Bernstein Research analyst Todd Juenger has written several provocative reports in the five months since he began covering media for the investment company — but his blast today at Viacom ranks among his toughest yet. Juenger lowered his price target by $1 to $47 warning investors that, with the steep ratings declines at Nickelodeon and MTV, “it is no longer inconceivable that a distributor would drop Viacom, or at least engage in a public battle with them over price increases.” While the odds of a Viacom black out are low, the mere possibility could make a world of difference to Wall Street: If CEO Philippe Dauman can’t extract high-single digit annual fee increases from cable and satellite companies then “the Viacom story would unravel.” It’s hard to say when Viacom might run into trouble, if it happens at all. “The timing of (its) affiliate fee negotiations remain the best kept secret in media,” Juenger says. But he adds that prudent investors should lighten up on their Viacom holdings “before such an event took place.” READ MORE »
Viacom CEO Philippe Dauman doesn’t sound anything like Dwight Eisenhower, but he seems to to have the architect of D-Day in mind when he talks about his broad plan to invade retail shelves with licensed merchandise. At Paramount, “for the most part we’re going to greenlight films with consumer products potential,” he told investors today at the Nomura U.S. Media & Telecom Summit. That’s key to his goal for Paramount to “focus on profitability” especially by integrating with other Viacom businesses. He’s particularly excited about Viacom’s plans to relaunch Teenage Mutant Ninja Turtles, which Viacom bought for $60M in 2009. The characters will appear in an animated series on Nickelodeon this fall and in a film on Christmas 2013. ”Everybody knows the history of it and are excited by the way it’s been reinvented,” Dauman says. “Once you get that strength at the retailer level, it allows you to layer in more properties.” It also ties in with his plan to develop new programs — and marketable characters — to help revive Nickelodeon from its ratings slump. “Nickelodeon will show improvement and it won’t take that long,” he says. Dauman adds that his interest in retail sales contributed to his decision to buy a stake in an Italian animation company with the popular Winx Club franchise, which has “good consumer products for girls.”
Viacom was “due for an increase,” Wells Fargo Securities analyst Marci Ryvicker says — although she expected a 20% bump. The company raised its dividend on May 25, 2011, and June 9, 2010. Also, it’s generating cash and has a healthy balance sheet. She figures Viacom will make $560M in dividend payments over the next 12 months, equal to about 20% of its free cash flow. CEO Philippe Dauman says that “returning value to our shareholders is a priority for Viacom.” Shares ended the day up 0.7% at $47.21. Here’s the announcement:
UPDATE, 7:00 AM: CEO Philippe Dauman rejects the growing view — articulated yesterday by Time Warner CEO Jeff Bewkes — that Nickelodeon’s ratings are down because kids are watching much of the channel’s content on Netflix. “There is no silver bullet” Dauman told analysts who wanted to know about the 32% drop in Nick’s audience so far in 2012. Viacom says that Netflix can’t be the culprit: Less than 25% of TV watchers get Netflix, and the time kids spend watching Nickelodeon content on Netflix only amounts to 2% of the viewing time for the cable channel. Even if Netflix-watching kids stopped viewing the cable channel, he says, “it would have minimal impact.” Meanwhile, “we are getting nice revenues from these (subscription VOD) deals.” Dauman still believes that Nick’s woes are at least partly due to glitches in the Nielsen rating system. In addition, he says there’s been “compelling programming on some of our competitors.” Dauman says not to worry: “We’ve seen this level of impact on other major networks in the past and we’ve overcome it….This is what we do.” He says he remains confident that investments in new Nickelodeon programming — including a revival of the Teenage Mutant Ninja Turtles franchise — “will gradually build on our ratings and we will not stop until Nickelodeon gets to bigger and better places….We feel very, very good about the direction. The pipeline is extremely strong.”
I don’t know whether Viacom chairman Sumner Redstone’s appearance at this morning’s 45-minute annual meeting will do enough to end the speculation that the 88-year-old majority shareholder is becoming frail. Although he showed up — something he briefly said last week that he couldn’t do, due to a scheduling conflict — attendees couldn’t see him walk to or from the dais. When the meeting began the company pulled back a curtain to show Redstone, CEO Philippe Dauman, and General Counsel Michael Fricklas seated at a table. The curtain closed on Redstone when the event ended. He appeared moderately engaged throughout the session, after reading from a prepared statement. Paraphrasing “my very good friend Mark Twain, who couldn’t be here today,” he said, “my absence from this meeting has been greatly exaggerated.”
Dauman then led the session. He said that Paramount yesterday greenlighted a 3D movie with singer Katy Perry, to be called Part Of Me, that will be released this summer. He also acknowledged that plans are in the works for another Mission: Impossible sequel. Dauman said that cable channel Nick Jr will introduce a “Nick Mom” evening programming block beginning this fall. And he says that he’s enthusiastic about the new Teenage Mutant Ninja Turtles TV series launching on Nickelodeon later this year — to be followed by a Paramount film due out by the end of 2013. Dauman added that the company plans a global consumer products initiative for the franchise. “It’ll be a big hit,” he says.
Freelancer Cari Lynn is contributing to Deadline’s coverage.
Viacom CEO Philippe Dauman acknowledges that it will take time before Congress revisits the anti-piracy bills that Hollywood supported: the Senate’s Protect IP Act (PIPA) and the House’s Stop Online Piracy Act (SOPA). But the one-time lawyer says that studios and their representatives at the MPAA didn’t lose the recent lobby push on the merits of their case. There was “a lot of misinformation” from Silicon Valley, he said today at a conference sponsored by All Things D. Opponents including the tech industry said that the bills giving the government the power to block overseas sites that traffic in pirated content could be misused to stifle innovation and free speech. “It became almost religious dogma,” Dauman says. He still considers the proposals to be ”very reasonable”, adding that piracy “makes the standards more difficult in greenlighting a film.”
Viacom shares are down about 3.5% at midday on an otherwise up day for the market after CEO Philippe Dauman punted on the big question on the minds of analysts attending the UBS Annual Global Media and Communications Conference: What’s up with the steep decline in Nickelodeon’s ratings — which he said last month was due to a problem with Nielsen’s measurement system? “There’s nothing new” to report, he says. ”No one’s more frustrated than myself.” He didn’t continue his attack the ratings company, which said today that it made a mistake in calculating the number of kids who watch TV — but added that it’s unrelated to the double-digit change in Nickelodeon’s ratings. ”However imperfect Nielsen is, it’s the only game in town, so we have to live with it,” Dauman says. “It is what it is. We’re going to move on.” He acknowledged that the channel’s ratings dive is “unfortunate” because “this is by far the most important quarter for Nickelodeon” due to the number of toymakers who flock to the channel to advertise holiday gifts. But he says the Nick problem will become less significant after the holidays are over. ”One way or the other we’ll move forward” with growing profit margins. Viacom has “more new shows coming to Nickelodeon than we’ve ever had.” He adds that “next quarter we expect to see stronger ad sales growth because we won’t have that issue” with the ratings.
Big Media 3Q Corporate Earnings Roundup: Are CEOs Really Worried About Recession? Or Just Looking For Convenient Excuse?
Three months ago, when Big Media CEOs wrapped up their 2Q earnings, they were still relentlessly upbeat about the business. Any worries about the economy? Not then. But the messages they delivered over the past few weeks, as they discussed 3Q, were different. Although they’re still optimistic — remember, they’re paid to be salesmen — now and then you could hear expressions of concern about where things are headed. It stood out when Viacom CEO Philippe Dauman noted that “ad sales growth will face some headwinds.” Other CEOs who are known for speaking bluntly warned that other shocks may bedevil the business. For example, Dish Network Chairman Charlie Ergen said that his satellite company — and others in pay TV — have to fight harder against rising programming costs because “there’s a limit to the price increases that could be passed on to consumers.” Time Warner Cable CEO Glenn Britt warned that premium channels such as HBO, Showtime and Starz “are clearly impacted by the economy as consumers try to cut back.” Either they’re genuinely worried, or they want a scapegoat to blame for things that are going bad, or may soon do so. Whatever the case, we can expect to hear a lot more about the economy when it’s time for the post-mortem on the all-important 4Q earnings.
As for industry performance matters, parents of movie studios had their usual mixed results to brag about or explain away: Time Warner benefitted from Harry Potter And The Deathly Hallows Part 2. Viacom was up on Transformers: Dark Of The Moon. And News Corp beat its chest about Rise Of The Planet Of The Apes and X-Men: First Class. But Disney’s Cars 2 was no match for last year’s Toy Story 3. Comcast’s Universal Pictures had nothing to compare to last year’s Despicable Me. Lionsgate suffered from Conan The Barbarian and Warrior. And DreamWorks Animation’s Kung Fu Panda 2 didn’t contribute as much in the quarter as Shrek Forever After did in the same period last year.
Over at the TV networks, Comcast’s NBC underperformed the Street’s already modest expectations. Execs at almost all the companies were eager to talk about the cash they expect to collect soon from political ads — as well as their favorite new ATM machines: retransmission consent deals and digital streamers including Amazon, Hulu, and Netflix. Speaking of Netflix, CEO Reed Hastings once again tried to reassure investors that he’s focused on “building back our reputation and brand strength” after his decision in July to slap a 60% price increase on customers who wanted to continue to rent DVDs and stream videos. In 3Q Netflix lost 57.7% of its market value and 800,000 subscribers. And since that customer loss was bigger than projected, Netflix shares continued to fall — they’re now down 67.3% since July 1.
Here are some other themes from the latest earnings reports:
Ad sales: They’s good, but for how long? Most television networks report that scatter prices are comfortably above the upfront market from this past summer. CBS chief Les Moonves says prices in 4Q are up by “mid-teens” on a percentage basis, while Discovery says it sees least high single digit percentages. But Disney’s Bob Iger noted that scatter prices have “slowed slightly these last few weeks.” Kurt Hall of National CineMedia — the leading seller of ads in movie theaters — was far more direct when he spoke to analysts after ratcheting down his company’s financial forecasts. “I’m sure that the broadcast and cable guys are sitting there now counting their lucky stars they got their upfront done before August,” he told analysts. “There’s a lot of uncertainty.”
CEO Philippe Dauman told the Goldman Sachs Communicopia conference that Viacom will see “high-single-digit” growth in ad sales in the current quarter. That put a scare into investors who anticipated double-digit growth. Viacom’s down about 6.5% in mid-day trading, ahead of the benchmark Standard & Poor’s 500, which is off about 3%. Dauman tried to cast a flattering light on the situation: ”Despite the macroeconomic headlines, the tone of the advertising market remains strong,” he said. Specifically, he says that Viacom has held on to orders made in the upfront market while scatter prices are “in the teens above upfront. … We had a good quarter, and the next quarter looks good.” He also said that he has seen no weakness in many of the most important ad-sales categories for Viacom’s cable networks including auto, toys, and movies. The overseas situation is mixed: “Some (markets) are strong and some are weaker.” Although acknowledging that the market shifts with the economy, as Viacom’s ”new shows kick in, we have positive momentum.”
Now that Big Media’s 2Q earnings season is over, the big question on Wall Street is: Did it give us any insight into the future? CEOs’ cheery talk about strong ad sales in TV’s upfront market, the expected bump next year from political ads, and the revenues coming in from online streaming services may be irrelevant if the economy sinks into a deep, new recession. CEOs say they see no evidence of trouble yet. The industry’s leading cheerleader, CBS chief Les Moonves, channeled his inner Buzz Lightyear last week saying that he has “every reason to believe that we will deliver strong results throughout the rest of the year, into 2012 and beyond.” Investors still sliced 6.3% off of CBS’ market value. The Dow Jones U.S. Media Index is down about 16% in the last month as traders anticipate cuts in ad spending, ticket buying, subscriptions — the works. If the pessimists are right, then the race is on: Which company will be the first to change its message from “people will buy media because they have cash” to “people will buy media because it helps them to forget their problems”?
Here are other themes from the latest earnings reports:
Jobs: Media companies still aren’t hiring. No one said that so baldly, but it’s there between the lines: CEOs talked more about financial engineering – cutting costs and returning cash to shareholders – than about spending to become more competitive. Time Warner recorded $24M in layoff-related expenses, quadruple the amount from the same quarter last year, while Viacom spent $14M, up from zero last year. Yet virtually every media company is repurchasing shares or increasing its dividend. The message? CEOs can’t persuade investors that the companies know how to make a decent profit from their cash, and shareholders want it back.
Pay TV: This was “the weakest (quarter) in the industry’s history,” says Bernstein Research’s Craig Moffett. Analysts were startled to see the largest cable, satellite, and telco companies collectively lose about 195,000 video customers. The cord cutters don’t fit the stereotype of well-to-do technophiles. Moffett says that “all the evidence” shows that a growing number of people – especially young adults — simply can’t afford pay TV. Dish Network seemed to confirm that thesis by saying that it will shift its marketing focus to upscale consumers instead of bargain hunters. With the U.S. market stalled, it’s easy to see why cable programmers want investors to look at their expansion efforts in growing markets overseas such as India, Russia, China, and Brazil. “It is the current momentum and potential of our international assets that present a meaningful, unique opportunity for us,” Discovery Communications CEO David Zaslav told analysts.
UPDATE, 7:10 AM: CEO Philippe Dauman told analysts that he’s surprised by the attention being paid to the Paramount arrangement with DreamWorks Animation that ends next year. Still, he says that his studio …
Viacom chairman Sumner Redstone stunned the entertainment industry in 2006 when he fired CEO Tom Freston. One of the chief reasons for the move was that Freston hadn’t moved decisively enough to buy MySpace, enabling Rupert Murdoch to pick up what was then the most popular social networking site for $580 million. Redstone seemed to think that contributed to the 20% drop in Viacom’s stock price in 2006 up to the date of Freston’s ouster. The CEO’s successor, Philippe Dauman, would “never, ever let another competitor beat us to the trophy,” Redstone told analysts. Redstone told interviewer Charlie Rose that losing MySpace had been “humiliating,” adding, “MySpace was sitting there for the taking for $500 million.”
But who’s laughing now? MySpace has collapsed into a distant also-ran behind Facebook and Twitter. And Murdoch took a bath on MySpace this week. He wanted $100 million for it but sold 95% of his interest to ad company Specific Media for a mere $35 million. Just imagine what would have happened to Viacom’s stock if Redstone’s passion for chasing fads led him to outbid Murdoch. It’s hard to believe that the owner of MTV would have seen what Murdoch didn’t — that social network fans were being turned off by MySpace’s tawdry commercialism as it established itself as a music and entertainment portal. That provided the opening for Facebook and Twitter to position themselves as safer alternatives for people who simply want to connect with friends.
The message for the television industry at this year’s National Cable Show was clear: It’s all about broadband now. Programmers agreed that they have to focus on consumers who want to watch video on their smartphones and tablet computers. Meanwhile, cable operators know that they can make a lot of cash by enticing new customers to buy broadband now that the TV service business is mature. The big question is whether the Big Media companies can move fast enough to head off competitors such as Apple, Google, and Netflix. But we’ll let the moguls have the last word:
Viacom CEO Philippe Dauman
- “For the content owners there’s never been a better time.”
- “Netflix is primarily a service that provides library programming. … Netflix got involved in one show (House Of Cards) that was a pay television kind of project, but that isn’t their fundamental business.”
- “If we are ad supported, (then) we need to have a measurement system in place so the mobile device in the home can sell ads. … (Nielsen) is not measuring it now. That’s one of the obstacles [for TV Everywhere].”
- “Consumers are changing. … People don’t want to watch the 17th repeat of the same show.”
- “In a world of a lot of choices, Snookie still rules.”
News Corp COO Chase Carey
- “We have to do a better job of exciting consumers.”
Time Warner CEO Jeff Bewkes
- “Let’s all cheer up. This isn’t the music industry. It’s the cable industry. … It’s morning in the cable industry.”
- “We’re all sitting here at this convention at the cusp of putting all of [our programming] on demand. … We need to get [shows] on every device.”
- “Put the TV on all the Internet devices and don’t charge people to do it and allow them to [access] they way they’re accustomed to.”
Comcast CEO Brian Roberts
- “We are demonsrating a whole new level of (Internet) speed. … It’s where the future of broadband is headed.”
- “We need to make the television feel as relevant as all of these other products [such as smartphones and iPad tablet computers].”
Time Warner Cable CEO Glenn Britt
- “There’s no such thing as a TV anymore. There’s a video display device.”
- “I see Netflix as another programmer. But clearly if there is something that makes consumers not want to buy the big package (of programming) that we’re selling then that’s a threat to all of us.”
- “There clearly is a growing underclass of consumers that can’t afford [cable TV] and they want it. It would behoove all of us to have smaller packages… The economics make it difficult, but it would serve us well to worry about that group.”
Cox Communications President Pat Esser
- “You have to keep going back to the consumer and asking what they value. … Consumers wil reward you for doing that. And in some cases you won’t control all of it.”