Report: Viacom's Cable Nets Under Siege

Viacom’s management drama is unfolding at a time when its main business — running cable networks — is under siege, according to USAToday.

Pay-TV operators are facing a shrinking subscriber base due to more customers “cutting the cord.” And they’re seeking to pay lower "affiliate fees” to cable networks for their content.

Cable networks with middling content and low ratings — some analysts say many of Viacom’s networks fill that bill — are more vulnerable than ever to the threat of being dropped if they don’t pay the asking price. Viacom’s domestic affiliate revenues fell 2% in the fiscal second quarter, reflecting a drop in subscribers and, as the company called it, “softer” ratings.

Source: Nielsen

Revenue for the media networks division fell 3% overall in the second quarter to $2.38 billion as advertising sales also declined.

Viacom’s vulnerabilities were exposed when some 60 small cable operators dropped its channels in 2014 in a fee standoff. Suddenlink, the biggest of the group, said a few months later that dropping Viacom channels led to a decline of just 2% to 2.5% of its customer base. The revelation further cemented Viacom’s reputation as a company with no must-have channels, a dangerous position at a time when cable companies are experimenting with “skinny bundles” that include only essential channels.

While it has some of the best known cable network brands in America, Viacom didn’t have any networks among the 10 most-watched cable channels last year, according to Nielsen’s data for the list of top networks among viewers aged 18-49 during prime time published by Variety. Viacom says its networks collectively draw more TV viewers than any other cable network operator.

Much of Viacom’s troubles — operationally and financially — could have been mitigated if it were a larger company, analysts say. The larger the cable network operator, the more leverage it has against pay-TV companies, their argument goes. “One place scale is important is in affiliate fee negotiations vis-à-vis (pay-TV operators),” wrote Michael Nathanson, an industry analyst at MoffettNathanson, in an investor note.

Viacom’s future isn’t entirely bleak. It is still the largest cable network operator in terms of viewers. And with Nickelodeon, MTV, VH1 and BET, it is arguably the dominant player in the kids, music and African American markets, says Brian Wieser of Pivotal Resarch Group.

Ratings for Nickelodeon, in particular, have stabilized, and it is once again the most popular kids network, Viacom says. And it’s investing more than $6 billion annually in new content, the company says.