The soft scatter market has taken a bite out of Viacom’s wallet, as the entertainment conglomerate reported a 3 percent drop in advertising dollars in the last quarter of 2011.
In the final three months of the year, Viacom’s cable networks group took in $1.35 billion in ad sales revenue—the same amount it reported in the recession-wracked fourth quarter of 2009. Analysts had anticipated a 3 percent improvement.
In a Q&A with investors, Viacom CEO Philippe Dauman on Thursday said the cable unit was pulled down by the ongoing ratings debacle at Nickelodeon. “If we hadn’t had the Nick ratings issue, our advertising sales would [grown in] the quarter, would have been up rather than down,” Dauman said.
Per Nielsen, Nickelodeon’s deliveries of its core kids 2-11 demo fell 17 percent in the final quarter of 2011, a reversal that allowed rival Disney Channel to come within shooting distance of the longstanding No. 1 kids’ net. From Sept. 26 to Dec. 25, Nick averaged 1.06 million kids 2-11, while the Mouse grew 7 percent to 956,000.
The ratings shortfall couldn’t have come at a worse time for Nickelodeon, which like all kids-targeted networks, generates a disproportionately high percentage of its ad sales revenue during the holiday shopping season (aka, the Hard Eight/Ten). In the fourth quarter, Nick accounts for roughly one-quarter (24 percent) of Viacom’s overall ad sales haul.
As he did in the previous earnings call, Dauman suggested that some of Nick’s ratings woes can be chalked up to the Nielsen sample itself. “We believe there were some…systemic issues. The pretty extensive set-top-box data that we have does in no way reflect what we’re seeing in the Nielsen measurement,” Dauman said. “That being said, that’s the environment we’re operating in and we’re going to attack it as we always do, and which is to go after our audience.”
As part of that effort to grow its audience, Viacom in 2012 will invest some $3 billion in original programming.
Thus far in the new year, Nick has failed to recoup its lost GRPs. In January, the network averaged 1.07 million kids 2-11, down 22 percent from 1.38 million in the year-ago period. Meanwhile, non-ad-supported Disney Channel slipped 1 percent to 974,000.
None of which is to say that Nickelodeon is in mortal danger. The network, which commands 75 percent of the GRPs in its competitive spread, marked its 67th consecutive quarter as the most-watched cable outlet on the dial.
Setting the kids aside, Dauman noted that the general entertainment nets (MTV, Comedy Central, VH1, etc.) were impacted by an overall weakness in scatter. “We saw several advertisers that appeared to have held in the upfront some of the money that they would otherwise have spent in scatter,” he said. “So…[advertisers that] increased [their] upfront buys had a corresponding decrease in their scatter buys.”
Dauman said the scatter market has begun to show signs of improvement, adding that Q2 cancellations are “lower than normal, in the low-single digits.” Looking ahead, the CEO said he expects Viacom will see “positive ad sales growth” in the current quarter, although visibility is too limited to project beyond the next several weeks.
In a note to investors, Janney Capital Markets analyst Tony Wible observed that while management said they are seeing an uptick in scatter pricing, “continued ratings weakness and likely make-good advertising reduces leverage for this year’s upfront negotiations.”
Despite the difficulties facing Nickelodeon, many other Viacom nets enjoyed a strong fall. Comedy Central closed out the year ranked 11th in the dollar demo, averaging 622,000 adults 18-49 in prime, while MTV finished sixth among the 18-34 set, averaging 467,000 viewers. VH1 enjoyed a sharp rebound, growing 40 percent in the 18-49 demo (381,000), while BET was steady at 414,000.
As the call wound down, Dauman addressed the automotive market. (Viacom released its earnings the morning after Adweek reported that General Motors had exercised its Q2 cancellation options.)
“Auto has been a low percentage for us historically,” Dauman said. “Happily, it is growing at a healthy percentage for us. We have the benefit of the industry, in general, going to smaller car models, appealing to younger consumers. So…we see the auto category growing for us in this quarter and going forward.”
All told, Viacom’s Media Networks unit took in $2.45 billion on the quarter, marking a 3 percent improvement versus the prior-year period. Operating income increased 7 percent to $1.13 billion.