By Keach Hagey and Michael Calia
Viacom Inc. said Thursday its Nickelodeon group will launch a
subscription video service that will be available to people who
aren't pay-TV customers, making it the latest major media company
to venture outside the cable bundle in search of growth.
Viacom Chief Executive Philippe Dauman announced the effort on
an earnings call with analysts, promising more details at the
company's presentation to advertisers next month. The service will
launch in March.
"We believe this innovative service, which will have a distinct
brand and will target the fast-growing mobile market, will be very
attractive for parents and children," Mr. Dauman said.
Viacom's move comes on the heels of announcements of similar
subscription services in recent months by Time Warner Inc.'s HBO
and CBS Corp. There are roughly 10 million broadband-only homes
that don't subscribe to pay television, according to some industry
estimates. The challenge for traditional media companies will be to
attract those customers without cannibalizing their lucrative
existing businesses from cable and satellite TV subscriptions.
The pay-TV bundle has begun to fray at the edges in recent years
as cord cutting and so-called cord shaving--slimming down to
smaller, cheaper pay-TV packages--shrinks the reach of the biggest
channels.
Viacom's ability to sustain healthy increases in distribution
revenue has come into question in the last year, after some small
cable operators dropped its channels. Viacom's stock took a hit
earlier this month after an analyst suggested Dish Network might
drop its portfolio of channels.
Mr. Dauman forcefully rejected this notion, pointing out that
Viacom had just renewed its affiliation agreement with Dish in
Mexico.
"While we have recently seen a lot of posturing and positioning
in affiliate negotiations across our industry, Viacom's
distribution pipeline has never been stronger," he said.
Viacom reported earnings of $500 million for the recent quarter,
down from $547 million a year earlier. Overall revenue rose 5% to
$3.3 billion. The media networks division's revenue increased about
4%, powered by growth in subscription fees from distributors.
Domestic advertising revenue fell 6% due to ratings declines at
the company's major cable networks. Nickelodeon's ratings in its
target demographic are down 32% so far this season, while MTV is
down 25% in its target demographic, according to analysis of
Nielsen ratings by Jefferies. Viacom is seeking to boost the
percentage of advertising sales that don't depend on traditional
ratings from Nielsen.
The company's filmed entertainment division reported revenue
growth of 6% to $720 million as "Teenage Mutant Ninja Turtles"
continued to perform well, while "Interstellar" also benefited
Viacom's results.
The company is also planning a cost-cutting initiative, Mr.
Dauman said, though he said full details wouldn't be available
until the next quarter's earnings call.
"We have identified specific areas where we can work more
efficiently while focusing better on the evolving needs of customer
and audiences," he said.
Write to Keach Hagey at keach.hagey@wsj.com and Michael Calia at
michael.calia@wsj.com
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