Viacom Posts 8% Earnings Growth But Lower Ratings At Media Networks Continue To Drag Advertising Income

Viacom (NASDAQ:VIA) recently reported its earnings for fiscal Q1 2015. (Fiscal years end with September.) The company’s revenues grew 4% to $3.34 billion but net income declined 9% to $500 million or $1.20 a share. However, adjusted earnings were up 8% to $1.29 per share. ^[1] Viacom’s media networks benefited from higher affiliate fees, but the company continued to see a drop in domestic advertising, which was down 6%. The company’s filmed entertainment segment benefited from the success of Interstellar at the box-office and the segment revenues were up 6%. The company also stated that it will launch an over-the-top streaming service for Nickelodeon in March this year. Nickelodeon will join the party with CBS and HBO, which had earlier announced their respective over-the-top streaming services.

We estimate revenues of about $14.5 billion for Viacom in 2015, with EPS of $6.29, which is in line with the market consensus of $5.70-$6.70, compiled by Thomson Reuters. We currently have a $91 price estimate for Viacom, which we will soon update to incorporate the recent quarterly earnings.

See our complete analysis for Viacom

Media Networks See A Muted Quarter

Viacom’s media networks saw revenue growth of 4% to $2.65 billion led by a 6% growth in affiliate fees. Softer ratings continued to weigh over domestic advertising, which declined 6% during the quarter. However, international advertising revenues were up 60%, reflecting the benefits from Channel 5 acquisition and this helped the company more than offset the declines seen in domestic market. ^[2] The overall advertising was thus up 3% for the quarter. The segment operating income remained flat at $1.10 billion.

The decline in advertising income was due to softer ratings at the media networks. In the current television season, MTV and Comedy Central saw a more than 10% viewership decline in the 18 to 49 demographic, according to Nielsen estimates. ^[3] The company’s management stated that 30% of its advertising revenues were not dependent on Nielsen ratings and it expects that portion to increase to 50% in next three years. ^[2] Viacom’s sales for mobile platforms, personalized advertising and sponsorships account for this independent portion. The company blames the measurement technology for lower ratings across the industry. Nielsen will eventually start to account for viewership on alternative video platforms and the company is working with the ratings agencies for better measurement of its programming. We currently estimate media networks revenues to be a little under $10 billion for 2015 and an estimated EBITDA margin of 42% will translate into EBITDA of over $4 billion, representing close to 90% of the company-wide EBITDA.

Studio Business Benefits From The Success Of Interstellar

The company’s filmed entertainment division saw a 6% revenue growth while the operating loss stood at $60 million as compared to $74 million in the prior year period. The company benefited from the success of Interstellar, which has grossed more than $660 million at the global box-office. The studio’s theatrical revenues were up 6% to $169 million while home entertainment saw a 16% growth for the quarter. ^[2] 2015 looks promising for Viacom’s studio business given the solid lineup that includes The SpongeBob Movie, Terminator: Genisys and Mission Impossible 5. Accordingly, we estimate Viacom’s filmed entertainment revenues to be around $3.43 billion and EBITDA of around $220 million, reflecting 5% of the company-wide EBITDA for 2015.

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1. Viacom’s SEC Filings [↩]
2. Viacom’s (VIA) CEO Philippe Dauman on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, Jan 29, 2015 [↩] [↩] [↩]
3. Viacom Ad Revenue Slides on Lower TV Ratings, Advertising Age, Jan 29, 2015 [↩]