Upfront volume down, CEO Bakish says

Viacom, which has touted its Vantage advanced advertising targeting system on Thursday announced that Fox has agreed to license the software.

“Fox will be the first media partner to use the Vantage engine to power its linear optimization services across its networks,” Viacom CEO Bob Bakish said during Viacom’s earnings call.

“This is a powerful validation of our leadership in the space. And as we work to secure additional licensing partnerships with publishers, we’re excited by the potential of this new business to accelerate the ecosystem and evolve into an incremental revenue stream.”

Viacom is in “late stage discussions with a number of other publishers,” added CFO Wade Davis. “We’re really excited about the possibility and upside for this business in 2019.”

With Vantage, launched in 2015, Viacom was one of the first programmers to try to sell commercials based on data identifying target audiences for a particular advertiser’s products. Along with Turner and NBCUniversal, Viacom has been seen as a leader in the advanced advertising arena.

Fox launched its own data-driven ad business, called Audience Insights Manager (AIM) in 2016.

Fox, Turner and Viacom all teamed up to form OpenAP in 2017, a consortium designed to make data-based advertising easier for advertising by standardizing target audience segments and providing third-party reports after campaigns air. NBCU joined OpenAP earlier this year.

As partners in OpenAP, the data scientists working on advertising at Fox and Viacom worked together closely.

With its traditional ratings and ad revenue shrinking, Viacom is counting on its investment in advanced advertising to boost its business.

On the earnings call, Viacom’s CFO Davis said the structure of the deal with Fox is a software license and a managed service agreement.

“There is a upfront license fee associated with the initial tech and implementation. And then there is a variable part of that that allows us to participate in the upside,” Davis said. “It is also important that this is a new line item in our AMS [Advanced Marketing Services] business.”

Viacom expects its AMS business, including Vantage, to generated $300 million in revenue in the fourth quarter and expects to see a 30% to 40% growth rate in 2019.

“Given the fact that it’s now at that level of materiality and contributing that level of growth. It’s really changing the dynamics of our domestic ad sales business,” Davis said.

Viacom reported that its ad revenue in its fiscal third quarter, covering April-June, were down 3% from a year ago, and it said it expected a similar result in the fourth quarter. But the company is telling Wall Street that ad revenue will start to grow in 2019.

During what seems to have been a strong upfront market for all programmers, Viacom increased ad rates on a cost-per-thousand (CPM) basis by mid-to-high single digit percentage rates, which Bakish said was the company’s strongest in five years. At Nickelodeon, where analysts are concerned that kids ratings continue to plummet, Bakish said that ad rates were up by double-digits during the key pre-Christmas holiday season.

But Viacom’s upfront sales dollar volume was down in a market where cable upfront volume was up 4.7%, according to an estimate by Media Dynamics.

Bakish said Viacom’s lower volume was part of the company’s strategy.

“On volume, we were down low single-digits, but this was by design,” he said. “We aggressively tiered our lower paying business, because we wanted to ensure we have inventory to monetizing scatter. The scarcity we're seeing will create a seller's market and scatter premiums will elevate the already strong upload pricing.”