MTV: Redrawing the Blueprint

Mar 5, 2007  •  Post A Comment

Viacom CEO Philippe Dauman is cutting staff and investing in programming and digital businesses to pull his cable networks business out of the financial doldrums.

Even those strong measures won’t create momentum immediately. Last week he warned that the costs of a restructuring-estimated at $70 million-and higher programming expenses would probably extend the pain at his MTV Networks business through the first half of the year, shrinking profit margins.

The restructuring of Viacom’s cable networks business, which includes MTV, Nickelodeon and TV Land, continued last week after 250 job cuts were announced in February. The changes-including an executive shakeup and a shift in how the company conducts its upfront advertising sales-come as the company tries to accelerate its adjustment to a digital future.

Mr. Dauman, an understated financial specialist, six months ago replaced the hip, programming-savvy Tom Freston as CEO after Viacom Chairman Sumner Redstone grew dissatisfied with Mr. Freston’s efforts to develop Viacom’s digital businesses. Now Mr. Dauman has to battle back from a fourth quarter in which advertising sales at the networks group fell below his own expectations and those of analysts.

“I will be the first to say that we are facing challenges,” Mr. Dauman said on a conference call last week after the company announced earnings. “Without question we are passing through a period of substantial transformation.”

He noted there are signs of hope, with ad sales picking up. Mr. Dauman last week said the company also is concentrating on building up its internal digital properties, and expects to generate $500 million in digital revenue in 2007.

Viacom is eschewing major acquisitions in the digital arena, a strategy that comes too late for Mr. Freston, who lost MySpace.com to Rupert Murdoch’s News Corp., angering Mr. Redstone. Mr. Redstone felt MySpace would have been a good fit with Viacom’s youth-oriented brands.

Overall Viacom’s earnings slightly exceeded analysts’ expectations, as the acquisition of the DreamWorks SKG movie studio bolstered the company’s film division. Fourth-quarter net profit almost quadrupled to $480.8 million, or 69 cents a share, up from $129.5 million, or 17 cents, a year ago. Revenue rose 32 percent to $3.6 billion

“The only major shortfall was cable network revenue,” noted Spencer Wang, an analyst at Bear Stearns.

The company announced a restructuring of that business’ advertising sales department into three units: one dealing with kids and family programming, another with music networks and one with entertainment networks aimed at adult viewers. (TelevisionWeek, Feb. 26, “MTV Nets Shuffle Ad Sales Structure.”)

The ad department will also have specialized teams for digital ad sales, brand partnerships and new business opportunities.

That reshuffling included combining the affiliate sales units of MTV Networks and BET, as well as another 250 positions being eliminated at MTV Networks International.

Thomas Dooley, Viacom’s senior executive VP and chief administrative officer, said the fourth-quarter ad sales shortfall was caused partly by ratings stumbles at Nick at Nite, TV Land and MTV, and partly by weakness in video game and beverage advertising. The video game makers shifted spending to the first quarter, Mr. Dooley said.

“While the fourth quarter ad-sales growth in our media networks segment was not as high as we would have liked, we have already instituted changes that will over the course of the year create a more efficient and responsive organization,” Mr. Dauman said.

The new ad sales organization also will be changing the way it approaches the upfront market, with MTV Networks abandoning the flashy, talent-heavy events it used to throw for media buyers at Madison Square Garden. In their place, the cable channels will hold a “rolling upfront,” Mr. Dooley said. That matches the networks’ rollouts of new shows, he said.

Unlike the broadcasters, which mostly unveil new programming in September, “We’re introducing new programs pretty much every quarter throughout the year and in some cases on some channels we’re changing programs out month-to- month,” Mr. Dooley said. “As we do that and add those new programs there’s new opportunities to go to our advertisers and create promotional programs built around that.”

Viacom’s online properties are growing rapidly, registering more than 40 million unique visitors in March to rank as the top entertainment destination on the Web, Mr. Dauman said last week.

He pointed to virtual reality sites such as Virtual Laguna Beach and Nicktropolis as something the company will be doing more of because the model appeals to both users and advertisers.

He said the company also has rebuilt its largest Web sites to accommodate more advertising units, more content and better features.

“Our properties receive high CPMs in digital,” Mr. Dooley said. “We are selling premium content in a branded environment.”

MTV Networks’ digital ad revenues rose nearly 60 percent in the fourth quarter, he said. Operating income at the cable channels business rose 6 percent to $809.9 million as revenue increased 4 percent to $2.1 billion. Domestic ad sales moved up 4 percent.

During the quarter the company also notified video-sharing sites Google and YouTube to take down Viacom clips, while agreeing to provide content to Web video distribution start-up Joost.

Since YouTube and Google began taking down Viacom clips, traffic on MTV Networks sites has jumped, Mr. Dauman said.

“We are very pleased to have more traffic now, since we took down our content from YouTube, on our own sites because we are able to monetize that for our own pocket, as opposed to having someone else monetize it at our expense,” he said.

Mr. Redstone praised the work Mr. Dauman has done in his first six months on the job.

“He moved quickly, he moved decisively,” Mr. Redstone said.

Asked whether he would consider selling the company or merging it with its former corporate sibling CBS, Mr. Redstone said, “I love this company. The company’s not for sale.”