Viacom profit soars 56% even as Nickelodeon ratings slump
Despite a vexing ratings slump at its children’s network Nickelodeon, Viacom Inc.’s second-quarter profit soared 56%. The strong earnings were produced by higher fees from pay-television operators and lower expenses at the media company’s Paramount Pictures movie studio.
For the quarter ended March 31, Viacom earned $585 million, or $1.07 a share, up from $376 million, or 63 cents, a year earlier. Revenue grew 2% to $3.33 billion.
“Across our divisions we sharpened our focus on execution and efficiency while continuing to invest in programming,” Viacom Chief Executive Philippe Dauman told analysts in a Thursday morning conference call. “Distribution continues to be a strong and steady driver for Viacom.”
The New York media company’s earnings exceeded analysts’ estimates, and revenue was largely within expectations. The company, controlled by billionaire Sumner Redstone, also spent about $700 million during the quarter to repurchase 14.7 million shares.
The bulk of Viacom’s earnings came from its Media Networks unit, which includes cable channels MTV, Nickelodeon, Comedy Central, BET, VH1 and TV Land. Revenue generated by cable channels grew 5% to $2.2 billion, driven by an increase in affiliate fees paid by cable and satellite television operators. Affiliate fee revenue was up 17%.
Media networks’ operating income climbed 11% to $893 million. Domestic advertising revenue inched up 1%, while foreign advertising revenue remained flat.
“We are seeing encouraging signs of a strengthening ad market,” Dauman noted.
Still, Wall Street analysts expressed concern about the nearly 30% drop in ratings this season at Nickelodeon — one of the company’s largest and most lucrative assets.
“Nickelodeon has fallen to levels that you’ve never seen before. It’s never been down this much before,” Michael Nathanson of Nomura Securities said during Viacom’s call.
Some analysts have theorized that the weak ratings could be attributed to shifts in viewing behavior. More children are watching Nickelodeon shows on demand through Netflix andAmazon.com digital streaming services rather than watching the channel.
Data the company has reviewed does not support that theory, Dauman said.
“Netflix is present in less than a quarter of television households, and since we get the streaming data on our content, I can tell you that the time spent on Nickelodeon content on Netflix is approximately 2% of the time spent on our Nickelodeon channel,” Dauman told analysts. “It would have a minimal impact here.”
Instead, Viacom traces much of the ratings nose dive to a September change in the composition of an audience panel that Nielsen uses to derive its ratings. New participants in the Nielsen panel apparently did not tune in to Nickelodeon as much as those whom they replaced.
At Hollywood-based Paramount Pictures, which is celebrating its 100th anniversary this year, revenue dropped 5% to $1.17 billion. The company attributed the lower revenue to a “less widely distributed mix of releases during the quarter,” which included the highly profitable, low-budget horror film “The Devil Inside” as well as the Eddie Murphy flop”A Thousand Words.”
Theatrical revenue was down 19% to $326 million for the quarter. The division was buoyed by carry-over receipts from “Mission: Impossible — Ghost Protocol,” starring Tom Cruise, which was released in the previous quarter. Home entertainment generated $415 million, a slight 1% increase over the year-earlier period. The studio also notched $111 million in ancillary revenue, up 41%, largely from fees from digital streaming services such as Netflix.
Operating income at the film studio nearly tripled to $115 million, up from $39 million in the year-earlier period. The company said the studio’s higher margins came from lower distribution costs due to fewer movie releases.
Investors were enthusiastic about Viacom stock. The company’s widely traded B-shares closed Thursday at $49.02 a share, up $1.59.
