Viacom (NASDAQ:VIA) will report its Q4 2013 earnings on November 14. We expect the company to see gains in its cable networks business driven by the solid growth in ratings, especially at Nickelodeon. The July-September was the best quarter for Nickelodeon’s ratings in the last 16 years driven by the network’s efforts to bring in more original programming. 
MTV’s Video Music Awards (VMA) 2013 was a hit with a 66% increase from 2012’s ratings, earning a total audience of 10.1 million viewers in its first broadcast and a 7.80 rating in the 12-34 demo.  Better ratings at media networks led to 20% jump in the operating income for Viacom in its third quarter this year.  We expect Viacom to benefit from the improved ratings in its fourth quarter and see higher advertising revenues.
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Nickelodeon Will Lead The Growth
Nickelodeon posted gains of 12% in the demographic 2-11, 32% in demographic 2-5, and 6% in total viewers for the third quarter of 2013. The higher ratings were driven by Sam & Cat, which debuted earlier this summer and averaged 2.9 million total viewers, up 17% over last year. The Haunted Hathaways saw a 12% gain while the new series Sanjay & Craig averaged 2.9 million total viewers. Nick at Nite was up 67% to become basic cable’s top network with women 18-49. 
In the first half of 2013, the network’s ratings were fueled by solid performances from SpongeBob SquarePants, which ranks as the top animated series. The network’s original TV movie, Swindle, attracted 4.2 million total viewers during its August 24 primetime premiere.  While it will be interesting to see if Nickelodeon’s ratings continue to move northward, the network for now continues to drive advertisement growth for Viacom. This could prove meaningful to Viacom as Nickelodeon U.S. contributes more than 13% to the company’s value, according to our estimates. The contribution is much more significant if we account for the global operations. Globally, Viacom reaches 330 million households across 110 countries, and it is poised to benefit from the surge in Nickelodeon’s viewership as television continues to dominate global ad spending.
Television Continues To Lead Ad Spending
Advertising is an important source of revenue for content owners such as Viacom. For Q3 2013, the company’s ad revenues grew by 5% to $1.22 billion, primarily driven by growth in its media networks. The advertising market has been trending well this year despite the absence of the Olympics or high political spending. Television continues to dominate its position as the front-running media format for advertising. For the first half of 2013, global TV ad expenditures grew 4% percent on a y-o-y basis, accounting for 58% of total ad spend.  Excluding television, traditional media budgets took some hits in the first half of 2013, as spending in newspapers, magazines and radio all declined in the first half (-2.0%, -1.9% and -0.9%, respectively). Content owners will benefit from the increased ad spending in television.
Nickelodeon saw poor ratings in 2012 and its advertising revenue fell 11% y-o-y to an estimated $726 million.  The network’s viewership last year 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 appeal to kids were lacking in 2012. However, since the end of 2012, the networks have been focusing on original programming and new content, which is helping it achieve higher viewership. We estimate Nickelodeon’s advertising revenues to be around $770 million in 2013 driven by the surge in ratings.Notes:
- ICKELODEON’S 3Q13 PERFORMANCE NABS ITS HIGHEST QUARTERLY GAINS IN 16 YEARS, Nickelodeon’s Press Release, Oct 1, 2013 [↩] [↩]
- MTV VMA Ratings Rise For 2013 Thanks To *NSYNC Reunion, Robin Thicke And Miley Cyrus Performance, Huffington Post, Aug 26, 2013 [↩]
- Viacom’s SEC Filings [↩] [↩]
- Swindle Premieres to 4.2 Million Viewers, Nick And More, Aug 27, 2013 [↩]
- GLOBAL AD SPEND: WITH DOUBLE DIGIT GAINS, DISPLAY ADS DRIVE IN-YOUR-FACE RESULTS, Nielsen, Oct 22, 2013 [↩]