Who Wants Their MTV?

07/08/2009 1:30 pm EST

Focus: STOCKS

Michael Brush

Columnist, MSN Money

Michael Brush of MSN Money spots early signs of a turnaround at Viacom, which has lost ad revenue and its youthful edge.

It's reality-check time for MTV.

A growing number of music television fans have been reaching for the remote lately instead of sitting through another episode of Paris Hilton's search for a new BFF or the network's sex-charged "reality" shows.

For that matter, fewer viewers seem to want Nickelodeon, Comedy Central, or Spike.

Although recession-weary Americans have turned to entertainment for escape in big numbers this year, viewership at the biggest cable channels run by Viacom (NYSE: VIA.B) has been dropping. Ad sales are down because of the recession. And Viacom has a film division, Paramount, that can't seem to consistently turn a profit.

Viacom's rating slump is widespread, but the highest-profile setback has been at once-pioneering MTV.

In its target audience of adults ages 19 to 34, MTV ratings plunged 20% in the first quarter of 2009, according to Nielsen Media Research. The network sustained similar declines in April and May. Ratings for Viacom's kids network, Nickelodeon, fell 4.3% in June. Viewership at Spike, a Viacom channel aimed at male viewers, has been weak for much of this year.

All of this has had shareholders running away from media magnate Sumner Redstone's cable baby. The stock is down to $21 a share from $45 a year and a half ago.

But as anyone who has watched TV networks battle it out over the years knows, a slump seldom lasts forever. Sooner or later, Viacom will turn things around. In fact, there are already early signs that Viacom is fixing its ratings problems with programming tweaks and a management shakeup. Investors may well want to tune in.

Revenue-weighted ratings fell just 2% in May and improved 1.9% in June, according to Credit Suisse, a sharp improvement from the deep declines in the first quarter. Viacom's Black Entertainment Television (BET) has been growing dramatically. Ratings were up an impressive 40% in its target demographic for May. That strength followed through in June, with a 50% ratings increase. Ratings for VH1 improved 19% in May and were strong again in June.

For investors, the question is whether the stock has gotten cheap enough to indicate an upside from here. I think overall market weakness ahead, due to worries about a delay in economic recovery, could send Viacom's shares below $20 again. At that point, the stock turns into a buy as a long-term bet that Viacom continues to get its act together and the economy rebounds.

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