ATLANTA • In hindsight, it was a loony idea.
In 2010, Viacom, parent company of Nickelodeon, one of the three most popular networks for the very young, licensed many of its kids' shows in a package to Netflix.
That arrangement allowed the streaming service to lure customers with Nickelodeon's biggest hits, including SpongeBob SquarePants.
But at the time, Netflix had fewer than 20 million subscribers.
Now, it has 125 million - and its growing army of fans include those such as Caleb Moushey, who is seven years old. He rarely, if ever, watches conventional television.
"Everything is Netflix," said his mother Ally Brown, an insurance agent in the St Louis area.
The cable networks for children, in decline for years, are now in a free fall. This season's ratings for the two-to-11 set are shaping up to be the worst yet.
And few in the industry predict a turnaround.
The implications are enormous for giants such as Viacom and Walt Disney.
Viewership of the three most popular networks for the very young - Nickelodeon, Disney Channel and Cartoon Network - is down by more than 20 per cent this season from a year earlier, according to data from Nielsen.
It is a low point in a long-running trend as Netflix, YouTube and other streaming services have taken off.
Media companies still make money from children's television, with the most-watched cartoons spawning toy brands and licensing deals that can generate millions of dollars.
So "the traditional brands are stuck in a tough position", said Mr Birk Rawlings, who left Nickelodeon to run DreamWorksTV, a kids' media company that includes a YouTube channel.
"They can see what is changing, but to embrace what's new, they must run away from a healthy business."
He was vice-president of animation at Nickelodeon when Viacom committed what many in the industry consider the original sin - inking the licensing deal with Netflix in 2010.
Meanwhile, the amount of time that the youngest watchers spent viewing conventional television fell by 30 per cent between 2010 and last year.
And United States advertising sales for kids' networks have not grown for five years, having plateaued at about US$1.2 billion (S$1.6 billion) annually.
Netflix is ramping up the competition even further by bringing more youth-oriented production in-house.
Last year, it hired Ms Melissa Cobb away from a DreamWorks joint venture to run a kids' and family division, which just produced a live-action series, Alexa & Katie.
The company also poached two writers, Scott Thomas and Jed Elinoff, from the Disney Channel. They are the first producers of children's programming to strike an exclusive arrangement to make shows for Netflix, according to people familiar with the matter.
Disney, Nickelodeon and Cartoon Network are playing catch-up.
Nickelodeon has a three-year-old streaming platform called Noggin.
Time Warner's Boomerang online subscription service shows classics such as Looney Tunes while Cartoon Network released videos from the popular show Steven Universe on its app before they appeared on television.
Disney announced plans to yank its movies from Netflix and make content based on Marvel comic books, Star Wars and its trove of animated characters for its own streaming service that will debut next year.
The pressure is on. The youngest entertainment-seekers are being raised on the Internet and cordcutting will accelerate as new batches of babies join them.
The networks have to figure out how to make more money from the shows they produce, whether they are streamed or broadcast on the tube.
"We have to believe" the dollars "will catch up to the audience", said Ms Christina Miller, head of Cartoon Network and Boomerang.
"If it's the opposite, game over."
BLOOMBERG
