November 12, 2015 / 9:20 PM / 2 years ago

Viacom's plan to reduce ads to boost revenue draws skepticism

(Reuters) - Viacom Inc is cutting the number of TV advertisements it airs in a bid to boost ratings. But the owner of MTV, Comedy Central and Nickelodeon has drawn skepticism by saying the move will also help it raise ad prices.

A woman exits the Viacom Inc. headquarters in New York April 30, 2013. REUTERS/Lucas Jackson

A cut in ads would not necessarily improve prices, in part because the media company shows more ads than average in the industry, media buyers and analysts said.

They added that a drop in ads would only put Viacom in line with rivals rather than turn it into a premium, low-ad destination.

By slashing ads Viacom is following some of its leading rivals in an attempt to reverse declining ratings and advertising revenues as ‘cord cutters’ abandon pay television, often for ad-free subscription services like Netflix Inc.

Domestic advertising revenue at Viacom fell 7 percent in the most recent quarter, the company said on Thursday.

Viacom in October began reducing the number of ads on a number of its networks. In some cases, the ad slots will be filled with short-form programming, promotional spots for other shows or in the cases of original content, longer shows, Jeff Lucas, head of ad sales at Viacom, told Reuters in an interview.

“We expect over time, as the viewing experience improves, that will improve ratings and we do believe there are some pricing opportunities,” Viacom Chief Executive Officer Philippe Dauman told analysts on Thursday’s earnings call.

The New York-based media company said ad rates can rise as it offers fewer ad slots, improves ad targeting with its new Vantage data service, and increases promotional “branded” content through a service called Velocity.

“There has always been demand for our inventory and when we add more value to it, it increases the demand,” Lucas said.

Viacom is not alone in cutting ads. Time Warner Inc Chief Executive Jeff Bewkes announced last week that its truTV network would cut ads and Twenty-First Century Fox has been making similar moves.

Industry analysts and media buyers said it was too early to gauge any effect on prices from the cut in volume, but some were skeptical that Viacom, or any of its competitors, will be able to command a higher price for less inventory unless all networks cut ads. And even then, the price hikes would not necessarily make up for the drop in ad volume.

“If everybody cut their commercials in half, that would have a dramatic impact but it would also result in television bleeding revenues,” said one media buyer, who spoke on condition of anonymity.

In the last quarter, 25.6 percent of Viacom’s viewing time was commercials, up from 24 percent a year ago, according to an analysis of Nielsen data conducted by Pivotal Research analyst Brian Wieser. Industry-wide, ads accounted for 19.5 percent of viewing time, up from 18.8 percent a year ago, he said.

“This makes sense particularly given that they are widely known in the advertising community as having heavy ad loads,” Wieser said.

Reducing ads may increase viewership, but it is not going to help improve advertising revenue, at least in the short-term, said Cowen analyst Doug Creutz.

Reporting By Jessica Toonkel; Editing by Tom Brown

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