• by David Goetzl , November 5, 2007

As MTV Networks moves toward wide adoption of C3 as currency early next year, the CEO of parent Viacom said Friday the company is prepared for the shift, despite possible widespread commercial-skipping by some of its younger audiences for MTV, VH1 and other networks.

To start with, like many cable networks, the company was successful at raising prices in the upfront in an attempt to make up for any ratings erosion brought on by the new currency, chief executive Philippe Dauman said. Still, Dauman added, the company's revenues long-term will be affected by how well it builds its ratings, and its ability to persuade viewers to stick around for the ads--or it could benefit from new strategies.

That, he said, could come via the company's initiative to shorten ad pods, while increasing their number to avoid losing inventory. Another model could come by replacing traditional spots with what feels more like content--where brand messages are delicately inserted --such as a recent move to slot a series of short films sponsored by American Eagle during breaks for the "Real World."

Similarly, Dauman indicated MTV Networks will look beyond commercial ratings in discussions with advertisers to increase its revenues by developing more ways for them to weave messages directly into programming, suggesting that reality series on MTV offer a solid platform. "We are deepening and accelerating our focus on the integrated marketing area," he said on a call to discuss results from the recently completed third quarter. (He cited Comedy Central star Stephen Colbert's presidential candidacy sponsored by Doritos as an example.)

Overall, Dauman said Viacom is "quite comfortable" as C3 currency begins to dominate the marketplace and affects MTV Networks en masse in January.

Not all MTV Networks suffer from notable viewer erosion during commercial breaks, which make the C3 ratings a hurdle. Early-season data shows Comedy Central retains about 96% of the prime-time audience (adults 18 to 49) with the C3 ratings that it would have had under the traditional program ratings.

But other networks aren't faring as well--notably MTV at 80% and VH1 at 85%. (To be sure, this data is for the 18 to 49 demo, and MTV targets 12- to-24-year-olds.)

Regarding the third quarter overall, Viacom said domestic ad dollars increased 5% for its media networks--down from the 7% increase in the same quarter a year ago. (The media networks segment includes on-air for its fleet of cable networks as well as online operations and elsewhere.)

The company does not break out U.S. ad dollars, but worldwide ad dollars were $1.18 billion in the third quarter, and the majority of this was domestic (worldwide dollars were up 7%, slightly above the 6% increase in the quarter a year ago).

Dauman said third-quarter results were helped by scatter pricing increases up double digits versus the upfront, and that trend is continuing into the fourth quarter--indicating that ad results will be similar for the fourth quarter, although it's early.

Dauman also trumpeted the importance of expanding MTV Networks' digital offerings from online gaming to virtual worlds as growth engines. He said that nearly 40% of ad deals involve some sort of on-air/online combination, and 185 new advertisers have run messages on digital platforms this year.

Separately, Dauman said any work stoppage among Hollywood writers would have the most impact with Comedy Central offerings such as "The Daily Show," which would air reruns initially "and then we'll see what we do in the format." Otherwise, the company is well-prepared, he said, with the Paramount film studio flush with a pipeline already produced.

Overall for the third quarter, Viacom posted revenues up 24% to $3.27 billion, with operating income up 25% to $815 million.