Why Viacom Will Never Be Great Again

Spongebob Squarepants Viacom
Spongebob Squarepants Viacom

If you've been noticing a little bit less of SpongeBob on Nickelodeon, Snooki on MTV, or Stephen Colbert on Comedy Central, it's by design.

Viacom (VIA) -- the parent company of Nickelodeon, MTV, Comedy Central, and several other cable mainstays -- is increasing the number of commercials that it's wedging into its shows.

Ratings tracker Nielsen is reporting that Nickelodeon and Comedy Central blasted 9% more ad time during the first half of this year than last year. Oh, and that follows a 4% increase for all of 2010 and a 7% spike in 2011.

That isn't the boost in ad revenue, unfortunately. We're talking strictly about the amount of time that someone watching two of Viacom's flagship channels will be subjected to ads. If we add it all up, we're talking about a roughly 21% increase in ad time over the past three years.

Really? Is this what you're paying your cable company an armchair and an ottoman for?

We'll Be Back After a Few Words From Our Sponsors

No one is going to deny a commercial broadcaster its right to cram as many as ads as it can into its programming. However, it's also the right of a viewer to decide when enough is enough.

We live in impatient times. Folks want programming when they want it, and they'll pay for not being inconvenienced.

There's a reason Netflix (NFLX) has 27.5 million streaming subscribers, shelling out $7.99 a month for the right to watch countless shows and movies -- on their terms -- without commercial interruptions.

Viacom seems to have it all wrong. Even leading ad-based TV streaming service Hulu knows that it has to keep its advertisements in check. Folks aren't going to deal with 12 to 16 minutes of commercials an hour, as one ad buyer tells The Wall Street Journal that Viacom is selling these days.

Viacom's Downward Spiral

Remember back in 2011, when ratings at Nickelodeon fell year-over-year by 11% in September and 17% in October?

Things have only gotten worse. Nickelodeon ratings have fallen by 29% through the first half of this year. Viacom is just stuffing in the ads to try to keep its revenue flowing. And stateside ad revenue slipped 7% in its latest quarter, so Viacom doesn't appear to be winning the war.

Analysts see overall revenue declining 6% at Viacom for its 2012 fiscal year ending next month. Those same pros are targeting a 4% bounce in fiscal 2013, but that still means that total revenue will have declined over a two-year period.

Oh, and things can get worse.

The Uncertain Future of Cable

Pay-television subscribers are ripping their fat cable and satellite television bills to shreds.

All four of the country's largest providers -- Comcast (CMCSA), Time Warner Cable (TWC), DIRECTV (DTV), and DISH Network (DISH) -- had fewer subscribers at the end of June than they did at the end of March.

Some will argue that it's a seasonal dip, yet these net defections didn't materialize until two years ago.

It won't be long before video providers will need to give consumers what they want. Instead of paying $100 for 150 channels that they rarely watch, isn't it just a matter of time before TV fans can pay half that for the dozen channels that they do watch?

The moment that power is put in the hands of the people wielding the remote controls -- and it's inevitable in any consumer-facing business -- Viacom's going to realize how many people really don't feel they need VH1, Spike, or CMT.

The future will be challenging to all of the cable networks, but Viacom faces the grim proposition of settling for shrinking slices in a shrinking pie.

It doesn't add up. It doesn't ad up, either.

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

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