Viacom: Ad outlook good despite 2nd-quarter profit drop on weak ad market, slow video games

By Andrew Vanacore, AP
Tuesday, July 28, 2009

Viacom: Ad outlook good despite 2Q drop in profits

NEW YORK — Viacom Inc. struck a hopeful note on advertising for the rest of the year even as the media conglomerate controlled by Sumner Redstone saw second-quarter profit plunge on weak ad markets, video game sales and box-office returns.

Viacom CEO Philippe Dauman said the company, which owns the BET and MTV cable TV networks, was “very pleased” with the nearly completed bidding in the so-called “upfronts,” in which media buyers bid on commercial time ahead of the coming TV season.

Advertisers no longer count on dramatic reductions in prices “as we see signs of recovery,” Dauman told analysts on a conference call.

Analysts remain wary, however. David Bank of RBC Capital Markets said Viacom’s comments on advertising were more bullish than he expected but might only be posturing as the bidding for ad time continues.

“I think the upfronts are in a really odd state of flux right now,” Bank said. “They’re going to turn out better than everyone thought three or four months ago, but no one knows exactly how these negotiations are going.”

New York-based Viacom declined to give specifics on the volume or pricing of ad time it has sold so far.

Viacom, which also owns the Paramount Pictures movie studio and the “Rock Band” video game franchise, said it earned $277 million, or 46 cents per share, in the most recent quarter, a 32 percent drop from $407 million, or 65 cents per share, a year earlier.

Excluding 3 cents per share in severance charges, adjusted earnings were 49 cents per share. On that basis, earnings beat analyst expectations by a penny per share, according to a Thomson Reuters survey.

Revenue slipped 14 percent to $3.3 billion, missing analysts’ estimate of $3.5 billion.

Revenue at the company’s media networks segment, which includes BET and MTV Networks and the “Rock Band” games published by MTV Games, slid 8 percent to $1.97 billion.

That was due in part to slower sales of “Rock Band,” which had a better quarter last year as the company rolled out new equipment for the game and expanded internationally. Weak retail sales also forced the company to cut the game’s price.

Domestic ad revenue dropped 6 percent and international advertising was down 8 percent.

“Star Trek” and “Transformers: Revenge of the Fallen” posted strong box-office returns for Paramount, but could not catch up with last year’s slate, which included “Iron Man and “Indiana Jones and the Kingdom of the Crystal Skull.”

Theatrical revenue dropped 27 percent to $584 million, while home entertainment fell 29 percent to $435 million.

TV licensing fees climbed 5 percent to $314 million.

Viacom also said Tuesday it has struck a deal with Verizon Communications Inc. to carry Epix, a new premium cable movie channel, on the carrier’s FiOS fiber-optic TV and Internet service. The channel is jointly owned by Paramount Pictures, Lions Gate Entertainment and MGM.

Meanwhile, Redstone provided an update on his holding company, National Amusements, which is trying to sell off some of its 1,500 movie theater screens to pay down debt.

“I can tell you that whatever you may hear from the uninformed, there is substantial interest from a number of our bidders,” Redstone said, adding, “We are extremely pleased with our relationship with our banks.”

Last year the holding company’s lenders forced it to sell off $233 million worth of shares in Viacom and CBS Corp., another property it controls, to satisfy the conditions of its loans.

Shares of Viacom fell 50 cents, or 2.1 percent, to $23.75 Tuesday.

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