As we expected, Viacom’s (NASDAQ:VIA) Q4 fiscal 2012 results were affected by weak Nickelodeon and MTV ratings as well as a decline in advertising revenues internationally due to adverse exchange rate movements and lower revenues from certain production and promotional events. In addition to this, Viacom’s box office revenues have declined dramatically this year as the company has been unable to even come close to its stellar performance in 2011.
While 2011 benefited from success of Transformers: Dark of the Moon, Thor, Captain America: The First Avenger and Kung Fu Panda 2, only Madagascar 3: Europe’s Most Wanted has done well for Viacom this year. Some of these successful movies include Marvel characters and it is no guarantee that Disney (NYSE:DIS) will let Paramount be the distributor for future sequels. We feel that it might be difficult for Viacom to repeat last year’s performance anytime soon.
A more important and disturbing issue to focus on is its ratings decline for Nickelodeon and MTV. Both of the networks have suffered due to a lack of appeal in their programming and that means that Viacom needs to pump more money in producing originals. The company has been doing so getting rid of some under-performing programs and introducing some new ones. We feel that Nickelodeon’s ratings may have bottomed out and given the company’s recent efforts and track record of maintaining appeal amongst kids, the ratings might improve from here. Even though advertising revenues have declined by 4% domestically in fiscal 2012, we feel that ratings improvement/sustenance and higher ad pricing next year will lead to advertising revenue growth.
Viacome needs to do the same for MTV as it is doing for Nickelodeon. The ratings for MTV’s new season of Jersey Shore were down substantially (~40%) compared to the last year and it appears that the company needs to revamp its programming on the network.  We hope next fiscal year will be relatively better.
Despite the revenue issues, Viacom has been able to maintain the margins for its media networks which constitute roughly 80% to the company’s stock. As we have previously mentioned, Viacom has been growing its subscription and digital licensing revenues. Even though ratings have suffered, the company has maintained its subscriber base, negotiated higher prices and signed additional deals with streaming service providers.
Our price estimate for Viacom stands at $68, implying a premium of more than 30% to the market price.Notes:
- ‘Jersey Shore’ Final Season Premiere Takes a Nearly 40 Percent Ratings Hit, The Hollywood Reporter, Oct 5 2012 [↩]