COMCAST AND VIACOM BATTLE FOR THE KIDS
(FORTUNE Magazine) – THREE-YEAR-OLDS DON'T HAVE Disposable income. And when it comes to television, few of them channel-surf. Preschoolers, in other words, are not the audience you'd expect to be the focus of a cable TV turf war. Yet that's exactly what's brewing between media titans Comcast and Viacom.
Viacom, home to the Noggin and Nickelodeon networks--not to mention hit shows Blue's Clues and Dora the Explorer--is the reigning champ of preschool cable. Noggin (which runs commercial-free from 6 A.M. to 6 P.M., becoming teen network the N at night) has seen viewership jump 22% this year and has a budding hit in Jack's Big Music Show, which features kiddie music star Laurie Berkner. Comcast is new to the game. It launched its Sprout network in September, in partnership with PBS, Sesame Workshop, and British kids' TV producer HIT Entertainment, boasting name-brand shows Bob the Builder, Caillou, and Angelina Ballerina, some of which used to air on Noggin.
What makes this battle for munchkin mindshare unusual is that Comcast and Viacom have very different strategies. Comcast believes the appeal of Sprout--and particularly Sprout On Demand--will discourage customers with young children from leaving for competing satellite services. At the same time, it hopes parents who get into the habit of ordering free on-demand shows for their kids during the day will be more likely to order pay-per-view movies at night. Programming chief Jeff Shell says he doesn't need to sell a lot of commercials to turn a profit: Because Comcast did not demand a share of merchandising revenue, "we were able to get the programming on very attractive economic terms," he says.
At Viacom the notion of sacrificing merchandising rights is unthinkable, as is Sprout's reliance on nonoriginal programming. Cyma Zarghami, who oversees both Noggin and Nickelodeon, says that half the revenue generated by Nick Jr.--Nickelodeon's preschool programming block--derives from merchandising. "The number of advertisers who specifically want to target 2- to 5-year-olds is rather small," says Zarghami, noting that advertising on Nick Jr. is mostly aimed at parents (as are ads on Sprout).
Noggin itself is only a modest moneymaker--Viacom says it will generate about $25 million in cash flow this year on $70 million in revenue--but it serves as a valuable feeder to the Nickelodeon network. More profitable than MTV and Comedy Central combined, Nick is expected to generate more than $900 million in cash flow for Viacom this year. Perhaps that's why Zarghami isn't shy about tweaking her new competition. "The thing everybody wants when they get into this space is to build consumer loyalty, develop a hit program, and be able to generate revenue from both," she says. "For Sprout, the proof will be in the pudding when they start to launch original stuff." Your kids won't hesitate to tell you which is better.