By Keach Hagey And Chelsey Dulaney
Nearly six months after a ratings-challenged Viacom Inc.
declared its plan to shift half its advertising business away from
traditional TV ratings, the company has showed some signs of
progress as its ad revenue fell much more slowly than its ratings
in the most recent quarter.
Ratings across Viacom's channels, which include Nickelodeon, MTV
and Comedy Central, fell 22% in the quarter ending in March, but
domestic advertising revenue fell only 5%, the company said
Thursday, a slight improvement on the previous quarter's 6%
decline. Jeffries analyst John Janedis said the improvement
"suggests traction in non-Nielsen dependent sales, in our
view."
With its large bundle of young-skewing channels, Viacom has been
among the media companies hardest hit by the defection of younger
viewers to online video, and Viacom Chief Executive Philippe Dauman
has become one of the loudest critics of Nielsen's inability to
measure all the viewing that is happening on nontraditional
platforms like smartphones and gaming consoles.
This spring "upfront" ad sales season, Viacom has been trying to
bypass traditional Nielsen ratings more than normal by going to
advertisers with new advertising products based on first- and
third-party data that lets advertisers target viewers with more
specific characteristics than the traditional ones of age and
gender.
"We are moving away as rapidly as possible from traditional
methods of measurement," Mr. Dauman said in a call with analysts,
adding that the company's new ad initiatives are "redefining how
advertisers connect with our audiences and, more fundamentally, how
ratings success will be defined in the coming television
landscape."
He added that the company is making progress on its goal of
expanding its "non-Nielsen-dependent" ad revenues from 30% to 50%
in three years, and that investors are likely to see a big step up
after this spring "upfront" season, during which the company has
already booked 30% of its advertising business.
Todd Juenger, an analyst at Sanford C. Bernstein, wrote that
some of the gap between ratings and domestic advertising shortfalls
was indeed progress on rolling out these new ad initiatives, but
added that he believes the company's non-Nielsen-dependent ad
revenue is currently dominated by direct-response advertising--ads
that usually ask viewers to call a phone number to order
something--"which is nothing to brag about." He also estimated that
Viacom carried 9% more ads in its shows in the most recent
quarter.
A senior Viacom executive noted that, while direct-response is a
significant portion of non-Nielsen-dependent ad revenue at the
moment, it is becoming a more profitable part of Viacom's revenue
mix as direct response advertisers incorporate more data in their
media buying.
Despite these improvements, Viacom swung to a loss in its March
quarter on a hefty charge to restructure its business, while
revenue also came in below Wall Street expectations amid foreign
exchange impacts and weakness in its filmed entertainment
business.
Excluding special charges, adjusted per-share earnings came in
above Wall Street expectations.
In the latest quarter, the media networks division's revenue
edged up 3% to $2.45 billion on higher advertising and affiliate
fees.
The company's filmed entertainment division posted a 21% drop in
revenue to $659 million, as television license fees and home
entertainment revenues were weighed by the mix of available
titles.
While domestic advertising revenues fell, world-wide advertising
revenues were up 4%, driven by an 80% increase in international
advertising largely thanks to the newly acquired Channel 5 in the
U.K.
Overall, the company reported a loss of $53 million, or 13 cents
a share, compared with a prior-year profit of $502 million, or
$1.13 a share. Excluding certain items, earnings were $1.16 a
share.
Revenue fell 3% to $3.08 billion.
Analysts polled by Thomson Reuters had forecast profit of $1.06
on revenue of $3.26 billion.
Viacom estimated foreign exchange brought down revenue by
2%.
Write to Keach Hagey at keach.hagey@wsj.com and Chelsey Dulaney
at Chelsey.Dulaney@wsj.com
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