It's reality-check time for MTV.
A growing number of music television fans have been reaching for the remote lately instead of sitting through another episode of Paris Hilton's search for a new BFF or the network's sex-charged "reality" shows.
For that matter, fewer viewers seem to want Nickelodeon, Comedy Central or Spike.
Although recession-weary Americans have turned to entertainment for escape in big numbers this year (see "Potter and Spock vs. the recession"), viewership at the biggest cable channels run by Viacom (VIA.B, news, msgs) has been dropping. Ad sales are down because of the recession. And Viacom has a film division, Paramount, that can't seem to consistently turn a profit.
All of this has had shareholders running away from media magnate Sumner Redstone's cable baby. The stock is down to $21 a share from $45 a year and a half ago.
But as anyone who has watched TV networks battle it out over the years knows, a slump seldom lasts forever. Sadly, Michael Jackson won't be back with a new "Thriller" to jump-start MTV. But sooner or later, Viacom will turn things around.
In fact, there are already early signs that Viacom is fixing its ratings problems with programming tweaks and a management shakeup. Investors may well want to tune in.
Who broke MTV?
Viacom's rating slump is widespread, but the highest-profile setback has been at once-pioneering MTV, celebrated in its early days by the line "I want my MTV."In its target audience of adults ages 19 to 34, MTV ratings plunged 20% in the first quarter of 2009, according to Nielsen Media Research. The network sustained similar declines in April and May.
Who's at fault? Some blame the network's transition to "RTV," or reality TV, from music videos. But that move, begun more than a decade ago, actually looks smart given how the Internet has reshaped the music business, industry insiders say.
"Kids have so many means to find music now," says Johnny Maroney of Moodswing360, which represents popular acts such as DJ Enferno, who has toured with Madonna.
One of Maroney's bands, LMFAO, performs a song in the current season of MTV's "The Real World: Cancun." But he says the musical acts he represents are much more likely to use Internet sites like YouTube or MySpace to get out their music and videos these days, because that's where the fans are looking. Music lovers now use video on demand to watch the latest releases, even on their TVs.
Rather, MTV's problem may be that it did such a great job with reality shows such as the "Real World" series and "Laguna Beach" that competition arrived in a big way. Now, the space is overcrowded just as older MTV programs are losing some of their appeal, says Ashley Dos Santos, a pop-culture expert with publicity firm Crosby-Volmer International Communications.
Popular reality shows such as "Jon & Kate Plus 8" on TLC and "The Real Housewives of New Jersey" on Bravo are stealing viewers from "The Hills," "The City," "Paris Hilton's My New BFF" and other MTV shows, Dos Santos says.
Viacom concedes it has overworked the genre. "We just kept producing the same kind of show," Viacom chief Philippe Dauman said at a meeting with investors in late May. Producers went "overboard" and worked popular formats "to death," losing audience as a result, he said.
The real ratings world
MTV isn't the only problem for Viacom's TV division:- Ratings for Comedy Central, whose programs include "The Daily Show With Jon Stewart" and "The Colbert Report," fell 10% in the first quarter, based on Nielsen's measure of full-day viewership by its target demographic of 18- to 49-year-olds. They fell again in May and June, by 8% and 11%, respectively.
- Ratings for Viacom's kids network, Nickelodeon, fell 4.3% in June.
- Viewership at Spike, a Viacom channel aimed at male viewers, has been weak for much of this year.
Ratings matter a lot at Viacom because advertising accounts for 54% of Viacom's cable network revenue and about 35% of revenue overall. (Fees from cable companies and Paramount movie earnings account for most of the rest.) Advertisers pay more when ratings are higher.
To get a sense of how big the problem is, it helps to weight these ratings declines based on how much revenue each network contributes. After all, a big ratings decline at a tiny show doesn't mean much.
On a revenue-weighted basis, Viacom's overall ratings declined 7.5% in the first quarter, according to Credit Suisse analyst Spencer Wang. By about mid-June, revenue-weighted ratings at Viacom were down 4.5%, compared with an average increase of 3.8% for Disney (DIS, news, msgs), News Corp. (NWSA, news, msgs) and Time Warner (TWX, news, msgs), Wang says.
Light at the end of the tunnel
All of this sounds grim, but ratings tend to be cyclical. One example: NBC's move from media mess to must-see TV in the early 1980s.So while Viacom is down, it would be a mistake to count it out. "Viacom will weather this storm and emerge even stronger than ever before," Redstone, the company's founder and executive chairman, told investors in a conference call earlier this year. "We have the creative firepower to keep the hits coming."
Signs are already appearing that Redstone may be right. Revenue-weighted ratings fell just 2% in May and improved 1.9% in June, according to Credit Suisse, a sharp improvement from the deep declines in the first quarter. Other positives:
- MTV ratings are leveling off. Ratings fell just 7.7% in June -- not good but a big improvement. A new block of Sunday evening programming targeting young male viewers seems to be working, and there's more to come.
"We are launching a lot of new shows over the next several months, and we expect to see results there," Dauman said in late May. It'll be easier for MTV to reboot because Brian Graden, the president of entertainment of MTV Networks' Music and Logo group, is leaving as part of a bigger management overhaul, the New York Post reported in mid-June.
One big problem for MTV has been that its reality shows don't draw well as repeats. MTV is addressing that in part by extracting more episodes from the many hours of video shot for a season of a reality show. "Producers are willing to make concessions now," Dauman says. "We are able to put more episodes in a season of original programming for the same cost."
- Viacom's Black Entertainment Television (BET) has been growing dramatically. Ratings were up an impressive 40% in its target demographic for May. That strength followed through in June, with a 50% ratings increase. Like MTV, the network has been moving away from music to original programming, much of it the kind of reality shows that MTV moved to in lieu of music videos.
- VH1 is hot. Ratings for VH1 improved 19% in May and were strong again in June.
The weakness at Comedy Central, meanwhile, may simply reflect the shifting political seasons. Last year, "The Daily Show" and "The Colbert Report" had a presidential election to spoof with their fake news. It's hard to match those results now, but not because the shows themselves are outdated or flawed. "The intricacies of the health care debate aren't as gripping as talking about McCain versus Obama or Hillary," says an analyst at a mutual fund company that holds Viacom stock.
The declines at Nickelodeon could just be a blip, given the huge popularity of programs such as "SpongeBob SquarePants" and "iCarly," whose ratings rival those of Disney's hit "Hannah Montana." The declines at Spike also reversed in June.
Paramount finds hits
Viacom does still have a Paramount problem. For years, Paramount Pictures has failed to make money consistently. Costs were high, and the film division couldn't produce hits reliably. DVD sales are also down sharply because of the recession.But Viacom has been cutting costs at Paramount, and it's reportedly in talks with several studios to reduce costs even more by combining DVD manufacturing and distribution.
Plus, several hits this year -- including "Monsters vs. Aliens," "Star Trek" and "Transformers: Revenge of the Fallen" -- will boost revenue significantly despite the Eddie Murphy bomb "Imagine That."
"Paramount will have a very good year or two," says Larry Haverty, adding that's one reason he owns Viacom shares in the Gabelli Global Multimedia Trust (GGT), a closed-end mutual fund he manages. "Viacom is clearly a collection of assets that has value."
But what's it worth?
Indeed, while Viacom was once a growth-stock darling on Wall Street, it now looks more like a value play, says Citigroup analyst Jason Bazinet. "That's never a pleasant transition for any stock," he says.For investors, the question is whether the stock has gotten cheap enough to indicate an upside from here, based on the value that Haverty sees in its assets.
In fact, the stock was trading below $14 in March, before the market's spring rally lifted it and most other stocks. I think overall market weakness ahead, due to worries about a delay in economic recovery, could send Viacom's shares below $20 again.
At that point, the stock turns into a buy as a long-term bet that Viacom continues to get its act together and the economy rebounds. Analyst Michael Corty at Morningstar, which has a fairly conservative value bent, thinks the stock is a buy below $19.60 a share.