After Thursday’s fiscal third-quarter earnings report, Wall Street is anxious about Viacom’s revenue growth, both on the affiliate side and the advertising side.
On the advertising side, domestic ad revenues continued to shrink, falling 2% during the April-June quarter. And the company said a similar report is likely for its fourth quarter, disappointing analysts who are hoping that the ratings increases the company is talking about will someday translate into more ad dollars.
But according to CEO Bob Bakish, the continuing declines in ad sales are the result of the company’s decision to reduce the bloated ad loads on many of its networks.
Viacom CFO Wade Davis said that in the third and fourth quarter, reducing ad loads resulted in a three percentage point swing on revenues, turning what could have been a 1% increase into the reported 2% drop.
Under previous management, Viacom became notorious for stuffing its networks with ads, sometimes creating commercial breaks so long that only five 30-minute shows would fit into a three-hour programming block.
Bakish is vowing to change that, even if it costs the company some revenue now.
“Our ad loads in my opinion were unhealthily high,” Bakish said during Thursday’s earnings call with analysts. “Ad load reduction is an investment we’re making in the health of our brands, which we believe will pay strong dividends.”
Bakish said he was upbeat about the way the ad market was shaping up.
“We’re coming out of an upfront that we’re very happy with. We got up volume, we got a mid-singles rate of change, or you could think about it as CPM. Good demand across the brands. So that’s a nice foundation,” he said.
“Scatter right now, we’re actually very pleased with scatter. I’d say it’s certainly a decent market. You look at MTV as an example, and scatter’s up double digits. So we don’t see any issues with access to money,” he said. “We also candidly have the benefit that we do have an ADU bank that were anything to weaken a bit we could ride right through it. But, again, the scatter market continues to look good.”
He said that ratings for some of the Viacom networks have begun to show improvement. That trend should continue as new programming comes out on channels including MTV and BET, two of the networks that had ad loads most in need of reduction.
Reducing ad load should improve the viewer experience and increase ratings. That should also make the channels more attractive to media buyers and their clients. And, in response to one analyst's question, that eventually will translate into ad revenue growth.
“We should, as we deliver additional audience gains, you will get that flow through to the ad line,” he said.
“Again we’re looking at next quarter, the services aren’t fully where they need to be. If you think about the arc of turning around a television network, that tends to be a one-year window from the time you start working on programming till you get critical mass on air,” he said. “Again we’re not there yet. We have more programing coming and over time the ad performance will follow.”