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Economy’s Troubles Cut Into Viacom’s Q3 Net Earnings

Nov 3, 2008  •  Post A Comment

Viacom said the weakening economy helped cut its net earnings by 37% in the third quarter.
Ad sales were down partly because of a change in the ad market, Viacom said, but also because ratings were down at the company’s cable networks, including MTV, VH1 and BET. However, Viacom CEO Philippe Dauman said the company was taking steps to improve ratings, including increased spending on programming.
Viacom said net earnings were $401 million, or 65 cents a share, down from $641 million, or 96 cents a share, in the year-earlier quarter.
Revenues edged up 4% to $3.4 billion.
Revenues for Viacom’s media networks, including MTV, Nickelodeon, Comedy Central and BET, rose 6% to $2.1 billion. The company’s ancillary category, which was up 36% to $313 million, also contributed to that revenue growth, fueled by sales of the video game Rock Band.
Domestic advertising revenues were down 3%. The company attributed the drop to ratings softness at some channels.
“Clearly we had our challenges in the third quarter,” Mr. Dauman said during the company’s earnings conference call with analysts. “Our advertising business continues to feel the effect of the macroeconomic trends in the quarter. The impact was compounded at a handful of our networks where ratings were lower than expected, particularly at MTV, VH1 and BET.”
Mr. Dauman said the advertising picture doesn’t seem likely to change much in the fourth quarter.
Hank Close, MTV Networks’ president for ad sales, announced he will be leaving the company at the end of the year.
Mr. Dauman said ad sales is being restructured so that the top ad sales executives will report directly to the presidents of the network groups.
“This will enhance the linkage between our programming and advertising strategies across all distribution platforms,” he said.
Ad sales were hurt because of lower spending in categories led by automotive, Chief Administrative Officer Tom Dooley said. Beverages and video game sales also were weak because of fewer new-product launches. The movie category was affected as well because studios are making fewer films, he said.
Addressing the ratings issue at MTV, Mr. Dauman said reruns were a key issue, and that the company was planning to increase the amount of original programming on the network with “smart, relevant, efficiently produced shows.”
Those originals might be supplemented with content from other parts of the world.
VH1’s problems were caused in part by a lack of original episodes of its strong series. Those series are back for the fourth quarter, he added. But he also said VH1 will “move up the target demo of VH1 during prime time, which will allow us to capture more of the adult ad dollars.”
VH1’s median age dipped during the summer. It usually aims for viewers 28 to 30 years old.
BET’s ratings have been “soft” as well, Mr. Dauman said. The network is “rebuilding its programming organization” and is formulating a new programming and branding strategy.
The network also will be looking to add strip shows to its programming lineup to impact more hours of the day, he said.
Operating income for the media networks group was down 4% to $761 million. In addition to lower ad sales, higher programming expenses contributed to the drop in income for the media networks group, the company said.
Viacom will be looking to increase program spending again in the fourth quarter by about 9%—on the high end of its normal growth, the company said.
Mr. Dauman also said talks with distributors for a new premium channel announced earlier this year with Paramount Pictures, Lionsgate and MGM were proceeding well.
“It’s fair to say they appear to be on track for the Oct. 1, 2009, launch,” he said.
For the full year 2008, the company said it expects to deliver mid-single to low double-digit growth in adjusted diluted earnings per share from continuing operations.
Sumner Redstone, who controls Viacom as executive chairman, got on the call to provide “an accurate and realistic assessment” of the situation at his National Amusements, which owns controlling interests in Viacom and CBS.
When the value of Viacom and CBS dropped with the stock market, National Amusements was forced to sell $233 million in non-voting Viacom and CBS stock two weeks ago.
Mr. Redstone called that an “extraordinary action brought on by an unprecedented situation” and vowed that “National Amusements does not intend to sell one more share of stock in Viacom or CBS.”
He said the talks on restructuring National Amusements debt have been “very constructive” and he expected “a resolution in a reasonable time frame.”
(Updated throughout at 6:30 p.m ET.)

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