Not Even Michael Bay Can Fix Viacom’s Problems
Then: “I want my MTV.”
Now: “I want my MTV, but I don’t watch commercials and I don’t have cable and Teen Wolf is on Hulu and I’m mostly into YouTube prank videos right now. I want my MTV but I don’t want want my MTV, like, not enough to actually pay for it.”
Pity poor Viacom. MTV’s much-publicized ratings slump—down more than 20% over last year—is just one of several things on the fix-it list for the media company, which counts among its holdings numerous cable networks and film studio Paramount. After announcing weaker-than-expected third-quarter earnings this week, CEO Philippe Dauman attributed the decline to “too few movies to support the infrastructure” at Paramount. In other words, no Transformers movies = big trouble. But while that assessment may be true, it masks deeper problems with the company’s cable business.
Earlier this year, significant cable subscriber losses—an estimated 470,000 during the second quarter of this year—led to similar downturns in the stock prices of most major cable networks. Viacom was been among the hardest hit, losing roughly one-third of its market value since the beginning of 2015. Roughly 80 percent of Viacom’s annual revenue comes from its cable networks, and there are structural changes underway in that business that a hit movie can’t fix.
“People don’t have positive feelings about their cable company,” says Vincent Moy, an entertainment industry analyst at the NPD Group. “It’s kind of the pariah of the entertainment industry. You hated paying the $120 a month, but what other choices did you have to get current television programming and entertainment? Now people do have other choices.”
Streaming and Bundles Don’t Mix
Most of those choices, of course, are streaming. Eleven of the 14 Emmy Award nominees this year for Best Drama and Best Comedy were available to view on streaming services that don’t require having a cable subscription. And three of the most popular networks on Hulu are Viacom properties: Comedy Central (South Park, Workaholics), Nickelodeon (SpongeBob SquarePants, The Thundermans) and MTV (Teen Wolf, Awkward).
Consumers are migrating away from cable, but there’s little consensus on whether that movement will be gradual or will accelerate over time. “There’s a very high degree of uncertainty around what the bundle will look like five years from now,” says Andy Hargreaves, a digital media analyst at Pacific Crest Securities. Hargreaves expects to see cable providers shed about one percent of their subscribers a year going forward—but he also can’t discount the possibility of a steeper decline at some point.
Dan Rayburn, a streaming media analyst at Frost & Sullivan, said cable networks are not inclined to upend their business plans over relatively small losses. “If you’re CBS or NBC or TNT,” Rayburn said, “why would you put this stuff online without authentication when you’re making billions of dollars a year [from cable and satellite providers]? Your whole business model goes down the drain.”
If You Build It, They Will Come…Maybe
To bridge that gap, some cable networks—notably HBO and CBS—have launched their own streaming services. HBO Now has all of HBO’s original programming and new episodes at the same time as they appear on cable (and sometimes earlier). CBS All Access has CBS’s shows as they air live, has on-demand streaming of those shows beginning the next day, and will be the exclusive home for the new Star Trek series that premieres in January 2017.
Viacom took baby steps toward the no-cable-required model by launching Nickelodeon’s Noggin streaming service earlier this year, but the company’s preferred streaming strategy has been “TV Everywhere,” which basically amounts to “you can stream our shows on your mobile device or Roku box—but only if you keep your cable subscription.”
Viacom’s Dauman said in Thursday’s earnings call: “We believe it is extremely important to work with our long-term distributors in expanding the television experience for consumers. It’s good for the ecosystem, and we are working very closely with them as they invest capital in developing the technology for a better TV Everywhere experience to provide the underlying content and to assist in better consumer interfaces and assist in greater availability of video on demand.”
In other words: we’re working with local cable providers to make sure their subscribers can watch Teen Wolf on any screen they have—but only if people keep paying $120 for cable instead of watching it on Hulu for $8!
Maybe Viacom’s programming is good enough that viewers will stick with their local cable provider if that’s the only way to watch those shows, but that’s a bet that seems to ignore the odds. In the era of too much TV and no dominant shows on the scale of Seinfeld or Friends in the ’90s, staying current on a handful of shows that are only available on cable won’t be reason enough keep your cable service. The real trouble will come for Viacom when a critical mass of people decide that maybe we don’t want our MTV after all.
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