Viacom certainly turned in a strong first quarter (profits up 33%), but the driver at MTV Media Networks (up 16%) wasn’t television, but the video game Rock Band. Strictly looking at TV, Viacom’s gains were modest: ratings up 5% and ad revenue up 7%. On the earnings call, CEO Philippe Dauman was asked if MTV should have benefited more as audiences fled the broadcast networks during the writers strike.
His answer: No. The viewers that abandoned broadcast TV are heading to the older-skewing cable networks, such as TBS, TNT and USA Network. The demographic that MTV serves, aged 12-34, wasn’t watching broadcast TV, anyway. Still, with ad rates up double-digits in the last-minute “scatter” market, shouldn’t MTV Networks’ ad revenue be up more than the reported 7%? Dauman didn’t really answer, but said much would be determined for the coming year in the Upfront.
On digital, Dauman was asked if felt Viacom was missing another opportunity–to build social networks around music (like Last.fm), and if he’s planning to make a digital acquisition in this area, such as imeem. Again, the answer was no, he’s comfortable with Viacom’s current assets, such as Flux and virtual worlds build around music, and the company plans to build its digital businesses organically.
On the pay-TV venture with MGM and Lions Gate, Dauman said Viacom would be the largest shareholder of the joint venture, but not a controlling shareholder. He said the company will invest $100 million in the venture over the three-year deal.
Notes from the call:
Call starts at 8:30 a.m. ET. Standing by.
Call starts with standard Sumner Redstone preamble: “We have all the right ingredients for success at Viacom. Philippe has brought visionary leadership and a focus on execution… senior managemnt are pushing creativity and efficiency to new heights! I constantly think about what a wise decision it was to ask Phillippe to join as CEO.” (slam, Tom Freston)
Dauman: Wordwide ad sales grew 8%, while U.S. ad sales grew 7% in the quarter. Says he believes Q2 ad sales growth will be comparable to the current quarter.
He’s talking about building connections with consumers. Brings up short-form branded programming with Dove that aired during commercial breaks of “The Hills.”
“In our business there is one fundamental constant: hits matter.” Our ratings are strong which bodes well for us going into the Upfronts. Says ratings in Q1 are up 5% across the board, meaning MTV Networks weathered the writers strike a lot better than the broadcast networks.
Nickelodeon online–2.2 billion page views in Q1. “iCarly” is well on hits way to mega-hit status. The Web site has recieved 100k video uploads from fans. Site got 3.3 million uniques in March. Dauman says this is the kind of property that performs well across platforms.
At MTV, “The Hills” was the No. 1 show on cable among 12-34 year olds. Created a virtual version of “The Hills” that now has more than 2 million users. MTV had 1 million mobile streams in the quarter. Shows on mobile at the same time as on TV.
In 12th season, South Park is multi-platform juggernaut for Comedy Central. South Park digital: the show is MTV’s best selling franchise on iTunes and Xbox, with 7 million copies downloaded.
Music video game Rockband: since launch in November have shipped 3 million bundled units and 10 million music downloads. This is a major new brand and long-term franchise for Viacom. We intend to nurture it and grow it, just like we would a TV franchise.
8:54 am: Dauman starts to discuss new pay-TV channel with MGM and Lions Gate: “This JV is feasible because we find ourselves at a unique point in time when content is available. we intend to reinvent this window and we intend to do so. we will control our own destiny by controlling how our content is exploited and marketed. We will be better be able to serve audiences cross-platform and derive more value.” Calls it a “game-changing endeavour.”
8:56 am: No talk about any specific challenges in the ad market, but Dauman says “each unit has taken steps to prepare for whatever the economy may bring.”
On potential of an actors strike: says all current film production will be completed by June 30, the end of the SAG contract.
CFO Tom Dooley gives outlook: double-digit growth in diluted earnings per share from continuing operations for the next three years.
9:10 a.m.: Q&A starts
Help us understand the digital initiatives… how much is digital adding to growth? What percentage of revenue comes from digital?
Dauman: We start with brands and having them travel on all platforms. Its becoming increasingly difficult to separate digital ad sales from TV because increasingly they are sold in packages. It would be misleading to break it out. We view it to be overall additive in both short term and long term. All of our creative execs are simultaneously focused on developing content on all platforms…
Will Viacom be the majority owner of “channel X” the new pay-TV channel? How will it be distributed beyond TV?
Dauman: We are the lead investor. We will not be the majority owner, but a significant owner of the business. The joint venture was formed to better serve consumers and better monetise the pay window. The level of interest and enthusiasm has been encouraging to us.
Question on ad sales outlook … if there are pricing increases shouldn’t ad sales growth be greater than 7%?
Dauman: We are heading into the upfront which will dictate pricing for next year. The way we look at it now we see the current trends continuing. Really dodging the question here. “We see this as a normal progression in the business.”
How much cash will you contribute to the pay-TV venture?
Dooley: $100 million over the life of the venture.
Shouldn’t MTV be getting more of the audiences shifting away from broadcast, especially due to the writers’ strike?
Dauman: Broadcast ratings suffered tremendously but the spillover from broadcast went to the older cable networks. Our growth has been more in the demos that we serve. Its not impacted by the writers strike.
Talk about the decision to release films on iTunes… what is the risk of cannibalising DVD sales?
Dauman: On iTunes we had been supplying some of our movies to iTunes. Primarily library content at price points that made sense to us. For new releases terms had to be negotiated so pricing would be consistent with other outlets for DVDs like Wal-Mart and Best Buy.
You were slow getting started in the music social networking space which is at odds with the history of MTV. When you look at Last.fm, Imeem attacking this space–what are you doing to attack this market which would fit nicely with MTV?
Dauman: We have made tremendous strides in the last year or two. Talks about Flux platform, virtual worlds, online plans with Rock Band franchise. We have the opportunity to reinvent music as an experience. When it comes to getting advertising dollars we enjoy a higher CPM by far than the other entities you mention in that question.
Will you look at imeem or other acquisition targets? Or build organically?
Dauman: our primary focus is grow organically. We have only just begun. There is a lot of opportunity and has the best return on invested capital. We have made a few very selective small acquisitions–Harmonix brought us Rock Band. It tied very much into our core.
Third-party data says your commercial retention has fallen off by half. Have you reduced the ad levels?
Dauman: Our commercial retention has been positive. We took a leadership position to delay the implementation of commercial ratings. In networks where there is some fall-off we’ve increased and shortened the number of commercial pods. New marketing like “pod takeovers” by advertisers. We show content from our shows within the commercial pods. All of these things have made viewer retention better than anticipated and we see room for improvement.
Are you going to build an online ad network?
Dauman: BET is doing it. Nickelodeon is doing it for kids and parents. The primary focus is on our 300 sites and the platform we have.
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