The Cable Show 2012: Panel: Nick's Netflix Ratings Troubles Good For Ops

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Boston - Nickelodeon's recent ratings falloff, fueled in part by Netflix viewing of the kids' network, could be the catalyst that pushes programmers away from over-the-top providers, UBS cable analyst John Hodulik said at a panel discussion at The Cable Show said Monday.
Nickelodeon ratings have plunged more than 30% in the past several months, in part because of cannibalization by Netflix. That was first pointed out by Sanford Bernstein media analyst Todd Juenger, who in a report in April compared set-top data from TiVo that showed that Netflix viewing helped fuel the ratings decline.
In a panel discussion entitled Street Smarts: Investment Analysts on the State of Media and the Markets, Hodulik noted that other programmers, like Time Warner Inc., chairman and CEO Jeff Bewkes, have pointed to Netflix and other subscription VOD services for depressing ratings. On a recent conference call with analysts, Bewkes noted that Cartoon Network, which does not have a Netflix deal, saw its ratings rise about 16% in the first quarter.
"That's phenomenal that the media industry is seeing the pain before the cable industry," Hodulik said. "That's going to be top of mind for Jeff Bewkes and [Viacom CEO] Philippe [Dauman] and it came at just the right time. They've got to realize that there is a problem with the front-line economics."
Deutsche Bank media analysts Doug Mitchelson added that Dauman had said that Netflix viewing only represents about 2% of Nickelodeon's total viewership time, while ratings have dipped about 30% to date.
"Nickelodeon has issues well beyond cannibalization from online," Mitchelson said.
Netflix also has been making waves on the original content front, planning to launch political thriller House of Cards, in late 2012. Sanford Bernstein cable and satellite analyst Craig Moffett said that it is still too early to tell if the SVOD giant will become a force in the original content game.
"It's really hard for anyone in original content business to change the economics of that business," Moffett said. "It's hit driven and the rules of thumb are horrifically challenging."
Wells Fargo media analyst Marci Ryvicker said Netflix will likely become another network, rather than a distribution rival to cable and satellite. She pointed to Dish Network's purchase of video rental giant Blockbuster, which some feared would give the satellite giant an over-the-top play to battle against cable.
Ryvicker said that the high cost of programming, which she estimated would be between $6 billion and $8 billion, deterred Block Buster from an over-the-top play and would likely factor in a Netflix decision along the same lines.
The analysts were equally down on prospects for further industry consolidation, with Mitchelson arguing that most operators see better returns in repurchasing their own stock. With most of the larger operators accounted for, any further M&A activity would likely be with smaller, private operators.
"They already have scale," Mitchelson said. "To roll up all of these small guys is a lot of work for little gain."
Moffett agreed that any consolidation would involve smaller operators, adding that operators like Suddenlink Communications could probably benefit from rolling up smaller operators, but the deals would be too small to attract much notice.
"That's probably where the action is going to be," Moffett said.