Netflix: The New Arch-Frenemy
The Albanian Army is coming everyone, watch out!
We’re only into week 1 of big media companies reporting their quarterly earnings and the most prominent name hasn’t been CBS Corp, Time Warner Inc, Comcast Corp, and Viacom — instead it’s all been about Netflix.
Pretty much on each of these companies’ conference calls, the $4 billion company from Los Gatos, California was a key reason for a boon to the bottom line by supplying ’found money’ by digital licensing of shows that would have been gathering dust on a shelf somewhere in Hollywood. But also on the calls for several of the same companies, Netflix was seen by analysts as a threat to their future. Let’s not forget the four who reported this week have combined market value of over $160 billion.
At CBS on Tuesday, which most people see as a broadcast and billboards advertising company, the first quarter was given a nice bump from its licensing of old CBS shows like”‘Cheers” but also by newer cable shows like Showtime’s “‘Dexter” and “Sleeper Cell”. Here’s the ever ebullient CBS CEO Les Moonves telling analysts on Tuesday how great Netflix and other copycats are:
“Content is forever and quality content never goes out of style. Nowhere is this more evident than the way we monetize our content digitally. In addition to the deals we struck with Netflix and Amazon, other online video distributors are looking to license our library content. These deals are having a big impact on our financial results, adding meaningful, very high margin dollars to our bottom line”
Viacom chief Dauman plays down Nickelodeon ratings dip, sees more ads
Viacom Chief Executive Phillipe Dauman tried to play down the Nickelodeon surprise double-digit ratings drop in September as a Nielsen glitch which is being worked on and would not impact the upcoming quarter.
Dauman, speaking at a UBS Media and Technology investment conference, expressed his frustration at the issue but said there was little that could be done about it at this stage. He said “Nielsen is the only game in town”.
He described the timing as unfortunate coming in the crucial September quarter ahead of the holiday season.
Dauman said the current quarter was looking a lot better
“The dynamics are good as we look to the next quarter we expect to see strong ad growth. We’re feeling very good about the transition from this difficult situation that we had.”
Karmazin: I’d have sold Viacom but for Sumner
Sirius XM Satellite Radio chief Mel Karmazin on Tuesday stopped by the annual Reuters Global Media Summit to talk about his company, its future and to occasionally go down memory lane on a range of what if’s.
The 68-year old acknowledged that after roughly 50 years in the business he finally realizes that he’s not a good number two. He also proudly noted that he has no aversion to selling a company he leads if the right offer comes along. His track record backs him up on that claim. Karmazin sold Infinity Broadcasting to CBS in 1997, and then CBS to Viacom in 2000, creating enormous wealth for his shareholders in the process.
But there’s one deal Karmazin seemed to regret not having a chance to get done–selling Viacom. He admitted that given the opportunity and presented with the right price he would have sold Viacom when he was in charge. But Viacom’s 88-year old legendary leader Sumner Redstone, who has majority control over both that company and CBS, stayed at Viacom longer than expected. Indeed, Redstone still serves as Viacom’s chairman, outlasting Karmazin, who decamped to SiriusXM after three years of constant clashes with the octogenarian.
“I would have sold Viacom if Sumner wasn’t around,” Karmazin noted candidly. He then smiled wide before adding, “If he went out to lunch I would have sold it.”
Are kids wringing out SpongeBob?
Back in September, right before the quarter ended, Viacom trimmed its advertising revenue outlook to high single digit growth from double digit growth. One of only a few media conglomerates to take that step–News Corp, Time Warner, and CBS were much more upbeat–the move prompted some concern among media watchers that advertisers were beginning to slash their budgets on macro-economic concerns.
But that wasn’t the case. It turns out the problem was Viacom specific. As the Sumner Redstone-controlled company disclosed during its fiscal fourth quarter results Thursday, domestic advertising revenue growth slowed in part because of a mid-September ratings plunge kids network Nickelodeon. Total domestic ad revenue across Viacom’s cable networks, which also includes MTV, VH1, and Comedy Central, for FQ4 was up 7 percent versus the third quarter’s climb of 12 percent.
What’s more is that Viacom CEO Philippe Dauman threw audience measurement company Nielsen Co under the bus on Thursday’s earnings call, saying the ratings drop at Nickelodeon was “inexplicable.” He said Nielsen’s data did not match Viacom’s own set top box data for viewers. The company is currently in discussions with Nielsen– the dominant company that tracks TV ratings that determine ad rates — and the watchdog organization Media Ratings Council to resolve the situation.
Here’s Dauman on the call: “Let’s just say that we wouldn’t have had to have any conversatoin with either of them based on the set-top box data they are examining. That is the reason everybody believes there is an anomaly.”
Nielsen responded with this statement: “It is the longstanding policy of Nielsen not to comment on specific client business issues. As Viacom stated on their earnings call this morning, we have worked closely with Nickelodeon and the Media Ratings Council to conduct an exhaustive assessment of the methodoligical and market factors reflected in national TV ratings. To date, the review process confirms that our measurement methodology, operations and related reporting processes are working as expected.”
Battling with media companies over ratings data is unfamiliar territory for Nielsen. Broadly speaking, the company has been criticized by some media conglomerates that claim its methodology for tracking consumers’ viewing habits is outdated. For instance, last November former NBC chief executive Jeff Zucker said Nielsen’s sample size was a problem, explaining that CNBC’s ratings fell after only three people were taken out of a 300-person Nielsen sample.
But, as it related to Nickelodeon, the problem may have nothing to do with Nielsen at all. Maybe it’s that children have turned against TVs. Hard as that is to imagine, that’s the takeaway from a note issued by Barclays Capital analyst Anthony DiClemente Thursday looking at a ratings rundown titled: “What are the kids watching these days?”
MTV lays off staff; Viacom chief cuts outlook
As Viacom Chief Executive Philippe Dauman was managing investors expectations speaking downtown at the Goldman Sachs Communicopia conference, back at its midtown Times Square HQ, staffers at flagship unit MTV Networks were fretting as pink slips were being handed out. There was widespread concern internally, according to a source. (AdWeek reported it last night).
Dauman was his usual deadpan self as he lowered outlook, saying advertising sales would still be up but by “high single digits” percentage growth rather than the double digits growth he had promised as recently the third quarter call just last month.
Viacom shares tanked by some 9 percent on Thursday, more than a wider market downturn, as investors read Dauman’s cutback as an early sign of worse to come. The worry on everyone’s minds is of another major 2008-like ad recession may be round the corner. Shares are off another 3 percent on Friday morning. It’s worth noting CBS, whose revenue is 70 percent advertising, dropped by 7 percent despite bullish comments by CEO Les Moonves a day earlier. It shows how jumpy everyone is right now.
But in fact Dauman explained that the cut back was due to a short-term programming ratings issue rather than economic headwinds.
Here’s Nomura analyst Michael Nathanson said he had “unpleasant flashbacks to May 2008″ when Viacom lowered advertising guidance during a Q&A he had Dauman. However, there are a number of key differences.” He says Viacom has less debt load than 2008, it’s trading at a lower valuation than in 2008 and he feels it will benefit from ongoing profit margin expansion at its international business.
“The company blamed a short-term ratings issue for the lower numbers rather than a change in tone from advertisers. Despite widespread comments that the market is healthy, we worry that slowing national TV scatter, as we picked up in August channel checks, is as much to blame as ratings.”
As for the staff cuts? We’ve heard they were not “big sweeping” cuts but “isolated changes” at a brand and business unit with the Music Group Digital being the most affected. Less than a 100 we’re assured, but no one at Viacom is willing to confirm numbers just yet. We’re also privately assured by a person familiar with Viacom that Dauman’s Thursday presentation saying ad sales being pretty strong even as pink slips were being handed out was an unfortunate coincidence.
“Jackass 3D” tops “Avatar” on Viacom Chief’s movie list
“My favorite 3D movie of all time is Jackass 3D,” Viacom’s Chief Executive Philippe Dauman said on Wednesday at Reuters Global Media Summit. The movie, which grossed $116 million in the United States, according to Box Office Mojo was “relatively low cost” and “significantly profitable,” Dauman said. “You’ll see more of that coming.”
What else might the future hold for Viacom in 3D? Possibly Snooki.
Reuters Breakingviews columnist Rob Cox asked Dauman if audiences can soon expect a Jersey Shore in the third dimension.
“I’d love to see that,” Dauman said, “Gym, tan and laundry in 3D.”
Earlier this month, Viacom said it is selling Harmonix, the video game publisher behind Rock Band and this year’s Microsoft Kinect hit “Dance Central.” Dauman said the sale is proceeding swifty but declined to divulge details prospective buyers. Media Summit guest chief executives Bobby Kotick and Strauss Zelnick from Activision Blizzard and Take-Two respectively, said they’re not interested.
“Whoever puts the best proposal forward from all perspectives will be the winner,” Dauman said.
Friday’s Media and Technology Roundup
Fans scramble for Apple’s iPhone upgrade-Reuters
“Apple fans lined up overnight by the hundreds outside stores in the United States, Europe and Japan to snap up the latest iPhone, setting a new benchmark in the fast-growing smartphone market,” writes Franklin Paul, Marie Mawad and Sachi Izumi.
Twitter settles privacy charges with U.S.-Reuters
“Microblogging service Twitter has agreed to a settlement with the U.S. Federal Trade Commission over charges it put its customers privacy at risk by failing to safeguard their personal information,” reports Sinead Carew.
Broadband spurs new businesses and ideas in Kenya-Reuters
“When Kenyan graduate Roy Wachira, 25, set out to start his first business, he turned to the Internet, whose growth in the east African nation is spawning opportunities unthinkable even a year ago,” writes Duncan Miriri.
Google and YouTube defeat Viacom in copyright lawsuit-Reuters
Google wins game that already played out
Google’s victory in the closely-watched lawsuit launched by Viacom alleging the Internet giant let users upload copyrighted videos including “The Daily Show with Jon Stewart” to YouTube represents a win in a game that played out long ago.
The impact of the three-year old case, some legal experts reckon, occurred well before a U.S. District Court in Manhattan threw out Viacom’s $1 billion suit. (Viacom said it is appealing the case.)
As these things tend to go, the case exhibits how technology outpaces the legal system by miles.
“I think to a certain extent the [media] industry has moved on,” said Kimberley Isbell, a staff attorney with the Citizen Media Law Project based at the Berkman Center for Internet and Society at Harvard University. “I think many of the studios have come around to the idea YouTube and Hulu and other sites like this can be a good promotional tool.”
Indeed, months after Viacom, home to MTV and Paramount Studios, filed the lawsuit against Goggle and YouTube in the early part of 2007 several media and tech/Internet companies partnered up and agreed on a set of principles to lock down on copyright infringement while encouraging viewership.
While Google didn’t sign on, it came to the table with its own technology measures that now are used widely, said Isbell.
It certainly appeared that while Google and Viacom were fighting it out in the courts, they were working together behind the scenes toward a solution. YouTube removed hundreds and thousands of videos shortly after Viacom issued a request to remove the the material.
Hizzoner Roasts Murdoch
Last night, The Wall Street Journal held a party at Gotham Hall for a slew of media, advertisers, bigwigs (Barry Diller, the cast of In the Heights!) to introduce Greater New York, a souped up metro section that debuted on Monday. Perhaps you have heard of it.
Usually at events like these, Mayor Michael Bloomberg is roped into saying some words about how great the Big Apple is followed by a note of thanks for creating new jobs for the city. Last night was no exception.
What made Bloomberg’s speech – really a roast of News Corp Chief Rupert Murdoch – kind of cringe-worthy was the fact that Bloomberg News is a huge competitor of Dow Jones. It’s not entirely clear if Bloomberg was joking when he said that his company had considered purchasing Dow Jones before he held up a mock-up of the Greater New York edition showing the audience how Bloomberg would have gone about things.
Also awkward: apparently Bloomberg isn’t thrilled about another outlet covering his administration. He quipped: “In the media capital of the world the more competition we have, I think the better. Of course that also means we will have a Journal reporter at my press conference every day from now on asking another ridiculous question. Hey, there’s always room for one more.”
To make things even weirder, meanwhile, Bloomberg BusinessWeek reported from the Milken Institute Global Conference in Beverly Hills on Monday that Viacom Chief Sumner Redstone took potshots at Murdoch, predicting that newspapers will be out of business in two years. And then he said this about Murdoch: “He lives in ink, and I live in movies and television. Ink is going to go away, and movies and television will be here forever, like me.”
Huh.
We approached Murdoch last night and asked him how long it will take before the Greater New York edition will be profitable. “It’s already profitable!” he said before the crowd swallowed him up.
