Viacom Reports Loss Amid Restructuring -- Update

By Keach Hagey And Chelsey Dulaney 

Nearly six months after a ratings-challenged Viacom Inc. declared its plan to shift half its advertising business away from traditional TV ratings, the company has showed some signs of progress as its ad revenue fell much more slowly than its ratings in the most recent quarter.

Ratings across Viacom's channels, which include Nickelodeon, MTV and Comedy Central, fell 22% in the quarter ending in March, but domestic advertising revenue fell only 5%, the company said Thursday, a slight improvement on the previous quarter's 6% decline. Jeffries analyst John Janedis said the improvement "suggests traction in non-Nielsen dependent sales, in our view."

With its large bundle of young-skewing channels, Viacom has been among the media companies hardest hit by the defection of younger viewers to online video, and Viacom Chief Executive Philippe Dauman has become one of the loudest critics of Nielsen's inability to measure all the viewing that is happening on nontraditional platforms like smartphones and gaming consoles.

This spring "upfront" ad sales season, Viacom has been trying to bypass traditional Nielsen ratings more than normal by going to advertisers with new advertising products based on first- and third-party data that lets advertisers target viewers with more specific characteristics than the traditional ones of age and gender.

"We are moving away as rapidly as possible from traditional methods of measurement," Mr. Dauman said in a call with analysts, adding that the company's new ad initiatives are "redefining how advertisers connect with our audiences and, more fundamentally, how ratings success will be defined in the coming television landscape."

He added that the company is making progress on its goal of expanding its "non-Nielsen-dependent" ad revenues from 30% to 50% in three years, and that investors are likely to see a big step up after this spring "upfront" season, during which the company has already booked 30% of its advertising business.

Todd Juenger, an analyst at Sanford C. Bernstein, wrote that some of the gap between ratings and domestic advertising shortfalls was indeed progress on rolling out these new ad initiatives, but added that he believes the company's non-Nielsen-dependent ad revenue is currently dominated by direct-response advertising--ads that usually ask viewers to call a phone number to order something--"which is nothing to brag about." He also estimated that Viacom carried 9% more ads in its shows in the most recent quarter.

A senior Viacom executive noted that, while direct-response is a significant portion of non-Nielsen-dependent ad revenue at the moment, it is becoming a more profitable part of Viacom's revenue mix as direct response advertisers incorporate more data in their media buying.

Despite these improvements, Viacom swung to a loss in its March quarter on a hefty charge to restructure its business, while revenue also came in below Wall Street expectations amid foreign exchange impacts and weakness in its filmed entertainment business.

Excluding special charges, adjusted per-share earnings came in above Wall Street expectations.

In the latest quarter, the media networks division's revenue edged up 3% to $2.45 billion on higher advertising and affiliate fees.

The company's filmed entertainment division posted a 21% drop in revenue to $659 million, as television license fees and home entertainment revenues were weighed by the mix of available titles.

While domestic advertising revenues fell, world-wide advertising revenues were up 4%, driven by an 80% increase in international advertising largely thanks to the newly acquired Channel 5 in the U.K.

Overall, the company reported a loss of $53 million, or 13 cents a share, compared with a prior-year profit of $502 million, or $1.13 a share. Excluding certain items, earnings were $1.16 a share.

Revenue fell 3% to $3.08 billion.

Analysts polled by Thomson Reuters had forecast profit of $1.06 on revenue of $3.26 billion.

Viacom estimated foreign exchange brought down revenue by 2%.

Write to Keach Hagey at [e-mail] and Chelsey Dulaney at [e-mail]

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