Earnings Preview: Nickelodeon to sway Viacom’s 1Q

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LOS ANGELES (AP) ? Nickelodeon, the kids’ pay TV channel that is home to SpongeBob Squarepants, could soak up the blame for a less-than-stellar quarter for Viacom Inc.

The media company controlled by billionaire Sumner Redstone reports its earnings for the last three months of 2011 before the market opens on Thursday. Several analysts have recently trimmed their forecasts for profits because of declines in ratings for viewership at Nickelodeon.

WHAT TO WATCH FOR: What the company says about the audience issue at Nickelodeon and the results of its movie studio, Paramount Pictures.

CEO Philippe Dauman complained in November about an “inexplicable drop” in audience ratings at one of Viacom’s most popular channels, Nickelodeon, since mid-September. He questioned Nielsen’s ratings system and said the company was working to resolve the problem.

At an investor conference in December, Dauman complained that Nielsen was “imperfect” but said “we have to live with it.” Analysts then considered the double-digit percentage audience decline a serious issue.

Morgan Stanley analyst Benjamin Swinburne said Nickelodeon’s ratings in the quarter declined 14 percent among its key demographic, children aged 2 to 11, compared with a year earlier. If advertisers don’t reach the audience they are promised, networks are required to provide free ad airings until the agreed upon viewer number is reached.

That reduces last-minute ad inventory and hurts revenue.

Swinburne said one factor behind the decline might be the rise of online video and a deal to stream Nickelodeon programming on Netflix Inc. If the hypothesis gains support, it could mean trouble for all traditional media companies.

Viacom also faces a tough quarter at its Paramount studio because it likely paid hefty marketing expenses for movies such as “Mission: Impossible ? Ghost Protocol” and “The Adventures of Tintin.” Both big budget films came out late in December, and the company might not have recorded box office proceeds on them until the following quarter. A year earlier, Viacom’s theatrical lineup was made up of several smaller films including “True Grit” and “The Fighter.”

WHY IT MATTERS: As a major media company, Viacom is at the center of a revolution in how people get their entertainment. It is the first of its peers to report earnings for the important holiday quarter. Time Warner Inc. and News Corp. report quarterly earnings on Feb. 8.

WHAT’S EXPECTED: Analysts polled by FactSet expect Viacom to earn $1.05 per share in the fiscal first quarter on revenue of $3.98 billion.

LAST YEAR’S QUARTER: Viacom reported adjusted earnings of $1.02 per share on revenue of $3.83 billion.