Viacom gets Nicked

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Just when CEO Tom Freston needs the Nickelodeon engine to help power Viacom to a record growth year, the company is facing a threatened $1 billion lawsuit from a pair of consumer groups accusing the kids' TV network of unfair and deceptive junk-food marketing.

"This is a shakedown," said Shelly Hirsch, CEO of Summit Media Group, which buys media for several kids' marketers. "If they win the suit, it could be devastating."

Whether the suit can hold up in court-an outcome that looks unlikely-it's still added pressure for the kids'-TV advertising market, which this year has battled numerous obstacles, including a weaker upfront market and pressure from the Federal Communications Commission on commercial time allowances.

Bear Stearns research pegs Nickelodeon's contribution to Viacom's profits at 9%; of that, Nick's revenue is split among advertising, affiliate and licensing revenues. According to data from TNS Media Intelligence, food advertising composed about 35% of Nickelodeon's $712 million in total ad revenue for 2004, the most recent full-year ad-spending data available. Additionally, Nickelodeon is a $4 billion licensing machine, although a company spokeswoman said less than 3% of licensing revenue derives from food licensing.

Whether or not a drop in Nickelodeon's food-related ad revenue creates a huge dent in its parent company's bottom line, it was enough to send Viacom's stock into a temporary dip, dropping Jan. 18 upon news of the lawsuit to $41.10. By the closing bell on Jan. 19 it had rebounded to $42.71.

"We have not been served with any legal papers," a Nickelodeon spokeswoman said. "That said, Nickelodeon has been an acknowledged leader and positive force in educating and encouraging kids to live healthier lifestyles, as well as in the ongoing process of encouraging advertisers to provide more balance in their offerings, and we will continue to do so."

Despite worries about the obesity epidemic, last year's kids' upfront market managed to eke out a 5% increase. None of the kids' networks would comment on whether this suit would create a ripple in their $1 billion-plus ad market. Kids' TV is largely a market that exists in cable, composed of Nickelodeon, Cartoon Network and ABC's kids' networks: Toon Disney, the kids' JETIX block on ABC Family and Disney Channel. (Disney Channel, like PBS, only accepts sponsorship of programming but not ads within shows.)

Of course, even if the consumer groups don't prevail, some damage may have already been done. According to Stephen Gardner, the litigation director at Center for Science in the Public Interest, which plans to file the suit next month along with the Center for Commercial-Free Childhood and two Boston-area parents, the group has found lawsuits and the threat of lawsuits make companies far more willing to talk about changes than do complaints to government agencies.

"Be careful what you wish for," warned Paul Kurnit, president of KidShop, a kids'-marketing firm based in Chappaqua, N.Y. "If advertising to children were curbed in a major way so would the quality and offerings of kids' programming." He said that among kid-targeted media, Nickelodeon is considered among the most proactive in terms of fighting the obesity epidemic.

About three years ago Nickelodeon instituted a "Let's Just Play" campaign to promote more-healthful lifestyles and more activity. Earlier this year it partnered with the Bill Clinton-backed Alliance for a Healthier Generation, committing $30 million in 2006 to the campaign. It has also sought licensing deals that put its marquee character, SpongeBob, on packages of spinach, carrots and other fresh produce.

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