Nickelodeon Continues To Be A Problem For Viacom

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Nickelodeon continues to be a source of worry for Viacom (NASDAQ:VIA). According to recent data compiled by an analyst from Pivotal Research Group, Nickelodeon continues to suffer a ratings decline compared to last year while viewership among children in general is growing. [1] This implies that the channel’s viewership has declined not only due to the proliferation of alternative video platforms but also Nickelodeon’s own problems. Nickelodeon’s viewership is directly related to quality of programming and its appeal to kids. One of the channel’s famous series, SpongeBob SquarePants, has seen a significant ratings decline. This figure stood at 29% in Q1 of 2012 compared to the same period in 2011. [2]

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The essence is that the SpongeBob is a long-running series and perhaps it’s time for Nickelodeon to invest in some new programming with innovative ideas to lure kids back who have shifted to rivals such as Disney Channel. The ratings directly impact advertising revenues which we estimate to be slightly higher for Nickelodeon compared to its subscription revenues. The ratings decline that we discuss here applies to Nickelodeon U.S., which constitutes around 13%-15% of Viacom’s value.

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Besides investing in new programming, the channel could push aggressively for streaming and online access. Viacom could also think about creating a better ecosystem around its Nickelodeon programming in order to better pull in children and give them a reason to watch the programs every time. Such an ecosystem could evolve in the form of apps, games and even movies based on some famous characters.

Our current price estimate for Viacom which stands at $57, implying a premium of about 30% to the market price.

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Notes:
  1. Analyst: Nickelodeon Isn’t Pulling Its Weight at Viacom, The Hollywood Reporter, Sept 10 2012 []
  2. Viacom’s SpongeBob Crisis, The Wall Street Journal, May 2 2012 []