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Viacom’s Snapchat Deal Is Hot on the Heels of Falling Ad Revenue

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Viacom’s deal with Snapchat

On February 9, Viacom (VIAB) announced a multi-year agreement with Snapchat relating to advertising sales and content production. Under the terms of the deal, two of Viacom’s channels, Comedy Central International and MTV, will be available on Snapchat’s Discover platform. Viacom will also have access to Snapchat’s ad inventory in the United States and be able to sell it to advertisers “who want to add Snapchat’s wildly popular premium video platform to the media mix.” Viacom will also be able to sell its ad inventory on Snapchat’s Discover platform along with its content.

As part of the deal, Snapchat will be able to cover Viacom’s tent-pole events, including MTV’s Video Music Awards (or VMAs) and BET Experience through Snapchat’s Live Stories.

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One reason for Viacom’s falling stock price was its advertising revenues falling 3% year-over-year in fiscal 1Q16. In contrast, The Walt Disney Company (DIS) had advertising revenues of $2.6 billion in fiscal 1Q16, growth of 12% over 1Q15. Comcast (CMCSA), NBCUniversal Cable Networks segment, had a marginal year-over-year decline in advertising revenues of 0.3% in 4Q15.

As the chart below indicates, Viacom’s advertising revenues were a major contributor to the company’s revenues, at 42%, with advertising revenues of $1.3 billion in fiscal 1Q16.

Advertising revenues

In fiscal 1Q16, Viacom’s advertising revenues fell 4% in domestic markets and 2% year-over-year in international markets. The fall in advertising revenues was due to lower program ratings from Nielsen for TV shows on Viacom’s MTV and Comedy Central channels. At a UBS (UBS) conference late last year, Viacom stated that it felt Nielsen ratings measured content viewership on television but not when streamed on different electronic devices.

Nielsen ratings are important for Viacom’s advertising revenue. Nielsen’s program ratings and other demographic information give advertisers an idea of target audience sizes and demographics.

Viacom accounts for 0.27% of the PowerShares QQQ Trust Series 1 ETF (QQQ). QQQ has 4.4% exposure to the television sector.

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