Growing Nickelodeon Subscriber Fees Important for Viacom’s Stock

Viacom’s (NYSE:VIA) Nickelodeon is one of the highest rated TV channels for children in the US in terms of total daytime viewers. It primarily competes with the Disney Channel, owned by Disney (NYSE:DIS) and Cartoon Network, owned by Time Warner (NYSE:TWX).  Nickelodeon is known for popular animation shows like Spongebob and Dora the Explorer.

We estimate that Nickelodeon is the most important channel for Viacom contributing about 13% to the $35 Trefis price estimate for Viacom, or about about $2.7 billion of Viacom’s overall value.

Nickelodeon makes money via both advertising and subscription.  The channel charges subscription fees to pay TV operators like Time Warner, Comcast, and DirecTV for providing its programming to their subscribers.

We estimate that Fee per Nickelodeon subscriber charged to pay TV operators has risen from about 40 cents in 2005 to 44 cents in 2009.  Nickelodeon’s fee for 2009 was less than Disney Channel’s figure of 86 cents per subscriber and more than Cartoon Network’s figure of 17 cents per subscriber.

We expect Nickelodeon’s fee per subscriber to continue to rise at rate of about 2 to 3 cents per year and reach about 61 cents per subscriber by the end of our forecast period primarily due to the following reasons:

1) Multi-year contracts with cable providers involve periodic fee increases negotiated in advance

2) Given the high demand for Nickelodeon, programming providers will need to ensure access to its programming for customers.  This increases the negotiating power of Viacom against the providers and will help the company in ensuring pricing growth

3) Disney Channel’s subscriber fee is almost twice that of Nickelodeon. This gives Nickelodeon ample room for pricing growth given that the channel maintains its quality content and continues to be an attractive TV channel for children

You can modify our forecast above to see how Viacom’s stock price can be impacted if Nickelodeon’s subscriber fee was to grow at a rate higher than anticipated.

For additional analysis and forecasts, here is our complete model for Viacom’s stock.