The demise of reality TV is hurting Viacom

Not that long ago, people used to watch this.
Not that long ago, people used to watch this.
Image: Reuters/Lucy Nicholson
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If HBO, Netflix and AMC are the beneficiaries of the new golden age of television we are living in, then who are the casualties?

One candidate is Viacom. The company behind MTV, the Comedy Central, Nickelodeon and the Paramount Pictures film studio announced an unexpected $785 million hit to its bottom line this week, forcing it to cut jobs and suspend its share buyback program, which in turn caused its share price to tumble

Among the reasons for this? According to a company press release:

[U]nderperforming programming, including the abandonment of select acquired titles….[and] a change in the Company’s ultimate revenue projections for certain original programming genres that have been impacted by changing media consumption habits.

In plain English, this refers to the fact that some of the reruns the company has acquired to fill hours on its cable networks aren’t rating well, because people can now watch them in places like Netflix and Hulu. (For a flavor of the types of shows this refers to, think CSI, Entourage and Community, which the Wall Street Journal (paywall) cites as under-performers.)

Meanwhile, the “original programming genres” being impacted by “changing consumption habits” is a reference to reality TV. Ratings for those shows have quietly fallen into decline. The company has changed the accounting treatment for reality shows, to realize the benefits in much shorter time frames.

Alarm bells about Viacom’s exposure to reality TV  (have you watched MTV lately?) have been ringing all year. “We’ve long felt the glut of low-cost reality programming isn’t sustainable, and ratings now appear to be bearing this out,” Macquarie analyst Tim Nollen said in a note back in January.

The demise of reality TV is almost as profound for the entertainment business in the US as the rise of high-quality scripted drama. It’s just talked about less. The two are probably inter-related. Unfortunately Viacom seems to be on the wrong side of this dynamic, at least for now.

The possible solution would be to increase the company’s exposure to higher quality content—in its press release, it commits to “increase our investment in original programming.”

But with streaming services such as Netflix and Amazon competing aggressively with established cable networks like HBO, AMC and FX for the best show, that business is already looking very crowded, and is not without its risks.  ”[T]here is no silver bullet for success,” Morgan Stanley analyst Benjamin Swinburne said in a note this week. “Every network’s strategy includes an increase in original programming, but…that in and of itself is not an easier path to ratings success.”