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The Real (Ratings) World

Viacom prepares to Lead New TV-Metrics Movement 3/02/2015 8:00 AM Eastern

For a company at the core of the entertainment industry, the recent reviews of Viacom haven’t been kind.

 

New York tabloids had a field day recently speculating on the health — and succession plan — of its 91-yearold executive chairman, Sumner Redstone, an old-school media titan who built the pure-play global content behemoth on the back of a small, Boston-based movie theater chain.

 

A week later, two of the company’s top lieutenants — MTV Networks Music & Logo Group chief Van Toffler, a member of the original MTV team, and TV Land president Larry Jones — left the company. A week before that, Jon Stewart, host of The Daily Show With Jon Stewart and the brightest star on its Comedy Central network, had announced he would leave his program sometime later this year. Stewart’s departure follows the December exit of another top Comedy Central star, The Colbert Report’s Stephen Colbert, who will replace the retiring David Letterman on CBS’s Late Show in September.

 

In the meantime, investors, skittish over the ratings issues and the overall decline in the advertising market, have pushed Viacom shares down 20% in the past 12 months to $69.61 per share.

 

Despite the recent blows, Viacom is poised for a made-for-TV comeback. Its strategy is to tackle one of the biggest issues plaguing the media giant most recently, and one that that goes straight to the core of what has been the cable content industry’s Achilles heel: ratings.

 

NEW RATINGS METRIC?

 

According to people familiar with Viacom’s thinking, the programmer has teamed with a trio of ad agencies and measurement companies to capture and analyze set-top box, online and mobile data (ratings giant Nielsen is not among the participants) to determine just who is watching its shows.

 

The ad agencies involved represent about 2% of Viacom’s annual global ad sales, but the goal is to expand that business to include more ad volume in the future.

 

Viacom executives believe the days of simple, blunt ratings tools — Nielsen ratings, based mainly on age- and gender-based demographics — are rapidly fading, sources familiar with their thinking said. Instead, advertisers are increasingly seeking detailed information concerning buying habits and household income that can be tied to online, on-demand and linear-TV viewing.

 

For example, using simple IP-address data, an advertiser could determine a subscriber’s annual income, the type of car he or she drives and, if that vehicle is leased, when that lease is set to expire. When that customer then turns on his or her computer or television to watch a show, he or she will see a car ad, complete with leasing information, targeted just to them.

 

Adding to the frustration is even when viewing is tracked on multiple devices, advertisers have no way of independently verifying the accuracy of the data — they basically have to take the measurer’s word for it. That, sources said, will be a louder cry at network upfronts this year.

 

The new choices, the thinking goes, offer advertisers a much wider variety of options, with varying degrees of value — a far more sophisticated means of reaching consumers.

 

Ratings issues are not singular to Viacom. Across the board, viewership for networks targeting broad and niche audiences has plunged.

 

Last year, according to Nielsen research, 18 of the top 25 cable networks reported total viewership declines — only ESPN, Discovery Channel, HGTV, TLC, Spike, Hallmark Channel and ID: Investigation Discovery posted full-year gains.

 

Recently, NBCUniversal CEO Steve Burke, who has presided over one of the more remarkable television transformations — NBC’s leap from fourth place to first place last year in the 18-34 demo among broadcasters — said fragmenting viewership is a huge factor in ratings declines.

 

“Cable ratings are under pressure because there are so many new shows, so many people are watching SVOD, so many people have DVRs,” Burke said recently. “There are a whole variety of reasons why cable ratings are under pressure.”

 

For Viacom, the declines have been more pronounced at BET, which shed 18% of its adults 18-49 audience; MTV, which lost 15% of its 2013 millennial primetime audience (on a live-plus-same-day basis); and TV Land, which lost 15% of its total primetime audience and 12% of its 18-49 primetime audience, according to a Ratings Intelligence analysis of Nielsen data. Rounding out the year, Comedy Central lost 8% of its 2013 millennial primetime audience and 11% of its 18-49 primetime audience, and Nickelodeon lost 8% of its total audience, per Ratings Intelligence.

 

There were some brighter spots, though. Smaller channels such as Teennick and Nicktoons saw primetime viewership increases in 2014. MTV2 increased its average primetime audience by 9% in 2014. And Nick at Nite’s millennial audience improved by 2% last year.

 

VH1 improved its total primetime audience by 5%, while Spike improved its total primetime audience by 2%, remained stable among viewers 18-34 and lost 3% among viewers 18-49. CMT held steady in the 18-49 demo, as did Nick Jr. That said, CMT lost 9% of its millennial audience last year.

 

The inability to track multi-device and out-of-home viewing has had the most impact on networks that target younger audiences. While Nielsen has offered portable people meters to track mobile and online viewership, nontraditional viewers for the most part fall through the cracks.

 

NBCU’s Burke recently complained that 70% of the audience for The Tonight Show Starring Jimmy Fallon — a favorite of millenials — watches the show online, viewing for which NBC receives no credit. “So here you have one of the hottest shows on television, where 70% of the views are in an area that we don’t get credit for it,” Burke said. “That’s not going to last forever.”

 

Viacom first felt the sting of a sharp Nielsen decline in 2011, when its Nickelodeon kids channel lost its first monthly ratings crown to Disney Channel. While the kids’ giant quickly regained that crown — it finished the year on top of the kids’ heap — it highlighted the effect subscription VOD licensing deals could have on ratings.

 

Nickelodeon’s content-licensing deal with over-the-top provider Netflix, since expired, was partly to blame for the declines, according to Sanford Bernstein media analyst Todd Juenger. The industry at first dismissed that notion, but Juenger’s idea was later proven to be true.

 

“A lot of these content companies are victims of their own deals, having licensed content to Netflix, undermining their own business models in doing so,” Janney Montgomery Scott media analyst Tony Wible said. “That’s out there and can’t be reversed. So what you have to do is try to cope with the new normal, and that means you need to have original programming, you’ve got to be a bigger brand and you have to realign your cost structure to maintain that level of investment.”

 

GOING OVER-THE-TOP

 

While other programmers such as ESPN and Turner Broadcasting System have embraced over-the-top offerings, Viacom, save for a deal with Sony for its soon-to-be released PlayStation Vue, has been on the sidelines. The programmer has been absent from Dish Network’s Sling TV service, which could simply be a factor of its ongoing carriage negotiations with Dish.

 

While there was some fear that Dish would elect to drop Viacom from its satellite- TV lineup, chairman and CEO Charlie Ergen recently said his company has a longstanding relationship with Viacom and would like to continue that relationship another 20 years.

 

Viacom’s joint-venture premium network Epix recently completed a carriage agreement with Sling TV, which also could bode well for more-comprehensive network deals.

 

And Viacom has begun to show its OTT intentions, announcing at its most recent upfront the launch of Noggin, an over-the-top service for kids that revives the brand once used by its Nick Jr. channel. The mobile service, set to launch March 5, will retail for $5.99 per month; Viacom is talking to distributors about offering the service as a premium complement to authenticated customers at a later date.

 

For the $5.99 monthly fee, Noggin subscribers will get access to educational shows like Blue’s Clues, Little Bear and Ni Hao, Kai-lan, as well as music videos.

 

Viacom’s future growth strategy involves increasing its non- Nielsen dependent revenue from its current level of about 30% to 50% in three years. It plans to achieve that through greater merchandising revenue and opportunities in the mobile space.

 

While Viacom hasn’t said what its mobile offerings will be, the company is expected to announce its first deal soon.

 

According to those familiar with Viacom’s thinking, the programmer is confident it can crack the ratings code, coax other major content companies to adopt better metrics by example and ride a wave of advertising growth. Still, a turnaround could take 12 to 24 months.

 

TALENT LOSSES

 

Reversing ratings trends isn’t Viacom’s only challenge. Layoffs are expected in the wake of the Toffler and Jones exits, but the management moves are more in line with routine executive changes. The layoffs, which have not yet been quantified, are a part of the re-structuring, which executives hope will result in a more efficient operation.

 

Viacom is only the latest big media company to trim staff in recent months. Time Warner Inc.’s Turner unit said late last year that it would jettison nearly 1,500 employees worldwide as part of a company- wide reorganization dubbed Turner 2020. Fox Networks Group shaved about 75 workers from its ad sales unit in January, and Scripps Networks offered some employees voluntary buyouts in an effort to cut costs last year.

 

“All these networks, whether it be Viacom or whether it be the Turner networks, everybody has to go back to the drawing board,” Wible said.

 

Dauman began his own restructuring plan late last month, reducing Viacom’s operating divisions from four to three — Viacom Music and Entertainment Group, headed by longtime company executive Doug Herzog; Viacom Kids and Family Group, led by 30-year Viacom veteran Cyma Zarghami and including Nickelodeon, Nick Jr., TeenNick, Nick at Nite, NickMom/NickToons, TV Land, CMT and CMT Pure Country; and the BET division, headed by Debra Lee, which continues unchanged. Both Herzog and Zarghami are well-respected company veterans.

 

Announcing the changes in a memo to employees, Dauman acknowledged the tough times ahead for the media business.

 

“Our industry is in transition, and change does not always come easy, but we have a tremendous amount of talent at Viacom and we are innovating at every level and at every brand,” Dauman said in the memo. “We are working hard to adapt to changing audience behavior, to incorporate new forms of distribution and to better integrate technology into everything we do.”

 

In addition to management changes, there has been a loss of some high-profile on-screen talent. Stewart and Colbert were Comedy Central’s two biggest stars. While Colbert’s replacement — Daily Show alum Larry Wilmore — has had surprisingly strong ratings with his The Nightly Show With Larry Wilmore, finding a replacement for Stewart could be a challenge.

 

The company has been here before. It’s worth noting that two of TV’s hottest talk-show hosts, Colbert and John Oliver, host of HBO’s Last Week Tonight, are also Daily Show alums. Whether Viacom is able to replace that talent with equally resonant performers remains to be seen, but the departures have added an air of vulnerability to the network, of which some operators have taken advantage.

 

In April, small-market cable operator Cable One, citing exorbitant pricing demands, dropped Viacom’s channels in its markets across the country, costing the programmer about 500,000 video subscribers. On Oct. 1, 2014, Suddenlink Communications, a midsized operator with about 1.4 million customers mainly in the Midwest and Southwest, also dropped Viacom’s networks, citing high pricing demands.

 

Both companies have said they have not experienced material losses as a result of dropping the networks.

 

But a quick look at the numbers shows that Cable One has lost about 15% of its video customer base since last April, and Suddenlink, in its first full quarter since jettisoning the channels, lost 34,800 — about four times the losses in the same period in 2013.

 

Viacom’s vulnerability has also caused some Wall Street analysts to push for the company to seek a partner in the form of former corporate sibling CBS. CBS and Viacom split in 2006, but there has been talk that Viacom could benefit greatly from a pairing. Viacom’s networks would be harder to drop if they were paired with CBS’s retransmission consent.

 

CBS CEO Les Moonves has been vocal lately in talking down a deal, saying a combination with Viacom doesn’t make sense for CBS. Whether a transaction occurs will depend on the legacy Redstone chooses to leave.

 

As for the chairman, Redstone hasn’t been as vocal on recent earnings calls as he has been in the past, but people familiar with the executive said that is mainly due to his advanced age, adding that he can be as feisty as ever.

 

Succession planning isn’t even a real issue: Redstone — who for years has said he has no intention of ever dying — resolved those issues long ago. His stock will be handled by five trustees: Dauman; Viacom board member George Abrams; CBS director David Andelman; Redstone’s daughter, Shari, the president of National Amusements; and Redstone’s son, Brent.

 

If and when Redstone passes, Dauman would likely become Viacom’s chairman and Moonves would do the same at CBS. While there will be some hefty estate taxes — about $1 billion — they are payable over a decade, and the thought is that payments could be made easily via dividends and cash flow from both companies.

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