Earnings: Viacom 2Q06 Digital Revenues Up 58 Percent; Digital Ad Sales Rise 75 Percent

Updated: Viacom’s 2Q06 revenues included $51 million from digital, up 58 percent from 2Q05. Digital advertising revenue, comprising 68 percent of digital revenue, rose 75 percent. Through the first six months, Viacom took in about $100 million in digital revenue and “it’s ramping up nicely.” Half of that was generated “organically” in-house by MTVN and other Viacom properties; the rest by acquisitions. CEO Tom Freston points out that one-third of the digital business comes from subscriptions, including dozens of mobile deals, and “that’s a totally organically driven high margin business for us.”
Overall results: Viacom’s profit increased 24 percent to $437.3 million, or $0.61 per share, in 2Q06 from $353.9 million, or $0.47 per share, in 2Q05. The increase included a $0.10 tax gain. Revenues also rose 24 percent, to $2.85 billion from $2.3 billion the previous year. Advertising was up 8 percent but international ad sales were down slightly.
The digital data came up in the earnings call, not the release, where the strategy, including today’s acquisition of Atom Entertainment, was discussed in less specific terms:
More from the call: Much of the detail emerged as analysts pushed for more specifics on various aspects of digital.
Upfront: Asked what percentage of the upfront came from digital, Freston said the exact percentage wasn’t available as some deals as still being closed but that it would be in the 6-9 percent range — and probably on the lower end of that range because “it’s been difficult for a lot of agencies to make these multi-platform purchases within the context of a rushed upfront.” Freston said OMD, which struck a major deal with Viacom, was set up to handle it quite efficiently. “More and more agencies are going to be able to do that in the future and that’s a good thing for us.”
Atom: CFO Michael Dolan: “As we look out prospectively in terms of what we can do with our ad sales force and Atom, we see a very, very attractive set of IRRs (internal rate of return) on that acquisition that would be north of 20 percent.”
Atom came up again when Freston was asked to explain how Viacom decides whether to grow from within, acquire or partner when it comes to digital. “Our overall strategy is we want our content to be on multiple platforms and, unlike a lot of people, we’re not renting it from independent producers so we have large libraries of content. Our primary use for it is going to be on our primary web businesses .. but there are a lot of other options to do that. … We’re always looking for holes we can fill or scale that we can gather in certain demographics or subsets of the audience. The example of AtomShockwave is a good one … we already have a great head start, particularly on our kids’ business, with Turbo Nick and Nick.com in the casual gaming area. Shockwave and AddictiveGames are two huge game sites in that area. So, they are going to give us what we think of as additional scale advantage. When we do a deal with Google where we actually can control the distribution, where it goes, and control the sale of the advertising, there’s absolutely nothing wrong with that. We think it makes our brands and our products bigger places, and it certainly allows us to monetize it in more and more fashions.”
More digital stats/acquisitions: ComScore: Viacom reached 30 million uniques across its sites in June, up 22 percent from last year. In May, Viacom delivered 250 million steams — 100 million more than March. Page views for June nearly tripled to 3.25 billion.
Xfire: passed 4.7 million registered users, up 500,000 since May when it became a Viacom property.
Gametrailers: Video streams increased 80 percent between November ’05 and June ’06. Viacom says the site delivers more video streams than any other gaming site.
Neopets: Neopets traffic is up 13 percent over last year and revenue “is on track to be up 40 percent.” Combined with Nickelodeon, the two give Viacom 60 percent market share with kids.
Earnings | Webcast | Transcript (SeekingAlpha.com)

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