NEW YORK (Reuters) - Viacom’s Philippe Dauman, a cultured media chief who scored perfect results on his college entrance exam and entered Yale at 16, happens to be an ardent fan of sensational TV shows.
Name a hit from Viacom’s MTV network -- whether “Jersey Shore,” which stars a crew of hard-partying Italian-Americans, or “16 and Pregnant” featuring teen mothers -- he catches them all.
“I love our shows,” Viacom Chief Executive Dauman said.
It’s no surprise really. Once a corporate troublespot, MTV has been put through a programing overhaul over the last year, and has won back audiences and advertisers in the process. Ratings this summer are up about 20 percent from a year ago.
“A lot of people were writing it off,” Dauman, 56, said in an interview. “They were wrong.”
Indeed, stubbornly low ratings at MTV had proven a cause for concern, depressing results from a cable business that includes Comedy Central and Nickelodeon, among others. Viacom counts on cable for about two-thirds of its sales.
But last quarter revenue from Viacom’s cable division rose 6 percent and the company is suddenly one of the hottest investments in the media industry.
Shares of Viacom are up around 5 percent year-to-date, besting peers Time Warner Inc, Walt Disney and News Corp. Viacom’s stock far outperformed the Standard & Poor’s 500 Index, which has declined about 5 percent during the same period.
A number of analysts suggest that Viacom’s shares, currently in the low $30 range, should ring up more gains. Analysts think the Viacom’s stock is worth $52.24, according to Thomson Reuters’ StarMine estimates, north of its media counterparts.
“Viacom’s revenue can continue to accelerate because of ratings improvements,” said Richard Greenfield, an analyst with BTIG. “Advertisers follow eyeballs and if you want to reach young adult eyeballs, MTV is one of the best places on television to do it.”
Viacom’s Dauman said he planned to keep investing in the cable networks, saying budgets would be up in the middle single digits this year. Viacom also owns Paramount Pictures.
“Our philosophy as a pure content company is to continue to build our brand and invest in our programing through good times and bad,” Dauman said.
The turnaround at MTV has been one key to improving its cable networks. MTV’s ratings are on the upswing with three straight quarters of year-over-year growth.
“We had to do a wholesale reinvention of what the audience wanted from us,” said MTV General Manager Stephen Friedman.
Friedman said that meant more “authentic” reality shows as well as stronger scripted programs, something the network had let slip. It also meant hiring David Janollari, who helped develop NBC’s “Friends,” to head up the effort.
So far, results are promising, particularly when it comes to drawing the young adults that are prized by advertisers.
One show on a tear is “Jersey Shore,” the reality program that revolves around a cast of hard-partying housemates, including pop-culture favorite Snooki. Since its second season premiere on July 29, the show has been the top-rated cable and broadcast program for viewers 12-34 years old.
Higher ratings could not have happened at a more opportune time for Viacom, coinciding with a resurgence in advertising from automakers, packaged goods companies and movie studios.
Warner Brothers, AT&T Inc, and T-Mobile USA, a unit of Deutsche Telekom, are some of the top advertisers that have spent hundreds of thousands of dollars to buy time on “Jersey Shore” and “Teen Mom,” according to Kantar media, which tracks advertising spending.
“It’s a pretty powerful statement about the company’s ability to start realizing some sustainable success,” said RBC Capital Markets analyst David Bank.
“The bar is so low that even modest positives are going to make a big difference to this company long term,” said Bank, who describes Viacom shares as “ridiculously” cheap.
Bank reasons that Viacom is undervalued compared to other media conglomerates and pure-play cable companies such as Discovery Communications. Viacom shares trade at 11.8 times 2010 estimated earnings versus the average of 15.3 times 2010 estimated earnings of its peers, according to RBC.
What is more, Viacom may have a bigger upside than its competitors when it comes to advertising sales. One reason is that Viacom is still living with commercial deals it struck before some of its hit shows took hold.
Some of those deals, signed during 2009’s so-called upfront selling period, meant that Viacom couldn’t get the highest rates for its breakout hits in 2010, explained Matthew Harrigan an analyst at Wunderlich Securities.
“Some of that was the perception that ratings were in long-term decline particularly with MTV,” Harrigan said.
Still, some question whether MTV programing is too edgy for mainstream marketers. In one episode of “Jersey Shore,” for instance, Snooki is punched in the face.
“For some advertisers that may be a little gritty,” said Lyle Schwartz, a managing partner at WPP’s Group M media agency.
Schwartz said the other issue is whether MTV can hold on to a demographic that can be fickle when it comes to TV viewing.
“Teens are very quick to latch on to really good stuff,” he said. “But they are really quick to leave.”
Reporting by Jennifer Saba; Editing by Paul Thomasch, Dave Zimmerman