Sick Nick a Drag on Viacom Ad Sales

Kids net ratings declines remain a concern

Nickelodeon’s ongoing ratings woes were the talk of Viacom’s fiscal second-quarter earnings call, as executives faced a litany of pointed questions about the network’s under-deliveries.

Speaking to analysts in a Q&A session Thursday, Viacom CEO Philippe Dauman acknowledged Nickelodeon’s difficulties, reiterating his earlier assertion that at least some of the declines can be chalked up to “ratings measurement issues.” (Nielsen emphatically denies any inconsistencies in its methodology.)

Nickelodeon in the first three months of 2012 saw a 24 percent decline in total-day deliveries, averaging 1.86 million viewers, down from 2.44 million in the year-ago period. The target demos took a proportionate hit, as kids 2-11 dropped 25 percent to 1.01 million, while kids 6-11 fell 27 percent to 529,000.

Nick’s reversal of fortune is nothing new; in fact, the kids net hasn’t posted a ratings increase since April 2011. If anything, things seem to be getting worse—in April, Nick plummeted 30 percent among total viewers and the demos.

While Dauman allowed that Nickelodeon faces a full-frontal assault from the likes of Disney Channel, he was quick to add that Viacom will fight kiddie churn with an infusion of programming dollars.

“There certainly has been some compelling programming that exists on some of our competitors which we can clearly address,” Dauman said. “Nickelodeon is really stepping up to the plate in a major way with the creative community, with its own programming teams. More importantly, our marketing partners are very pleased what they’re seeing.”

Indeed, despite all the agita over Nick’s vanishing audience, the network remains the proverbial 800-pound gorilla of the kids’ market, commanding 75 percent of the GRPs in its competitive spread. And it still boasts unparalleled reach—this marks its 68th consecutive quarter as the most-watched cable outlet on the dial.

“Nickelodeon is the place to be if you want to reach kids,” Dauman said. “There aren’t too many advertising outlets to go after kids. One of our major competitors [Disney Channel], is not ad-supported. … So discussions [with clients] have been good. We have—the majority of conversations have been promising.”

Earlier in the call, Dauman talked up Nick’s most recent programming initiatives, a slate that includes a new gloss on the Teenage Mutant Ninja Turtles franchise (fall 2012), the animated series The Legend of Korra and the live-action strip How to Rock. The Viacom chief characterized the 2012-13 lineup “Nickelodeon’s largest slate of original content, ever.”

That fresh content could go a long way toward shaking things up at Nick, which of late has leaned heavily on the fortunes of a 13-year-old cartoon. Nick last week aired Spongebob SquarePants a whopping 59 times, a load that represents 31 percent of the network’s entire seven-day programming schedule. And while the eight weekend morning installments of SpongeBob averaged 2.91 million viewers, on the whole the show is down nearly 30 percent in the demo versus Q2 2011.

While Nickelodeon accounts for as much as 17 percent of Viacom’s domestic revenue, MTV, Comedy Central, Spike TV and VH1 do a lot of heavy lifting as well. MTV remained at the top of the heap in the 12-24 demo, and VH1 turned things around with the 18-49 crowd, improving 36 percent in prime. Comedy Central fell 13 percent in the demo, while Spike inched up 2 percent.

Domestic ad sales were up 1 percent in Viacom’s Q2, reflecting what the company characterized as “modest increases in commercial units sold and pricing.” Worldwide ad revenues were flat at $1.07 billion.

Dauman said he remains encouraged by the strength of the ad market, but he did not furnish any hard data on scatter pricing, remarking simply that the market is “good.” (Sources say that cable scatter is generally in the mid-single digits above upfront rates, on a percentile basis.) Dauman added that the MTV Networks have been experiencing “some volume issues,” but did not elaborate on that remark.

On the affiliate front, Viacom cautioned that carriage fee revenue would fall in the current quarter from a year ago, as a result of timing issues, but said it would return to double-digit growth in the September quarter. Global affiliate revenue grew 17 percent in Q2 to $992 million, while domestic carriage fees were up 15 percent.

Dauman said affiliate fees would continue to grow as demand for the MTVN brands increases. “We can confidently plan on having affiliate revenue growth to continue over a number of years at the high single digits rate of growth,” he said.