Dauman: Ad Sales Positive Minus Nick Ratings Decline

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The continued ratings drop-off at its flagship Nickelodeon kids' network was the main culprit for a 3% decline in domestic ad sales at Viacom in the fiscal first quarter, a problem that CEO Philippe Dauman told analysts the company is working hard to rectify.
Shares of the media giant were rocked in early trading Thursday, down 4.8% ($2.52 per share) to $50.43 each.
Nick ratings have been on the decline since mid-September, when the pioneering kids' network ratings' inexplicably dropped by double digits in a period key for toymakers and other marketers ramping up for the holiday season. Viacom blamed the decline at the time to a glitch at ratings measurement giant 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 is still claiming Nielsen is to blame - which the measurement giant denies - Dauman said on a conference call with analysts Thursday that ad sales would have been positive for the quarter without Nickelodeon.

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

Viacom CEO Phillipe Dauman

Dauman later agreed that domestic ad sales would have risen in the low single digits in the quarter without Nickelodeon. That appears to be in line with most analysts estimates of 1% to 2% growth.
And despite those ratings issues, Dauman said that Nickelodeon finished the period as the No. 1 cable network with both kids and total viewers for the 67th consecutive quarter.
The CEO said that 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."
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 ratings were down 22% and 19% in live key demos in January for the respective networks.
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 1Q12 film releases," Joyce wrote. "Due to the relatively cheap valuation and aggressive stock buyback activity, we reiterate our ‘Buy' rating on the dips."

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