Media firms confront cautious marketing, cord cutting; Viacom
takes it on the chin
By Shalini Ramachandran and Suzanne Vranica
A tepid outlook for television ad revenue and concerns about the
longevity of the big pay-TV bundle are causing jitters among media
investors.
Despite beating analyst expectations for revenue and profit,
Viacom Inc. shares were down nearly 7% late Thursday as investors
worried about long-term trends. Viacom said some of its flagship
networks like Nickelodeon had been relegated to more-expensive
bundles for new cable customers at Charter Communications Inc., the
second-largest U.S. cable company. In addition, Viacom reported a
4% decline in domestic ad revenue due to continued ratings
weakness.
The commentary added to worries that had already been simmering
in the market this week.
The S&P 500 Media Index dropped 2.5% Wednesday, and Wall
Street analysts said the broad selloff was prompted, in part, by
comments from John Martin, chief executive of Time Warner Inc.'s
Turner cable networks. Mr. Martin said that economic uncertainty
and fewer product launches in key industries such as technology,
automotive and pharma early in the year were causing some marketers
to limit advertising spending. "Advertisers are holding back a
little bit and they're taking a little bit more of a wait-and-see
approach," he said.
Still, Mr. Martin said he remains "pretty optimistic about the
health of the overall U.S. ad market for the full year."
On Wednesday, Time Warner reported a 2% decline in ad revenue in
the first quarter due in part to lower ratings at its cable
networks and less-exciting matchups in the NCAA college basketball
tournament, the rights to which it shares with CBS. CBS reports
earnings after the market closes on Thursday.
After Time Warner's earnings report, Viacom shares fell 7.5% on
Wednesday.
On Viacom's earnings call Thursday, CEO Bob Bakish sought to
ease investors' various concerns. Mr. Bakish said there is some
"posturing" going on ahead of TV's annual ad-sales bazaar known as
the "upfronts," but "the market is pretty good." He said that he
and other Viacom top executives have been personally meeting with
ad agency heads to discuss opportunities ahead for its channels.
"We are definitely feeling good about it," he said.
On the distribution front, Charter recently relegated Viacom
channels, including Nickelodeon, MTV, Spike TV, BET, Comedy Central
and VH1, to the most expensive "Gold" television package it sells
-- reducing those channels' potential subscription revenues. On the
earnings call, Mr. Bakish said the Charter dispute "will be
resolved."
He noted that the company has been in discussions with cable and
satellite-TV distributors about creating a skinny,
entertainment-only bundle that doesn't include expensive sports
networks. Mr. Bakish said he is optimistic one could launch by the
end of this year. It is part of Viacom's effort to prioritize
"maintaining the value of the pay-TV ecosystem."
Adding to the negative trends, more customers abandoned cable
subscriptions, leading to the worst-ever first-quarter decline in
pay-TV subscribers. Analysts at MoffettNathanson estimated 762,000
subscribers cut the cord. Even with growth from new streaming
bundles like Sling TV and DirecTV Now, MoffettNathanson said TV
programmers suffered steep declines in subscribers.
"Folks are really worried about the loss of high
revenue-per-user video subscribers and the weak trends in the ad
market," said MoffettNathanson analyst Michael Nathanson.
The domestic ad revenue declines at Time Warner and Viacom
mirrored results last week from Comcast Corp.'s NBCUniversal, whose
cable networks' ad revenues declined 3% due to ratings weakness.
AMC Networks Inc., which reported first-quarter earnings Thursday,
saw ad revenue decline 6% due to the timing of original shows
airing and lower viewership.
Media companies are echoing advertising companies, which have
also recently reported slow growth in North America. WPP CEO Martin
Sorrell said last week that despite the Trump administration's
positive attitude toward business, U.S. growth was trailing
international growth.
"It's not just packaged good clients or the pharmaceutical but
across the board, it's a slow start to the year and a deceleration
from the fourth quarter of 2016," Mr. Sorrell said during WPP's
earnings call last week.
The softness isn't specific to one category. Auto sales are
softening and consumer product companies are under pressure to cut
costs, including marketing budgets.
Ad spending on national TV rose a paltry 0.9% during the first
quarter, according to estimates from research company Standard
Media Index. Categories pulling back on spending during the period
included automotive, consumer electronics and entertainment
companies, the firm said.
Brian Wieser, senior research analyst at Pivotal Research Group,
said the softness in the U.S. is partly reflective of more
marketers imposing zero-based budgeting -- an approach that
allocates funding based on program efficiency and necessity rather
than on budget history.
The lackluster marketplace doesn't bode well as TV networks
prepare their annual upfront presentations to advertisers, where
marketers commit to buying billions of dollars' worth of ad time
for upcoming TV season.
John Janedis, an analyst at Jefferies, predicts that ad pricing
growth will be up in the mid-single digits and the overall volume
of ad dollars being committed during the upfront to be "slightly
down."
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com
and Suzanne Vranica at suzanne.vranica@wsj.com
Corrections & Amplifications Viacom's chief executive is Bob
Bakish. An earlier version of this article incorrectly spelled his
name. (May 4, 2017)
(END) Dow Jones Newswires
May 05, 2017 02:48 ET (06:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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