Viacom’s (NASDAQ:VIAB) stock has surged over 25% so far this year, and much of this can be attributed to the improvement in Nickelodeon’s ratings. We estimate that Nickelodeon U.S. alone constitutes 13% of our estimated price for Viacom, but the contribution is much more significant if we account for its global operations. Globally, it reaches 330 million households across 110 countries. Viacom must ensure that the revenue growth remains intact for a network of this size. The network saw its ratings decline in 2012 due to the lack of appealing programming, but it is slowly getting back on track now.
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Nickelodeon’s ratings declined in 2012 while viewership among children in general was growing.  Ratings are directly dependent on viewership, and this decline was a serious concern for Viacom. It was clear that the channel’s viewership had declined not only due to the proliferation of alternative video platforms but also because of Nickelodeon’s own problems. Both the quality of its programming and its appeal to kids were lacking in 2012.
However, the network’s ratings have seen a notable improvement in the first quarter of 2013. Viacom decided to introduce 70% more original programming in the last quarter of 2012. Nickelodeon managed to improve its ratings on higher viewership for its popular programs – SpongeBob Squarepants and Teenage Mutant Ninja Turtles (TMNT). TMNT was rated as 2012’s number-one new animated program among boys ages 2-11 years across all networks. 
Nickelodeon is now focusing on its animated series and bringing more original programming to its network. Last month, the network decided to add 10 new original series to its animation and live-action rosters for the 2013-2014 season, including Breadwinners, Sanjay & Craig, Rabbids and Monsters vs. Aliens, TMNT (3rd Season). It plans to roll out five new live-action series, The Haunted Hathaways, Sam & Cat, The Thundermans, Awesomeness (working title), Nick Studio 10 and Wendell & Vinnie, this season. 
The network’s viewership increased and the ratings rose 1% in Q1 of 2013. Nickelodeon’s top show for the quarter with kids 2-11 was SpongeBob SquarePants, which is up 7% over last year. Additionally, it posted a 9% gain in viewership over Q4 of 2012 and posted double-digit gains for Q1 of 2013 in its core demographic. It also saw record viewership of 12 million for the 26th Annual Kids’ Choice Awards aired last month. Better ratings will help translate into higher advertising revenue for the company and the network can negotiate better pricing agreements.
We believe that the upward trend in ratings should continue for Nickelodeon given its efforts towards bringing original content and launching new animated programs coupled with increased viewership of its popular shows.
Our price estimate for Viacom stands at $67, a premium of less than 5% to the market price.Notes:
- Analyst: Nickelodeon Isn’t Pulling Its Weight at Viacom, The Hollywood Reporter, Sept 10 2012 [↩]
- Nickelodeon Unveils New Generation Of Content For New Generation Of Kids At Annual Upfront Presentation, PR Newswire, Feb 26 2013 [↩] [↩]