Media Company Formula: Layoffs, OTT, International - Broadcasting & Cable

Media Company Formula: Layoffs, OTT, International

Viacom’s Dauman takes page from playbook on dealing with digital disruption
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A media company playbook for dealing with an increasingly digital environment is emerging.

Viacom, a poster child for the havoc changing viewing behaviors, especially among younger viewers, are having on ratings and advertising revenues, on Thursday reported earnings and revenues that were below expectations.

During Viacom’s earnings conference call, CEO Philippe Dauman laid out a series of steps to boost revenue that’s starting to sound familiar

The steps include:

• A restructuring, including staff reductions, to lower cost in the name of focusing on growth areas.
• Blaming Nielsen and looking for ways to raise ad revenue in places where the ponderous ratings agency isn’t counting.
• Going over-the-top, presumably in a way that won’t cannibalize the current high margin business of owning cable networks.
• Looking abroad, where the cable business isn’t mature and there are opportunities for growth.

Last year, after rejecting a takeover bid from 21st Century Fox’s Rupert Murdoch, Time Warner CEO Jeff Bewkes needed to goose earnings and laid out many of these signposts on what he said was the road to becoming a successful content company in the modern age. TW’s Turner Broadcasting, Warner Bros. and HBO units eliminated thousands of jobs and announced that HBO would release an OTT product this year.

Scripps Networks Interactive took similar steps last year, announcing layoffs, dropping low-growth activities, signing up with Dish Networks’ Sling TV OTT service and embracing international opportunities.

Here’s how Dauman described the situation on the earnings call:

“It is no secret that there are far reaching shifts taking place in our industry. As the industry evolves it is more important than ever to focus on Viacom’s significant strengths,” he said.

“We are rapidly adapting our processes and businesses as well as human, financial, and technological resources to increase focus on new, high potential areas. We have teams dedicated to content creation with a focus on more and better original programming that monetizes on all screens,” he said.

“It is clear that this transition will require some organizational realignment as well as rationalization of content that no longer meets our goals. We have identified specific areas where we can work more efficiently while focusing better on the evolving needs of our customers and audiences. These changes are well underway and will result in substantial net cost savings throughout our organization while at the same time increasing our focus and investment in areas with the highest growth potential,” he said.

One of those high growth areas is a new direct-to-consumer premium subscription service from Viacom’s Nickelodeon unit. The service will be branded with a separate name from Nickelodeon, and “will target the fast-growing mobile market” and be attractive to parents and children.

Such a product would shift Nickelodeon from the shrinking television ad market to the exploding mobile ad market.

Earlier in the week, Viacom made a similar move with Comedy Central and MTV, which will create platform for Snapshot’s new Discovery mobile platform.

Meanwhile, on the international front, advertising revenues were up 60% because of last year’s acquisition of Channel 5 in the U.K.

Some Wall Street analysts just ate up what Dauman was serving.

In a report entitled “Viacom: Takes Action to Drive Top-Line Growth And Cut Costs,” Marci Ryvicker of Wells Fargo said that Dauman said “pretty much everything we wanted/needed to hear. Specifically, we heard about restructuring, new programming, A Nick-type OTT service, and more international M&A.”

After an early plunge, Viacom share finished Thursday up 99 cents at $67.49.

Not everyone was buying.

“Given our view that the audience abandonment of ad-supported TV is structural, and worst among kids and young adult demographics, we believe the future is more likely negative than positive,” said Sanford C. Bernstein analyst Todd Juenger, a long-time critic of Viacom. “We expect to hear commentary on the call that the company is currently going through a transition period, evolving to a future world of new, digital, fragmented audience platforms and different ways to deliver and monetize advertising. Our view is that future world is deflationary relative to the previous world.”

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