MTV owner Viacom (NASDAQ:VIAB) just found out what happens when results stop being polite ... and start getting real. The owner of Comedy Central, MTV, Spike, BET, and SpongeBob SquarePants home Nickelodeon, among others, today reported a third-quarter revenue drop of 7.4% year over year with its Filmed Entertainment division dropping more than 26%.

Revenue missed analyst projections as well -- missing by $130 million as it reported $3.42 billion versus an expected $3.55 billion. Although EPS missed as well, with the company providing $1.42 per share vs. $1.43 analyst expectations, the miss was narrowed by Viacom's share repurchase program that lowered shares outstanding by 8 million on a quarter-over-quarter basis.

What's the cause of this underperformance?

Filmed Entertainment: A poor performance
As previously mentioned, Filmed Entertainment presented huge headwinds for the company this quarter with a massive 26% year-over-year drop. And while this is a smaller part of Viacom's business, the huge drop was enough to offset the company's larger division -- Media Networks -- which had a modest 1% revenue increase on a year-over-year basis. 

Filmed entertainment performed rather poorly in each subdivision: Theatrical was down an astonishing 43% on a year-over-year basis. But this is a rather tough comparable period for the company. The only blockbuster-type release this quarter was Transformers: Age of Extinction compared to Pain and Gain, Star Trek: Into Darkness, and the huge, half-trillion-dollar megahit World War Z in last year's comparable period.

The other core subdivisions in Filmed Entertainment also declined on a year-over-year basis with Home Entertainment and TV License Fees reporting 20%-plus drops on a year-over-year basis. The remaining "ancillary" category saw a 21% gain, though it chipped in just $147 million, compared to, say, the next smallest subdivision, home entertainment with $209 million.

Media Networks should worry investors more
Although Filmed Entertainment's numbers might seem more shocking, investors should worry more about the company's Media Networks division, which includes flagship stations MTV, Nickelodeon, and Comedy Central, for a couple of reasons. First, it's a larger part of revenue -- this quarter clocking in at nearly 76%. Second, the business of Filmed Entertainment is rather lumpy with variability common -- for example, following a huge hit like World War Z it is rather common for a distributor, even as one as big as Viacom's Paramount -- to report a fall off of revenue.

But the core business, Media Networks, which includes revenue from advertising and affiliate fees from its host of networks, had a gain of just 1%, which is cause for concern. Media Networks' advertising revenue, which accounted for 37% of total revenue this quarter, only grew at an anemic 2% clip. And that's what spooked analysts. This follows the realization that ratings in the key 18-49 demographic are trending downward at many of the company's flagship channels.

To be fair, the company credits much of this to content being consumed outside of the traditional format -- TVs -- by more tuning in to iPads and tablet devices. That content doesn't monetize as well for the company.

Final thoughts
As in many cases, the big number isn't the scary number. Although Filmed Entertainment looks bad, the numbers are entirely explainable. But Viacom is facing a more prevalent, more insidious, threat. How will the company perform in the face of continued cord-cutting and from copycat reality TV competitors that learned all too well from Viacom? We'll all have to stay tuned to find out!