Reinvention Of MTV Will Drive Advertising Growth

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Viacom’s (NASDAQ:VIA) MTV has been struggling with ratings for quite some time now. In its previous earnings call, Viacom’s management stated that the network is going through a phase of reinvention to increase viewership. On the international front, the network appears to be benefiting from its decision to move MTV Brazil, Italy and Russia to its owned and operated model. In Brazil, MTV has moved from the 30th to 16th spot in its core demographic within six months of re-launch. MTV Italy saw a 31% jump in ratings during the March quarter. [1]

MTV U.S. is also addressing the issue of declining ratings by bringing in more programming and trying to widen its audience base. We believe that the new programming, coupled with a better advertisement marketplace, will drive the network’s advertising revenues higher in the coming years. It should be noted that the ratings directly impact advertising revenues of the media networks. MTV U.S. contributes close to 10% to Viacom’s value, according to our estimates. However, the contribution is much higher if we include the international operations.

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See our complete analysis for Viacom

How Is MTV U.S. Trending For Viacom?

Subscription Revenues

MTV’s average monthly subscription fee has been growing at an average annual rate of around 3%, amounting to an estimated $0.39 in 2013. MTV’s total subscriber base in the U.S. has increased from 91 million in 2006 to 99 million last year. [2] This translated into annual subscription revenues of $461 million in 2013.  We expect subscription fee to continue to grow in the coming years and reach around $0.45 in 2020. At the same time, we estimate that MTV’s penetration among U.S. households will decline from over 96% currently to close to 95%. This will translate into 104 million subscribers and annual subscription revenues of close to $550 million towards the end of the forecast period. We expect the monthly fee to increase considering that MTV’s subscription fee is lower than its competitors’ and, typically, pay-TV companies sign multi-year agreements with content owners with pre-defined price increments each year.

Advertising Revenues

While subscription revenues have been growing steadily, MTV’s advertising revenues have declined over the past few years. The figure fell from $720 million in 2007 to $522 million in 2013. Furthermore, advertising revenues as a percentage of overall revenues have come down from 67% in 2007 to 52% in 2013. This can be attributed to a decline in ratings of the shows as well as a weak advertising marketplace. We expect advertising revenues to pick up and reach roughly $700 million towards the end of the forecast period driven by improving macroeconomic conditions as well as MTV’s appeal. Ad pricing has picked up since the recessionary period of 2008 and 2009. The overall U.S. advertising market is growing and advertisers, especially automotive companies, are willing to shell out more money on advertisements. TV still remains the biggest medium for advertisements (58% of total ad spend in first three quarters of 2013) and MTV, given its continued appeal in the coveted 18-24 demographic segment, should benefit from this broad level improvement.

What Is Driving Ratings Currently?

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. [3] Teen Wolf ‘s ratings surged in the third season with a 2.7 rating in the 12-34 demographic and 3.1 million total viewers. [4] 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. [1] 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 years.

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Notes:
  1. Viacom Management Discusses Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, May 1, 2014 [] []
  2. Viacom’s SEC Filings []
  3. MTV Movie Awards Down Double Digits In Viewers & Demo From 2013, Deadline, Apr 15, 2014 []
  4. MTV’s ‘Teen Wolf’ Season Three Finale Takes a Bite Out of the Competition Drawing 2.3 Million Total Viewers, Zap2it, Mar 25, 2014 []