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Revenue Dips Are Keeping Viacom’s Flailing Cable Business in Last Place

The all-important financial engine for most U.S. media conglomerates — cable networks— enjoyed a decent second quarter: Revenues were up, and margins continue to be healthy. But dig deeper, and you’ll see that there’s a broad divergence of performance across the sector, with Viacom in particular stuck at the low end.

Overall revenue growth for companies owning cable networks has slowed from just over 6% two years ago to just over 4% in the last two quarters. That’s the net effect of trends affecting the two biggest revenue sources: a significant slowdown in affiliate fee growth, somewhat offset by a recovery over the past year in ad revenue growth.

sources: Company Reporting, jackdaw research Analysis

The culprit behind slowing affiliate-fee growth is obvious: cord-cutting and cord- shaving (by subscribers who don’t cut the cord entirely but pay less for offerings like skinny bundles) have driven a reduction in subscriber numbers for almost all major cable networks. The only reason revenues aren’t down is that the companies have managed to negotiate higher fees per subscriber, or benefited from contractual rate increases during the same period.

But these trends don’t reflect all companies equally. AMC Networks has outperformed the market by miles, growing by 16% in total revenue over the past year. At the other end of the spectrum is Viacom, which has been adrift for several years.

Viacom’s ad revenue growth on an annualized basis has been negative for the last two quarters. Affiliate fee revenue was flat in the last year, down from 6%-7% growth just two years ago. Though ad prices have risen at Viacom, too, lower ratings, combined with strategic reduction of ad loads, have allowed revenue to slip. And the loss of 7 million to 8 million subscribers over the last two years across its biggest networks have more than offset any rate increases.

sources: Company Reporting, jackdaw research Analysis

With its change in leadership, Viacom may finally be able to address some of its challenges. Though a reintegration with CBS is often touted as a first step, that by itself would do little to turn things around. Instead, Viacom should seek to emulate three key strategies of its more successful peers: building well-defined brands to serve well-defined audiences, investing in compelling original content, and consolidating around a smaller number of strong networks while eliminating underperforming channels.

These strategies have served most cable companies well, and it’s high time they were put into practice at Viacom. Until that happens, the industry is going to keep leaving Viacom behind.

Jan Dawson is founder and chief analyst at Jackdaw Research, an advisory firm for the consumer technology market.

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