Despite a Rip-Roaring Scatter Market, Viacom Ad Sales Slump

Make-Goods Sting, But Things May Be Looking Up

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The cast of MTV's 'Real World: Go Big or Go Home.'
The cast of MTV's 'Real World: Go Big or Go Home.' Credit: Courtesy MTV

In the midst of what many TV ad sales execs are calling the strongest scatter market in years, Viacom is having a hard time staying abreast of the rising tide.

The parent company of the network portfolio that includes MTV, Comedy Central and Nickelodeon said Thursday that its second quarter ad revenue fell 5% to $1.12 billion "as pricing increases were more than offset by softer ratings at some of our networks." Viacom announced its earnings the day after Comcast reported that NBC Universal's suite of cable networks generated $851 million in ad sales revenue in the first three months of 2016, flat versus the year-ago period.

Speaking to investors during the company's earnings call, Viacom Executive Chairman, President and CEO Philippe Dauman acknowledged that ongoing ratings shortfalls have effectively prevented the networks from cleaning up in scatter. "We have limited inventory to take advantage of [the scatter market] right now," Mr. Dauman said, before adding that he "hopes to see some improvement" in the current quarter.

Along with the ADUs -- shorthand for "Audience Deficiency Units," industry argot for the commercial units a network frees up for advertisers in order to make up for failing to meet earlier ratings guarantees -- Viacom's inventory also is being squeezed by a voluntary reduction in ad loads at its adult-skewing channels. According to a recent report from Sanford C. Bernstein analyst Todd Juenger, the core Viacom nets in the quarter reduced their primetime commercial load by 3%.

Viacom said it adjusted its results to reflect the self-directed reduction in ad time, noting that quarterly ad revenue would have been down 3% if it hadn't pared down its commercial load at the non-kids nets.

While Viacom has been struggling with a ratings slide that began in 2014, the core networks of late have begun showing new signs of life. MTV in the quarter improved its primetime deliveries of adults 18 to 49 by 19% over the period a year earlier, while VH1 was up 7%. Nickelodeon was down just 2% with kids aged 2 to 11 in total day, a marked improvement when compared to the 22% drop it posted in 2015. On the other hand, Comedy Central remains in a slump, down 17% in the demo, and BET has lost 30% of its target demo when compared to the year-ago period.

Mr. Dauman assured investors that Viacom would reap the benefits of what is almost certain to be a very lucrative upfront market, adding that the networks would upgrade and expand its existing data platforms in order to make more profitable deals with advertising agencies.

"We now have much enhanced capabilities, driven by our Viacom Vantage and other products, which will help us drive pricing as we go into the upfront and beyond," Mr. Dauman said. "And we are very focused on improving the overall brand health and going to advertisers who really view us as the leading way to reach the key demos they want to reach."

Viacom plans to triple the number of clients who make upfront buys against its Vantage program, which adds up to some 33 sponsors versus the 11 who kicked the tires in last year's upfront. In a sense, Vantage is a bit like a computer dating service, inasmuch as the client inputs the sort of traits it looks for in a customer, and Viacom's proprietary algorithm spits out a list of shows where they're most likely to intersect with the audience.

Echoing sentiments voiced by other media execs, Viacom Chief Operating Officer Tom Dooley noted that an already-promising upfront market should only be enhanced by a return of dollars that had been diverted to digital platforms. "Ad dollars are shifting back from digital into the linear [TV] format, both in kids and adult," Mr. Dooley said, adding that bot fraud and other less-than-desirable results have sent wayward clients scrambling back to TV.

"Obviously the Facebooks and the YouTubes of the world are doing very, very well in terms of growing dollars," Mr. Dooley said. "It's the rest of the marketplace where there has been a lot of concern around fraudulent traffic delivery in the form of bot traffic. That has certainly fatigued advertisers' interest in those platforms. … And I believe that as advertisers look at the economic results, some of that digital advertising has not been impressive."

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CORRECTION: An earlier version of this article said the volume of ads at Nickelodeon and related kids' channels at Viacom rose 8% in the first quarter, citing a report by Sanford C. Bernstein analyst Todd Juenger. The report's calculations failed to account for an increase in primetime programming at Nickelodeon. Adjusting for that increase, ad volume on Viacom kids' networks was flat year-over-year.

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