Viacom: Ad Sales Up (Not Counting Nick)

Mysterious Ratings Falloff Continues at Top-Rated Kids’ Channel

By Mike Farrell -- Multichannel News, 2/6/2012 12:01:00 AM

Viacom CEO Philippe Dauman told analysts the programming giant is working hard to rectify its 3% decline in domestic ad sales in the fiscal first quarter, which was due in part to a ratings dropoff at its flagship Nickelodeon kids’ network.

Shares in the company were down as much as 5.5% ($2.89 per share) in early trading last Thursday (Feb. 2), but rebounded to finish the day down 1.1% (59 cents) to $52.36 per share.

Nick’s ratings have been on the decline since mid-September, when ratings for the pioneering kids’ network inexplicably dropped by double digits in a period key for toymakers and other marketers ramping up for the holiday season. At the time, Viacom blamed the decline on a glitch at ratings-measurement behemoth Nielsen, citing its own set-top-box data that refuted the decline. But the ratings falloff wasn’t a one-time occurrence — the channel experienced another steep drop in November.

While Viacom still claims Nielsen is to blame, an assertion the measurement firm denies, Dauman said on a conference call with analysts last Thursday (Feb. 2) that ad sales would have been positive for the quarter without Nick.

“If we hadn’t had the Nick ratings issue, our advertising sales would have been up rather than down for the quarter,” Dauman said. He added that other factors also affected results, such as lower scatter-market volume for the quarter, as advertisers apparently pulled some of that money into the upfront.

UP 1-2% SANS NICK

Dauman later agreed that, without Nickelodeon, domestic ad sales would have seen a low-single-digit increase for the quarter. That appears to be in line with most analyst estimates of 1% to 2% growth.

And despite those ratings issues, Dauman said, Nickelodeon finished the period as the No. 1 cable network with both kids and total viewers for the 67th consecutive quarter.

The CEO said the second quarter is showing some improvement on the ad-sales front, adding that subsequent quarters are not as reliant on Nickelodeon’s performance.

“We believe there were some ratings systemic issues,” Dauman said. “The pretty extensive set-top-box data that we have in no way reflects what we were seeing in the Nielsen measurement. That is the environment we’re operating in, and we’re going to attack it as we always do, which is to go after our audience, and we’ll go after the new Nielsen sample. I am confident as the year progresses you will see improvement in Nickelodeon’s ratings.”

Dauman added that competitors introduced more new shows during the ratings periods that were in question, which Viacom is addressing by airing more new episodes of existing shows on its channels and launching new programs.

“We’ll use every weapon in our arsenal,” Dauman said. “We know how to do this. We’ve had issues at various networks; we always turn them around.”

ANALYST DOUBTS

Not all analysts were entirely convinced that Viacom can turn around the ad situation quickly. In a research report Thursday, Morgan Stanley media analyst Ben Swinburne noted that consensus estimates for the fiscal second quarter are for 4% to 5% ad sales growth, which he finds hard to reach given continued ratings declines at Nick and MTV. He estimated the two networks’ ratings ratings were down 22% and 19%, respectively, in live key demos.

Miller Tabak media analyst David Joyce wrote in a research note that while the ad sales decline was disappointing — soundly missing his estimate of 8.2% growth — he was encouraged by early signs of a resurgence. He noted that the expected decline in the stock price could represent a buying opportunity for investors.

“There may be a little profit taking in Viacom shares on the ad miss, but the current quarter appears to be strengthening, and more financial benefits should accrue from late [first-quarter] film releases,” Joyce wrote. “Due to the relatively cheap valuation and aggressive stock buyback activity, we reiterate our ‘buy’ rating on the dips.”