Earnings: Viacom Q1 Profit Falls 36 Percent; Will Hit $500 Million Mark On Digital Revs This Year

Citing higher expenses and restructuring charges at its media networks, Viacom (NYSE: VIA) reported Q1 profit fell 36 percent to $202.9 million from Q106’s $317.2 million. Revenue was up 16 percent to $2.75 billion. Acquisitions added $40 million in incremental revenues to the media networks segment in Q1. Other highlights from its pre-call statement:

— Q1 Revenue at its cable networks, including MTV, BET, Nickelodeon and VH1, gained 10 percent, rising to $1.73 billion from $1.57 billion in 2006. Operating income for that segment retreated 3 percent during the quarter.
— Worldwide ad revenues were up 10 percent to $974 million from Q106’s $886 million.
— Filmed Entertainment revenues were up 27 percent to $1.05 billion. Earnings release | Webcast

Update: It’s no longer about digital versus linear, Dauman told executives during the call with investors and the media. He noted most ad sales meeting include input from digital marketing teams as well. He pointed to the recent ad partnership with Sony for special previews of the Spider-Man 3 movie trailer. “We orchestrated a multi-platform solution across six networks and 13 online properties to turn the premiere of the extended trailer into a main event.” On the programming front, Dauman also touted the arrangement between MTV and the American Eagle clothing chain. The partnership is centered on truncated webisodes that will replace commercial pods on shows like the Real World, while the full-length version appear on AE’s website. More after the jump…

Accelerated Digital Moves: Dauman: “I can now commit, that we will reach what had been originally stated as an aspirational objective of generating $500 million in the digital revenues this year. From the creation of virtual worlds and enhanced interactivity, the formation of innovative partnerships, the entire Viacom organization has embraced the need to accelerate our digital activities. Today, we are the number one online entertainment destination and the 11th most popular overall destination on the web. In the first quarter, Viacom digital welcomed an average of 39 million monthly unique visitors, according to comScore. That’s a 61 percent increase over the first quarter of last year.

Broadband Partnerships: Noting that Viacom will soon be providing the online video channel content from Paramount films, as well as MTV and BET. “This is an ideal marriage of our world-class content with the first broadcast-quality internet television platform. There will be links to our website as well as messages boards and a variety of other interactive features that present further opportunities to leverage our content on other platforms.” Yahoo was recently designated as the exclusive provider of sponsored search ads for Viacom’s 33 broadband sites. Yahoo is also working with Mark Burnett Productions on MTV’s Movie Awards next month. There will also be a special “MTV Movie Awards On Yahoo” web feature, where users can submit original content for the best movie spoof award. Viacom is also expanding its relationship between Paramount and iTunes. “We are in active discussions with a number of other digital distribution and marketing partners, which will further deepen the penetration of and consumer engagement with, our content and brands,” Dauman said.

Mobile Arena: All of Viacom’s divisions – MTVN, BET, and Paramount – added to their mobile portfolios in Q1. MTVN started selling ads with Pepsi and Intel as charter sponsors for its first major mobile effort, while BET started the 106 & Park Mobile Fan Club, an offshoot of its music video show. Dauman claimed that Paramount was the first studio to create a mobile portal for individual movie microsites. “This is a particularly attractive market for Viacom, because so much of the programming we create is highly clipable and conducive to the way our audiences consume entertainment today, which is on the go.”

Cannibalization Of DVD Sales: Viacom has been running tests on release windows with Comcast in Pittsburgh and Denver. So far, Viacom has not seen any impact on same-day releases in those two cities, but the test is ongoing and the final evaluation is expected within the next three months.

Yahoo vs. Google: Merrill Lynch analyst Jessica Reif Cohen asked about revenue expectations from the deal with Yahoo, which is providing sponsored search and contextual ad to Viacom’s sites. Dauman: “We obviously shopped around when we were considering this kind of deal and though we can’t disclose our deal structure with Yahoo, but we feel very comfortable with it, economically. This is a deal that protects us and we’ve been quite encouraged by the platform that Yahoo has rolled out. This was the best deal that was available and it was significantly more favorable than what was offered by Google.

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