Viacom's Nickelodeon to Launch Video Service --2nd Update

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 [e-mail] and Michael Calia at [e-mail]

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