Viacom Profit Rises; Cable Ratings Spur Development

Mar 1, 2007  •  Post A Comment

Viacom’s fourth-quarter earnings jumped after the acquisition of the DreamWorks SKG movie studio bolstered the company’s film division. An increase in advertising sales at Viacom’s cable networks fell short of the company’s and analysts’ expectations.

In six months under Phillippe Dauman, who replaced Tom Freston as CEO, the company has embarked on a broad series of restructurings that involved firing about 250 people. That will cost the company $70 million in 2007, including $50 million in the first quarter.

Mr. Dauman, during the company’s earnings call with stock analysts Thursday morning, said the changes are designed to “take costs out that do not show up on the screen and do not show up in generating revenues, and putting those savings into revenue generating activities” including programming and developing digital assets.

Viacom expects to grow earnings per share at a low double digit rate over the next three years, Mr. Dauman said. He reiterated his projection that the company would have $500 million in digital revenues by the end of the year.

Viacom’s fourth quarter net profit almost quadrupled to $480.8 million, or 69 cents a share, up from $129.5 million, or 17 cents, a year ago. Revenue rose 32 percent to $3.6 billion. For the full year, net income hit $1.6 billion, or $2.19 a share, up from $13 billion, or $1.73 a share.

Mr. Dauman’s predecessor, Mr. Freston, was ousted partly because of the company’s sluggish growth in the digital arena. Mr. Frestno was also criticized for not moving fast enough to acquire MySpace.com, which was acquired instead by News Corp. During the conference call, Mr. Dauman said the company planned to concentrate on developing its internal digital properties and that no major acquisitions are expected in 2007.

Mr. Dauman said that some of the networks company’s cable networks had ratings problems in the fourth quarter. In response, the company is increasing its program development and has reorganized the MTV Networks sales force.

Ad revenue fell below expectations in the fourth quarter because of ratings issues and because of shortfalls in spending by video game and soft drink advertisers, Mr. Dauman said. The video game advertisers shifted spending to the first quarter.

“We will come back in the first quarter,” he said.

He added that since Viacom ordered Google Video and the YouTube video-sharing site to remove its copyright content, traffic on Viacom sites including MTV.com, Nick.com and Comedycentral.com have jumped and that the company is earning money on that traffic.

Fourth quarter operating income for Viacom’s media networks rose 6 percent to $809.9 million, as revenue rose 4 percent to $2.1 billion. Domestic ad sales increased 4 percent.

Sumner Redstone, chairman of Viacom, praised Mr. Dauman’s first six months on the job.

“He moved quickly, he moved decisively,” Mr. Redstone said.

When asked if he would consider selling the company or merging it with its former corporate sibling CBS, Mr. Redstone said, “I love this company. The company’s not for sale.”

Viacom share fell 4 cents to 39 in morning trading Thursday.

(Editor: Baumann)