We expect some improvement in Viacom’s (NASDAQ:VIAB) ad revenue trends when it reports its Q1 fiscal 2013 earnings on January 31. The year 2012 has been marked by a substantial decline in ratings for Viacom’s flagship networks, Nickelodeon and MTV. However, driven by improved programming, Viacom may just be beginning to turn things around. As we head into 2013, the company will continue to focus on improving the programming of its key networks and expand more internationally. The pay-TV market in developing countries is growing fast, and there is a tremendous opportunity to syndicate more successful shows and launch fully-owned networks in these geographies.
Ratings Recovery May Be Visible
Although Nickelodeon and MTV have seen sharp declines in their ratings in 2012, we have noted some recovery in the first quarter of fiscal 2013 aided by softer comparisons and an improvement in programming. These two channels together account for more than 20% of Viacom’s value from their U.S. operations alone. If we account for international markets, the contribution is much higher.
The declines in ratings have resulted from the increase in time-shifted viewing, the availability of alternate video options and a lack of appealing programming. Nickelodeon’s SpongeBob SquarePants and MTV’s Jersey Shore have seen a significant decline in their ratings in 2012.   These two programs have done very well in the past, but they have been losing charm, and this has encouraged Viacom to spend more on original programming.
The company made some programming investments towards the latter half of 2012 which resulted in a ratings improvement.  While Teenage Mutant Ninja Turtles has helped Nickelodeon, Catfish seems to be doing well for MTV. ((Viacom CEO Touts Recent Nickelodeon, MTV Ratings Gains, The Hollywood Reporter)) Looking at the total daytime ratings for some of the weeks of November and Decemeber 2012, we note that Nickelodeon has performed substantially better than Disney Channel.  Earlier this year, Nickelodeon lost the top spot in kids programming to Disney.
This improvement is likely to aid Viacom’s ad revenues in the upcoming results and points towards a better year for the company as a whole.
No Significant Improvement For Paramount
After its stellar performance that granted it top position in worldwide Box Office in 2011, Viacom’s Paramount movie studio slipped to sixth position in 2012. We expect no significant improvement in the first quarter of fiscal 2013 either. Viacom’s box office revenues declined dramatically with no substantial box office hits that could match the performance of Transformers: Dark of the Moon, Thor, Captain America: The First Avenger and Kung Fu Panda 2 in 2011. Only Madagascar 3: Europe’s Most Wanted has done well for Viacom in 2012. Some of the successful movies that we talked about include Marvel characters and there is no guarantee that Disney (NYSE:DIS) will let Paramount be the distributor for future sequels. We feel it might be difficult for Viacom to repeat last year’s performance anytime soon.
Our price estimate for Viacom stands at $68, implying a premium of little over than 10% to the market price.Notes:
- Viacom’s SpongeBob Crisis, The Wall Street Journal, May 2 2012 [↩]
- ‘Jersey Shore’ Final Season Premiere Takes a Nearly 40 Percent Ratings Hit, The Hollywood Reporter, Oct 5 2012 [↩]
- Viacom CEO Touts Recent Nickelodeon, MTV Ratings Gains, The Hollywood Reporter [↩]
- TV by the numbers [↩]