Better Ratings At Nickelodeon Likely Drove Viacom’s Q3 Fiscal 2014 Earnings

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Viacom (NASDAQ:VIA) will report its fiscal Q3 2014 earnings on August 6. (Fiscal years end with September.) We expect to learn that the company saw continued gains in its media networks business driven by higher ratings, especially at the Nickelodeon network. Higher ratings likely boosted the advertising revenues for Viacom. Earlier, better ratings at media networks led to 3% growth in the operating income for the company in the March quarter. [1]

Viacom’s movie arm Paramount will see muted quarter due to absence of any big movie title. While Transformers: Age of Extinction was released in last week of June, the benefits of the same will be visible only in the next quarter.

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See our complete analysis for Viacom

Media Networks Will Lead The Growth

Media Networks are of immense importance to Viacom as they contribute more than 90% to its stock value, according to our estimates. Viacom’s media networks include MTV, VH1, Nickelodeon, Bet and MTV among others. MTV U.S. has seen a decline in ratings in the recent past. The network is addressing this issue by bringing in more programming and trying to widen its audience base. While the MTV Movie Awards saw a 27% decline in overall viewership this year, the network has benefited from shows such as Teen Wolf, Teen Mom 2 and Catfish. Teen Wolf ‘s ratings surged in the third season in the 12-34 demographic and 3.1 million total viewers. Teen Mom 2 also premiered with 3.2 million viewers, ranking as MTV’s highest-rated series premiere in more than a year and has scored good ratings throughout the season so far. Earlier this year, the network launched Faking It, which was the best new scripted debut in two years for MTV. The network’s other shows, including Finding Carter and Happyland, target a wider audience. [2] We are eager to see how viewers respond to these initiatives taken by the network and if these shows can help it improve ratings in the coming quarters.

Nickelodeon’s ratings continued to grow in the second quarter and the network ranked No.1 (basic cable) in total day with kids 2-11. [3] SpongeBob SquarePants continued to lead the ratings growth for the network. Paw Patrol also scored higher ratings in preschool programming. Accordingly, we expect that the media networks will drive the earnings higher in June quarter. Viacom’s continued focus on new and original programming appears to be paying off well for the company. The media networks have seen low double digit growth in international markets in the recent past and we expect this trend to continue in the near term driven by new programming, higher affiliate fees and benefits of consolidation of some of the media networks in the international market.

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Notes:
  1. Viacom’s SEC Filings []
  2. Reinvention Of MTV Will Drive Advertising Growth, Trefis, June 23, 2014 []
  3. NICKELODEON WINS 2Q14 WITH KIDS AND TOTAL VIEWERS, MARKS THIRD STRAIGHT QUARTER AT NUMBER-ONE, Viacom’s Press Release, July 1, 2014 []