Wall Street Tells Viacom: Turn Off the Nickelodeon Netflix Stream

Dora the Explorer
Dora the Explorer

If Viacom (VIAB) has a claim to fame among the pre-high-school set, its name is Nickelodeon. Home to kiddie staples ranging from Dora the Explorer to SpongeBob SquarePants to iCarly, the Nickelodeon network is "top-rated" among kids, Viacom boasts. So why is CEO Philippe Dauman nervous about his ratings?

One word: Netflix (NFLX).

Popular as children's television is on ... well, television, it's pretty popular on this purveyor of video over the Net as well. So much so that analysts are starting to wonder if kids might prefer to watch their favorite shows on Netflix -- what they want, when they want it -- rather than tuning in to Nick to see what Viacom might be showing at any given hour.

Asked whether such a trend might explain Nickelodeon's slipping ratings back in February, Dauman demurred, blaming deficiencies in Nielsen's methodology in calculating viewership instead. He even went so far as to declare: "We don't think that the availability of the limited amount of Nick library content on Netflix ... has had a significant impact."

But doth Dauman, perhaps, protest too much?

Wall Street Weighs In

A few days ago, Bernstein Research suggested this may be the case. According to Bernstein, allowing Nick programming to be distributed on Netflix really is having a "direct, measurable impact" (and not the good kind) on the live TV ratings of Viacom. It's preventing Cartoon Network parent Time Warner (TWX) and Walt Disney (DIS) from garnering as many TV viewers as they might have, had Netflix never been invented. Bernstein argues that the networks should probably pull their programming from Netflix sooner rather than later if they want to hold on to their viewership... and their profitable television commercial revenue.

Not just "should," but "will." Indeed, Bernstein warns that unless the networks "pull their premium kids' programming from Netflix asap," it may "be too late."

Yes, you read that right. Viacom and its fellow cartoonists have created shows that kids love. They've built out their brand, created fan loyalty, encouraged viewers to seek out their content in multiple places, and given them an easy way to do it. They've been wildly successful at this.

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But according to Wall Street, once you've created a kids' show and it proves to be wildly popular, first on your own network and then later on Netflix, the correct response is to yank it off Netflix. To not give the consumers what they want. To instead take away what they want and force them to accept what you choose to give them, when you want to give it to them, in predetermined time slots. Or else your network dies.

Stream No Evil

Balderdash. This makes no sense. The truth is that Nickelodeon is not dying on television. It can't die. If it did, there would be no one making the programming in the first place for Netflix to restream it later. The truth is that producing new content for television, then reselling and re-reselling it via Netflix and other media, helps to reinforce consumption of these shows multiple times.

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It's cross-promotion like this that encourages viewers to seek out new episodes on "live" TV, and to seek out old favorites on Netflix. It's the media equivalent of building a Starbucks on every street corner, and when you run out of street corners, "opening new Starbucks in the restrooms of existing Starbucks" (as the joke used to go). Saturation. Domination. Profit!

Rather than pull its content from Netflix (which, Bernstein warns Netflix shareholders, will hurt their company's subscriber growth), Viacom and its peers should make the more logical choice: Viewers want to watch more content on Netflix? Fine. Point this out to Netflix. Point out how valuable access to Nickelodeon content has become to Netflix's subscription base, and charge more for it!

It's really as simple as that, folks. Give the people what they want. Charge what the market will bear. Lather, rinse, and repeat.

Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Walt Disney and Starbucks. Motley Fool newsletter services have recommended buying shares of Walt Disney, Starbucks, and Netflix, as well as writing covered calls on Starbucks.