The advertising market may have been softer than expected at the end of 2011, Viacom earnings suggested Thursday morning, but demand seems to have picked up since then. The company also said Netflix isn't to blame for Nickelodeon's ratings decline.
The cable company -- whose networks in addition to Nickelodeon include MTV , BET and Comedy Central -- reported a 3% decline in domestic ad revenue during the quarter ending Dec. 31, missing analysts' estimates for a 2.5% increase.
While part of this drop can be blamed on Nickelodeon's ratings plunge during the quarter, most of Wall Street already factored that hiccup into its estimates. That suggests other media companies' results may reflect the same ad weakness as they report earnings results over the next week.
"Based on management commentary, we believe the ad market could have been somewhat softer than prior expectations," RBC analyst David Bank wrote in a note following Viacom's earnings report Thursday morning.
"Domestic declines were driven by significant softness in volume in the scatter market, especially after Thanksgiving, and previously discussed rating softness," Viacom CEO Philippe Dauman said during a conference call to discuss the results.
Excluding issues at Nickelodeon, Mr. Dauman said it would be safe to assume the company would have seen year-over-year ad growth in the low-single digits during the quarter.
But demand for Viacom inventory in scatter market -- where marketers buy commercial time closer to the air date -- was weak during the quarter. Viacom said that was at least partly because advertisers had put more money into the most recent upfront market, where they reserve commercial inventory for the year ahead.
"We saw several advertisers that appeared to have pulled into the upfront some of the scatter money that they otherwise would have spent [during the quarter]," Mr. Dauman noted. "Scatter was down significantly, particularly at the end of the quarter, and we believe that was a reflection of the general market environment. We believe there were a number of companies that were pulling back on their expenses; that they were closing out their year."
Ad sales are improving in first three months of 2012, however, with many buyers returning to the market and scatter pricing holding up well, Mr. Dauman said, adding that he expects ad revenue to turn positive in the quarter.
Overall, Viacom said revenue rose 3.2% to $3.95 billion. It reported a profit of $212 million, or 38 cents per share, down from $610 million, or $1 per share, a year earlier. Analysts were calling for a profit of $1.05 a share on revenue of $3.99 billion.
On the subject of Nickelodeon's ratings decline, one analyst asked about the possibility that Netflix streaming is playing a role. Mr. Dauman reiterated the company's belief that Netflix is not to blame.
"Well, we look at that very closely, and we don't think that the availability of the limited amount of Nickelodeon library content that we have on Netflix has had a significant impact on the ratings ," Mr. Dauman said.
The universe of Netflix viewers is a "rather small fraction" of the overall TV audience, he said, and Nickelodeon streams on Netflix were "pretty much the same" between the summer and the fall. "So there's no real change that accounted for the fall's drop, which we did not see in the summer," he said. "So there could have been some minimal impact, but it certainly does not account for the ratings drop that we saw."
Viacom's online content deals continue to be worth it, Mr. Dauman said. "Partnerships like these are high-margin opportunities to monetize our content library," he said. "We see a significant opportunity for continued growth here."