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How SpongeBob sank with Viacom's TV dreams in China

How SpongeBob sank with Viacom's TV dreams in China
Spectators watch the balloon of SpongeBob SquarePants at the Macy's Thanksgiving Day Parade in 2015. Viacom's attempts to grow its brands on Chinese TV have faltered as advertising dollars flow to digital media. (Bryan R. Smith / Associated Press)

There’s no money in getting Chinese viewers hooked on MTV and Nickelodeon.

That’s certainly the impression you’d get from Viacom Inc.’s apparent decision to sell its majority stakes in its Chinese TV channel brands. The media company has held talks with at least one Chinese entity about selling the businesses, a person familiar with the matter told Nabila Ahmed of Bloomberg News. The Wall Street Journal had earlier reported the potential deal.

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It’s tempting to regard this as a casualty of the U.S.-China trade war, with heightened tensions seriously reducing the attraction of selling SpongeBob SquarePants and Beyonce to a Chinese audience. But in truth, the current spat is at best the last straw. While Viacom still sees significant potential in China’s film industry, television has been struggling for years.

Television is the bulk of Viacom’s business globally, making up about three-quarters of revenue and, in recent years, more than 100% of operating income thanks to losses from its Paramount film studio. In China, the script is reversed. Almost all the potential lies in getting a blockbuster picture like “Transformers” or “Teenage Mutant Ninja Turtles” past Beijing’s cinema censors and onto the limited quota of Hollywood films granted release. Television looks like a distinct also-ran.

The problem in China’s television market is roughly the same as in the U.S. The world’s second-biggest media market is dominated these days by a handful of online players. About two-thirds of advertising yuan are spent on digital, according to eMarketer. Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. carve up about 80% of that sum, in much the same way that Facebook Inc. and Alphabet Inc.’s Google do elsewhere.

Combined with the vast proliferation of television channels is the fact that Viacom’s youth-oriented brands are barely distributed on the pocket-sized screens on which young Chinese, especially in urban areas, get most of their media content. Until last year, there was no non-TV outlet for MTV’s content in China at all, and Nickelodeon has similarly been busy signing up agreements with local distributors to get its content on streaming platforms.

The argument about China has always been about the growth potential of a 1.4 billion-strong market, but after almost 25 years of selling its TV brands in the country, Viacom’s revenue split is still overwhelmingly dominated by the U.S. and Europe. Even if it could gain market share, there’s the problem that advertising spending in the country as a whole is looking lackluster.

From a period in the early part of this decade when Chinese ad spending increased as much as 50% annually, it’s now failed to hit a double-digit growth rate in six years, according to GroupM, WPP Plc’s media agency. Spending still comes to some $90 billion a year, but as a share of GDP it’s been trending down for more than a decade.

That dismal growth potential means it’s simply not worth the hassle of navigating China’s byzantine regulatory environment, with or without trade tensions.

Chief Executive Officer Robert Bakish, a veteran of Viacom’s international operations, knows that as well as anyone. Asked about the potential for international audience growth at an investor conference last week, he pointedly left it out of his generally optimistic analysis. “It’s China, it’s a little bit of a can of worms,” he added.

You can say that again.

Fickling writes a column for Bloomberg.

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