Declines Cost Viacom But CEO Sees Upside

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Ad revenue plunged 7% in the fiscal third quarter for Viacom,
almost double analysts’ estimates for the period, as ratings
declines at its top networks continued to pound away
at results.

But ever-optimistic CEO Philippe Dauman vowed a return
to ratings prominence, with new shows and some creative
scheduling already having an impact.

Analysts had predicted ad sales would dip about 4% in the
quarter. But continued ratings declines at flagship outlets
MTV and Nickelodeon helped push domestic ad sales down
7%, which sent overall revenue down 14% in the period.

On an earnings call, Dauman also said two top ratings
draws that were in the 2011 fiscal third quarter — the BET
Awards and Nickelodeon Kids’ Choice Awards — aired at
different times this year, hurting comparisons.

“More than any other programmer, Viacom’s networks
are built for re-invention, powered by a $3 billion investment
in content this fiscal year,” the CEO said. “Our networks
each have clear established brand filters to which they’re introducing
more and more original content.”

Chief operating officer Thomas Dooley said sustainable
growth will take time to achieve. “We really have to build
[ratings] half-hour by half-hour to take marketshare back
from the competition, and we’re doing that,” he said.

Morgan Stanley analyst Ben Swinburne was not surprised
by the ad revenue declines, estimating that live totalday
ratings in key demos declined 28% at Nick and 9% at
MTV in the quarter. He said in a research note, “Investor
debate on the appropriate strategy to programming investments
will further heat up, as Viacom is faced with increasing
investment to turn ratings around or take a more
balanced approach to manage margins with currently
tough top-line advertising trends.”

Despite the ratings decline, Viacom secured solid midsingle
digit pricing increases in the upfronts, reaping $2.8
billion, Dauman said. In the current quarter, Viacom is
tracking toward a sequential ratings improvement.

Once ratings return, he said, ad sales should rebound
quickly: “When you have a significant ratings shortfall, as
we experienced at Nickelodeon, it obviously eliminates the
inventory available to sell. On the flip side, as that improves,
that will just open up inventory for us to monetize.”