Analyst: Viacom May Miss Out on Ad Recovery


Despite modest improvements on the ad sales front, a longer road to recovery may lie ahead for Viacom, as low ratings and a major gamble on the health of the scatter market have put the MTV Networks at considerable risk.

In a note to investors, Pali Research media analyst Richard Greenfield said the second quarter ad revenue gains notched by Viacom’s cable networks may not be enough to turn the tide in the latter half of this year. “While ... ad revenues fell only 6 percent in Q2 2009 compared to 9 percent in Q1, we are less confident in their ability to continue that improvement into the back half of 2009,” Greenfield said, adding that Pali now projects Viacom’s 2010 ad revenue to decline 3 percent year-over-year, versus the firm’s previous forecast of a 2 percent gain.

Greenfield said that the cable unit was particularly exposed to the vicissitudes of the advertising market, as the networks wrote greater-than-average CPM rollbacks and took a hit on volume. “Viacom’s ... upfront saw a significantly reduced amount of inventory sold at mid-high single-digit CPM declines, due to ratings troubles over the past year,” Greenfield said. “In turn, with scatter piled up throughout the broadcast and cable industry, the risk to our estimates has increased substantially.”

While Viacom’s CPM discounts weren’t appreciably more severe than the average cable network rollbacks (–5 percent), MTVN is believed to have taken a bigger hit on volume, as sources estimate the group closed its upfront business down 15 percent in total dollars versus last year’s bazaar. Viacom execs declined to comment on the report.

Speaking to analysts during Viacom’s July 28 Q2 earnings call, president and CEO Philippe Dauman declined to provide any detail on the amount of inventory MTVN sold in the 2009-10 upfront, saying only that he was “very pleased with the results from both a volume and pricing standpoint.” Dauman later said that early fears of a washout had been dispelled as the stock market began to rebound.

“I think the feeling on the part of advertisers that perhaps they could extract dramatic reductions in prices because the economy was going to hell in a hand basket, that feeling has dissipated as we see signs of recovery in the general economy,” Dauman said. “So it’s no longer perceived to be a safe bet to assume that they will be able to get favorable pricing in the scatter market in the next broadcast year.”

That said, given the amount of inventory the broadcast and cable nets held back for scatter, even a slight downtick in demand in the fall could result in a glut of unsold inventory. Sellers are betting the other way, predicting that July’s stock market rally will lead upfront holdouts back into the fold.

“We just came through the worst economic disruption since the Great Depression, and it looks like the worst of it is behind us,” said one ad sales boss. “You have to believe that demand will be up 3 to 5 percent in 2010.”

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