SpongeBob's Big Problem: An Ocean of Streaming Video

"Are you ready, kids?" asks the animated patch-eyed pirate at the beginning of every SpongeBob SquarePants episode. "Aye, aye, Captain," responds a chorus of kids.

"I can't hear you," bellows the pirate hat-donning captain.

The theme music kicks in shortly after that, but maybe the reason the captain can't hear the kids is because there aren't as many around as there used to be.

Viacom's (VIA) Nickelodeon has a problem.

Fresh ratings data from Nielsen shows that Nickelodeon's popularity is slipping fast. Ratings fell 11% in September relative to September of last year, with an average of 969,000 kids between the ages of two and 11 tuning in. Things have only gotten worse. Viewership dropped 17% in October, only to plunge by 19% through the first three weeks of November.

Give it up, Captain. The kids can't hear you, either.

In the Nick of Time

A logical explanation for Nick's slip is that the competition has gotten smarter.

Disney's (DIS) Disney Channel ratings have climbed by nearly 6% during the same time. Discovery (DISCA) also teamed up with Hasbro (HAS) to reposition its Discovery Kids channel as The Hub earlier this year, and ratings there have jumped more than 50% -- though we're only talking about an average audience of 46,000 kiddies for the second-tier cable channel.

Those are the exceptions, though. Time Warner's (TWX) Cartoon Network and Disney's own XD have been posting lower ratings, though neither channel is experiencing the kind of freefall that Nickelodeon is going through right now.

Overall, Nielsen's data shows that the number of young viewers has actually increased over the past year, but they're not watching the tube the same way. They're not checking out as much TV during the day, and they're also spending more time away from the kid-geared channels.

Is that really such a surprise? Did we really think that today's children would continue to consume television the same way previous generations did?

Generation Stream

Many of today's kids have grown up not having to wait for content, much less having to sit through prolonged commercial breaks. Google's (GOOG) YouTube has taught them that content is short in nature. YouTube, Hulu, and Netflix (NFLX) -- the three most popular video streaming options these days -- have also taught kids that the video begins when they want it to start.

Choice? Are you kidding? Their older siblings may have been down to switching between Disney Channel and Nickelodeon, but today's youngsters have tens of thousands of on-demand options through Netflix and Hulu -- and countless more via YouTube.

Netflix made its own luck on this front when it created a kid-friendly landing page earlier this year. Folks streaming Netflix on their computers or through Wii video game consoles can explore the site's family friendly streaming options though an interface with familiar character icons and content. Kids get what they want, and parents can rest easy knowing that Junior isn't going to go from Wallace & Gromit to Scarface.

However, the popularity of Netflix and YouTube with younger audiences also leads us to another likely conclusion: Kids are consuming a lot of video, but they're not necessarily consuming a lot of television.

Tablets, iPod touch media players, and smartphones handed over by brave parents are how kids are doing a lot of their video watching these days. There may not be a definitive study on how much content kids are consuming through Web-tethered gadgetry, but it may help explain why tired eyes just aren't in the mood for Nickelodeon after catching a few Phineas and Ferb episodes on an iPad 2 or Kindle Fire.

Grinch by Grinch

This is naturally a lousy time for Nickelodeon to be pulling a disappearing act in the ratings book. Toy makers are trying to advertise on kid-friendly networks where they can reach the largest ideal audience. Unless the trend reverses, cable and satellite television providers will be angling for better terms when it's time to renew those programming deals.

Sponsored Links

The fact that Disney's ratings have climbed nearly 6% over the past year should actually come as encouraging news to Nickelodeon. It implies that programming tweaks may be all that the well-known network needs to get back on track.

However, the longer-term trend isn't as encouraging. The days of going to school and everybody in the class discussing the same show they watched the night before are over. Today's kids are consuming customized programming.

Seth Godin's We Are All Weird argues that the days of mass marketing are over. The Internet has created a new playing field of custom-tailored consumption. Everyone is allowed to be different, armed with the tools to demand -- and get -- the content that they crave no matter how thin the niche.

Today's kids know it. Viacom doesn't want to know it.

"Are you ready, kids?"

Not only are they ready, Captain -- but they've gone and sailed on without you, on a fleet of ships built for one.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Disney and Netflix. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Netflix, Google, Walt Disney, and Hasbro.