Strong Viewership Can Give MTV Leverage to Grow Ad Pricing

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The average ad price for Viacom's ( VIA ) MTV channel is set to improve after being subdued over the past two years due to the channel's weak ratings as well as declining advertising spend stemming from economic sluggishness. Viacom competes with other media and broadcasting companies like Time Warner ( TWX ), News Corp ( NWS ) and Disney ( DIS ) in the media and entertainment business. Jersey Shore, a reality television series now in its third season, has become a huge hit on MTV. We believe the recent success of MTV should drive advertising revenue growth for the channel.

MTV was the first to introduce video jockeys (VJs) while airing music videos, and the concept has become so popular today that it's hard to imagine watching music videos or music related news without a VJ. MTV has had a strong and loyal viewership among teens and young adults, which has facilitated pricing power over other music channels like CMC and VH1.

Ad pricing refers to the cost of an average 30-second ad per 1,000 views. While we expect the average price of an advertisement on MTV to increase to $12 per 1,000 views, Trefis members predict a higher price level of nearly $15, implying a small upside to our price estimate for Viacom. Our price estimate, at $58.36 , stands roughly 10% ahead of market price.

Jersey Shore to Improve MTV Revenues

Jersey Shore, a reality television series that follows the lives of eight housemates, premiered on MTV in December 2009. Since its launch, the show has seen tremendous success and is currently in its third season with a rating of 46%. A recent Jersey Shore episode airing on January 20, 2011 was actually MTV's most watched series telecast in its history, with around 8.9 million viewers. The broadcast also beat the American Idol telecast on the same day.

Given the show's popularity, MTV has announced that it will start production of Season 4 in late 2011 in Italy.  We expect Jersey Shore's success to help MTV negotiate higher prices for its ad slots, thereby lifting the channel's average ad pricing (see The "Situation" for Viacom's Stock From Jersey Shore's Success ).

MTV Still Has a Strong Viewer Base

MTV is strong in the coveted 18-24 years segment, a key group for advertisers. It has built this position on the back of hit lifestyle and music related shows . Keeping pace with changing tastes over time, it has shifted from being a pure music destination to airing reality television and pop culture shows (True Life, The Hills, Cribs, etc.). With growing fragmentation of younger audience between cable, the Internet and other media, MTV's market penetration translates into stronger pricing power for ad slots.

See our full analysis and $58.36 price estimate for Viacom

Trefis Community Forecast

Trefis community members forecast that MTV's ad price will increase from $11 per 1,000 views in 2010 to nearly $15 by the end of our forecast period, compared to the baseline Trefis estimate of an increase to $12 during the same period. The member estimates imply a small upside to our $58.36 price estimate for Viacom stock.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: DIS , NWS , TWX , VIA

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