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Viacom Profit Plunges on Ad Slide, Layoff Costs

Feb 12, 2009  •  Post A Comment

Viacom said weakness in the ad market and a charge to cover layoffs in December contributed to a 69% plunge in fourth-quarter earnings.
“Our fourth quarter results reflect the realities of a challenging economy, CEO Philippe Dauman said in a statement. “The broad marketplace conditions weighed on our advertising, home entertainment and consumer products businesses. “
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During the company’s earnings conference call with analysts, Mr. Dauman noted that the amount of upfront advertising purchased in 2008 for the second quarter that is being canceled is trending higher.
“The advertising comparisons are likely to get worse before they get better,” he said.
Net earnings came to $173 million, or 28 cents a share, compared to $560 million, or 69 cents a share. This year’s figures include $454 million in restructuring and other charges. Fourth quarter revenues were flat at $4.2 billion.
In Viacom’s Media Networks group, which includes cable networks MTV and Nickelodeon, operating income fell 44% o $509 million, largely due to the restructuring charges.
Media Networks’ revenues inched up 1%, reflecting a 3% decline in worldwide advertising revenues and a 12% increase in affiliate revenues. Domestic ad revenues fell 3% in the quarter, reflecting soft ratings at some of the company’s networks, as well as the deteriorating economy.
Mr. Dauman said Viacom’s cable networks command “industry leading prices, but ratings do matter.” He pointed to improving ratings trends at MTV, VH1 and BET, which have been laggards.
Program spending won’t grow as much as it did last year, when it went up 8%, he said. Still, the company is investing in more original programming at some of its networks.
Mr. Dauman said that Epix, the new programming service Viacom is launching with two movies studios, is on track to launch online in May and in October on cable. Although Epix has not signed any distribution deals, he said discussions are in advanced states and that analysts show expect announcements.
“We feel bullish for Epix,” he said.
Sumner Redstone, controlling shareholder of Viacom, said that an agreement between his family-owned National Amusements and its lenders is “within reach.” He added that since National Amusements announced last year that it had sold non-voting shares of CBS and Viacom to satisfy lenders, it has not sold and more stock. The company “does not expect to be required by its lenders to sell any additional shares,” he said. “Not a share.”
Analyst Spencer Wang of Credit-Suisse, said that Viacom’s earnings were below Wall Street forecasts.
“As expected, cable advertising was weak,” Mr. Wang said in a research note. “In addition to macro-related ad market softness, we believe ratings weakness is exacerbating the impact.”
Viacom’s full earnings announcement can be read here.
(Editor: Baumann. Updated 7 a.m. to add Dauman comment.)

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