to generate cash flow from operations substantially depend on the number and timing of films and television series in development and production, the level and timing of print and advertising costs, and the public’s response to our theatrical film and home entertainment releases. In general, our segments require relatively low levels of capital expenditures in relation to our annual cash flow from operations. This contributes to our ability to generate cash flow for future investment in our content and business operations, which we expect to be able to maintain over time.
We use commercial paper borrowings, backstopped by our credit facility, and the credit facility to fund short-term domestic liquidity needs principally driven by the timing of our domestic operating cash flows. Our cash and cash equivalents totaled $1.389 billion as of September 30, 2017, of which $1.135 billion was held by our foreign subsidiaries and is substantially all deemed indefinitely reinvested in our foreign operations. While we currently do not intend or foresee a need for repatriating funds held in our foreign subsidiaries, should we require additional capital in the U.S., we could elect to repatriate these funds or access external financing. Repatriating funds could result in a higher effective tax rate and cash taxes paid.
We believe that our cash flows from operating activities together with our credit facility provide us with adequate resources to fund our anticipated ongoing cash requirements. We anticipate that future debt maturities will be funded with cash and cash equivalents, cash flows from operating activities and future access to capital markets, including our credit facility.
We may continue to access external financing from time to time depending on our cash requirements, assessments of current and anticipated market conditions and after-tax cost of capital. Our access to capital markets can be impacted by factors outside our control, including economic conditions; however, we believe that our strong cash flows and balance sheet, our credit facility and our credit rating will provide us with adequate access to funding given our expected cash needs. Any new borrowing cost would be affected by market conditions and short and long-term debt ratings assigned by independent rating agencies, and there can be no assurance that we will be able to access capital markets on terms and conditions that will be favorable to us.
Cash Flows
The following tables include information driving the change in cash and cash equivalents and a reconciliation of net cash provided by operating activities (GAAP) to free cash flow and operating free cash flow (non-GAAP) for each of the years ended September 30, 2017, 2016 and 2015. We define free cash flow as net cash provided by operating activities minus capital expenditures, plus excess tax benefits from equity-based compensation awards (actual tax deductions in excess of amounts previously recognized, which is included within financing activities in the statement of cash flows), as applicable. We define operating free cash flow as free cash flow, excluding the impact of the cash premium on the extinguishment of debt, as applicable. Free cash flow and operating free cash flow are non-GAAP measures. Management believes the use of these measures provides investors with an important perspective on, in the case of free cash flow, our liquidity, including our ability to service debt and make investments in our businesses, and, in the case of operating free cash flow, our liquidity from ongoing activities.

45

Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


 
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
(in millions)
Year Ended 
 September 30,
 
Better/(Worse)
$
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
Net cash provided by operating activities
$
1,671

 
$
1,371

 
$
2,313

 
$
300

 
$
(942
)
Net cash provided by/(used in) investing activities
329

 
(299
)
 
(257
)
 
628

 
(42
)
Net cash used in financing activities
(1,010
)
 
(1,173
)
 
(2,477
)
 
163

 
1,304

Effect of exchange rate changes on cash and cash equivalents
20

 
(26
)
 
(73
)
 
46

 
47

Net change in cash and cash equivalents
$
1,010

 
$
(127
)
 
$
(494
)
 
$
1,137

 
$
367

Reconciliation of net cash provided by operating activities
to free cash flow and operating free cash flow
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities (GAAP)
$
1,671

 
$
1,371

 
$
2,313

 
$
300

 
$
(942
)
Capital expenditures
(195
)
 
(172
)