Viacom: Ad Sales Up (Not Counting Nick)

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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.


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.”


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.”