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Will Nick Get NickedBy Ratings Woes?

As kids networks' upfront presentations begin this week, Nickelodeon’s rivals smell blood in the water.

In the fourth quarter, the crucial holiday period for toy marketers, the longtime leader in children’s TV suffered an unexpected, uncharacteristic ratings decline. Nickelodeon had to issue make-goods to its advertisers, and parent company Viacom’s earnings took a beating.

Now, with eyes turned toward the 2012-13 season, the kids game may have changed. Disney and Cartoon Network think they can steal ad dollars from a weakened Nickelodeon, which accounts for a 70% share of the category’s revenue.

“I really have to believe that advertisers are going to review their spending and I think money will come our way,” says one rival network sales executive, in predictable and hopeful fashion.

Media buyers and advertisers will go to the Nickelodeon upfront March 14 looking to see how the network plans to address the ratings issue. “We’ve been talking to our clients for several years about other opportunities for kids’ eyeballs,” says one buyer. “The numbers are showing eyeballs are going somewhere else, so let’s do something else with the money.”

At the same time, upstart networks are looking to grab viewers and revenue. And everyone is crossing their fingers that kids keep watching TV, even as they increase their use of video games and other digital devices.

Disney, which launches its Disney Jr. network this month, was talking tough before its March 12 presentation.

“We are in a unique position in this marketplace to really talk to advertisers from a different perspective than we have in the past, the leadership role,” says Rita Ferro, executive VP of Disney Media Sales and Marketing, pointing to viewership figures that show Disney Channel tied with Nick in the key kids’ demos. With Disney Jr. for preschoolers, Disney XD for boys and Radio Disney, “we’ve never been positioned better as a multiplex of channels to take advantage of an upfront,” Ferro says.

Cartoon Network, coming off its best year since 2006, is also bullish. “We think this is a good time for [advertisers] to re-evaluate how they spend their money based on our growth,” says John O’Hara, executive VP of ad sales and marketing for Turner Broadcasting’s Cartoon Network and Adult Swim.

Nickelodeon, naturally, expects to maintain its top-dog status. “The relationships that we have with our advertisers have never been stronger. The brand has not been diminished in any way whatsoever,” says Jim Perry, executive VP, 360 Brand Sales, Nickelodeon and MTVN Kids and Family Group. “We continue to have the top shows out there. We have no intention of giving up our No. 1 position. We’re going to be putting more than 600 hours of new content out there in every genre on every platform, and we love the direction we’re headed.”

Perry maintains that Nickelodeon took care of its advertisers during the fourthquarter ratings plunge. “We’ve made them all whole coming out of the important fourth quarter and in pre-Easter, so as far as our partners in the ad community are concerned, we’re confident in the brand and what we’re going to be offering [during the] upfront,” he says.

Last year’s kids’ upfront marketplace generated about $1 billion in sales. But buyers expect there to be fewer ratings points in the market this year, partly because of Nick’s problems. “I think this year, when you look at the overall picture, we’ll actually see a more significant decline in supply,” says Darcy Bowe, associate activation director at media agency Starcom.

Kids ratings also haven’t been helped by a lack of new tentpole programming that gets viewers excited. “There hasn’t been another SpongeBob, there hasn’t been another Hannah Montana,” says Bowe. She adds that it is unclear whether technology like video on demand is limiting the networks’ ability to ignite a blockbuster, or if it’s just the quality of the material. “We don’t really know,” she says.

In the ad market, lower supply usually means higher prices on a cost-per-thousand-viewers basis. And while Nick could decide to push up rates to maintain revenue, buyers warn that being too aggressive on price could encourage advertisers to shift money to other networks.

“It will be really interesting to see how they play it out,” one buyer says.

One rival network executive thinks Nickelodeon’s strategy will be to maintain volume. “They don’t seem to be as worried about price as they are about volume. And that’s more than just the kids business,” the executive says, referring to Nick parent company Viacom.

With only a few major players in the kids market, advertisers don’t have many alternatives, so Nickelodeon probably won’t have to take a big hit on rates in order to make a volume strategy work, the buyer says.

Historically, the kids upfront market moved in March and April, following Toy Fair in New York City. But in recent years, with more adult brands buying kids nets to reach moms, and with media companies unwilling to let a price precedent be set by a network in the kids category, negotiations have waited until May, when the grown-up nets do business.

That means at this point, buyers say they don’t have a good handle on how much their clients plan to spend. Nevertheless, most sellers are optimistic.

“We hope if the economy is slowly turning around, that we’re going to have another good upfront in terms of demand, both on the adult and the kids side,” says Perry.

Nickelodeon already has 2012-13 business booked in long-term deals that include licensing, marketing and advertising with major marketers including Mattel and General Mills.

“So we’ve got those guys locked up, and then we’ve also got a bunch of new partners that we’ve been bringing into the market,” Perry says. This quarter, automaker Mazda is advertising on the main Nickelodeon channel for the first time. Other new clients include Hewlett-Packard, Dell and Pirate’s Booty Popcorn, which will soon be featuring SpongeBob SquarePants on its packages. Those deals were done in midyear, but Perry expects many of them to return as upfront advertisers.

Perry also says that Nickelodeon already has sponsors lined up for the network’s new version of Teenage Mutant Ninja Turtles, coming in the fall.

While Disney sells commercials on its XD network aimed at boys and on its Websites, Disney Channel and the new Disney Jr. rely on a sponsorship model. Disney’s Ferro says more advertisers are seeing value in a sponsorship model as multiplatform campaigns become more sophisticated.

Ferro points to a campaign that linked Nestlé’s Nesquik brand with Disney’s Phineas and Ferb franchise. “It was really about how they tie into these franchises that are so engaging with kids and moms,” she says. “People understand now that the sponsorship model is not only about the sponsorship opportunity on-air, but how you are able to tie that into a 360-degree experience so that you’re reaching the consumer with the advertising message regardless of where they experience the content.”

Cartoon Network will be marking its 20th year, and O’Hara says ratings are being boosted by new shows, including Adventure Time, The Regular Show and Level Up. He says the network’s “Flicks” Sunday movie franchise is attracting coviewing, with parents and children watching together, and that it’s attracting advertisers outside of the usual kids categories. Cartoon also recently aired its Hall of Game awards show, which was sponsored by Kids Foot Locker and Universal Pictures’ The Lorax.

A host of smaller networks are also looking to attract viewers and ad dollars. The Hub, a joint venture of Discovery Communications and Hasbro, is counting on a coviewing strategy. “We know we’re the little guys, we know we’ve got a ways to go, but we’re very optimistic and we’re growing our audience,” says Hub president Margaret Loesch. Where Disney focuses on girls and Cartoon attracts boys, “we provide programming for the older boy and girl in the home, and the younger boy and girl in the home, and there’s shows they can watch with their parents, too.”

The Hub recently added four new shows to its lineup, including a new version of The Care Bears, The Littlest Pet Shop and Kaijudo: Rise of the Duel Masters.

The Hub has also attracted a variety of advertisers, ranging from automotive to packaged goods, according to Brooke Goldstein, Hub senior VP for ad sales. Hasbro’s involvement has made some toymakers wary, but Goldstein says “we started out with 20-plus kids advertisers. We’re probably into 40-plus now. We still certainly have challenges with some of the larger competitors in the space, but we’re slowly breaking through.”

Qubo Channel says it is adding 16 new series to its family-friendly lineup, including Artzooka, Jakers! and Sandra: The Fairytale Detective.

PBS Kids Sprout, the preschool network partly owned by Comcast, targets 18-to-49-year-old women for advertisers, making it a bit different than its competitors. Sprout has had Nielsen ratings for a year and is up to 55 million subscribers, putting it in the conversation with the Hub and Nick Jr., says president Sandy Wax.

Sprout will be launching a new acquired series, Justin Time, about a boy’s imaginary adventures in history with friends, and is developing an original series starring Sunny Side Up cohost Chica the Chicken that could air in the fourth quarter.

“The market is getting a lot more crowded with the Disney Jr. launch. We take that as flattery,” says Wax. “As long as there’s a lot of good options for kids, it’s a good thing.”

But smaller kids networks face an uphill fight. “It takes a lot of time and very deep pockets to be able to do what some of the major players have done in this space,” says Nickelodeon’s Perry. “It’s not an easy business to be successful.”

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