Viacom Unveils Snapchat Ad Sales Deal as Q1 Earnings Meet Estimates

Philippe Dauman
Scott Eells/Bloomberg via Getty Images

Philippe Dauman, president and chief executive officer Viacom Inc., arrives to a morning session during the Allen & Co. Media and Technology Conference in Sun Valley, Idaho on Thursday, July 10, 2014. 

Viacom CEO Philippe Dauman says 2015 was a “challenging year operationally” but that “our revitalized organization and our investments in content, technology and strategic innovation are now beginning to bear fruit.”

Viacom on Tuesday reported fiscal first-quarter earnings in line with Wall Street expectations and a less pronounced U.S. advertising revenue drop than expected amid improved ratings at key networks. The company also unveiled a multi-year deal to sell advertising for Snapchat.

The messaging app has been carrying content for Viacom's Comedy Central and MTV networks. Under the deal, financial details of which weren't disclosed, Viacom will add two channels to Snapchat’s “Discover” page. One will be a U.S. version of MTV, while Comedy Central will add an international channel. Viacom also said it would further invest in programming on Snapchat.

In addition to selling its advertising alongside its own content on Snapchat Discover, Viacom will also have the right to sell Snapchat’s U.S. owned and operated ad inventory, which includes ads in ongoing stories such as “New York,” about daily happenings in New York City, and non-partnered holiday live stories, such as “Valentine’s Day,” the company's said. Viacom said it is the only TV company to have this sort of arrangement with Snapchat.

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Another key element of the partnership will leverage Snapchat’s Live Stories, which are curated collections of user-submitted content about major events. Through the partnership, Snapchat will have unique access to cover Viacom’s tentpole events, such as MTV’s Video Music Awards, BET Experience and MTV’s EMAs.

Viacom's financials have been hit by ratings declines and related ad drops, with analysts saying the company's younger target audience is  harder to reach in the digital age. As such, management is expected to tout the Snapchat deal on its earnings conference call. Wall Street has also been discussing Viacom's future amid the weaker health of 92-year-old controlling shareholder Sumner Redstone who recently became chairman emeritus after serving as executive chairman.

"Viacom and Snapchat naturally complement each other in significant ways that make us ideal partners in both content and business development,” said Viacom CFO Wade Davis in announcing the deal. “Snapchat captures young audiences on an intimate and immersive mobile video platform while Viacom is the leader in premium long- and short-form storytelling for these same audiences. Add in Viacom’s custom marketing solutions and commitment to evolve our global mobile strategy and you’ve got a partnership that is great for both companies, for advertisers, and is a real evolution of the marketplace.”

Viacom president and CEO Philippe Dauman, who recently also became executive chairman, discussed the issues affecting the company. "2015 was a challenging year operationally as we redesigned ourselves and adapted to significant industry disruption," he said. "Our first fiscal quarter of 2016 reflected these challenges. However, our revitalized organization and our investments in content, technology and strategic innovation are now beginning to bear fruit. Although our industry continues to face headwinds, we expect our positive momentum to continue and build throughout the year."

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He also said: "As the media industry continues to evolve quickly, Viacom is generating sustainable opportunities using great new content, innovative technology, marketing and data applications, along with the benefits of our substantial footprint in key international growth markets. Our investments in new content have led to higher ratings at most of our networks, including VH1, Spike, BET, TV Land, CMT and Nick at Nite, as well as Nickelodeon, which recaptured its lead as the top network for kids 2 to 11."

The commentary didn't mention MTV, which continues to struggle in the ratings.

Dauman also highlighted: "Paramount is off to a strong start in 2016, with a promising and diverse film lineup throughout the year, and our Paramount Television unit is also thriving."

Viacom posted quarterly net earnings of $449 million, down from $500 million in the year-ago period. Earnings per share of $1.18 compared to the $1.18 consensus estimate by analysts and $1.29 in the year-ago quarter. Revenue fell 6 percent to $3.15 billion, coming in below expectations, as media networks unit revenue fell 3 percent to $2.57 billion and film revenue fell 15 percent to $612 million.

The U.S. ad revenue drop marked an improvement over the 7 percent decrease in the previous quarter and the 9 percent drop in the fiscal third-quarter of 2015. "We are raising slightly our domestic advertising (from -6 percent to -5 percent), offset by lower International advertising to reflect foreign exchange headwinds," Stifel, Nicolaus analyst Benjamin Mogil said in a recent earnings preview report.It said its U.S. advertising revenue dropped 4 percent, slightly better than the roughly 5 percent decline projected by many analysts.

Domestic affiliate revenue was "substantially flat due to the impact from the timing of product available under certain distribution agreements," Viacom said. International affiliate revenue dropped 6 percent, driven by a 9 percent unfavorable impact of foreign exchange. Excluding that impact, international affiliate revenue rose 3 percent.

Filmed entertainment revenue fell as an increase in license fees was more than offset by declines in theatrical and home entertainment revenue. Foreign exchange movements had a 3 percent unfavorable impact. Theatrical revenue decreased $75 million in the quarter "as carryover revenues decreased $46 million, principally due to an unfavorable comparison with the strong performance of Teenage Mutant Ninja Turtles in the first fiscal quarter of 2015," Viacom said. Home entertainment revenue fell $77 million "reflecting a comparison with carryover revenues from Transformers: Age of Extinction" in the year-ago period. License fees increased 25 percent, "primarily driven by the licensing of certain titles for subscription video-on-demand services and television," Viacom said.

The film unit posted a quarterly operating loss of $146 million, compared to a year-ago loss of $60 million. Viacom's media networks unit posted an operating profit of $1.06 billion, down 4 percent.

This article was originally published by The Hollywood Reporter.