Viacom Profits Triple, As Ad Declines Slow; Lower Rock Band Sales Pull Down Revs


Viacom’s profits rose significantly in Q4, as the company posted modest revenue and advertising declines, beating analysts’ expectations. Global ad revenues fell 3 percent, while U.S. ad dollars slipped 4 percent, held down by slight weakness in the Media Networks and Filmed Entertainment segments. The Media Networks’ operating income grew 3 percent to $921 million on higher affiliate revenues, but revenues were down 6 percent. In a statement, Philippe Dauman, Viacom’s president and CEO of Viacom (NYSE: VIA), pointed to a “resurgence of BET and MTV’s recent ratings gains” as the reason ad declines have slowed amid continuing recessionary pressures. Filmed Entertainment declined about 1 percent on lower distribution revenues.

Worse than the ad declines, Media Networks was hit by lower sales of Rock Band bundles. The earnings news comes on the heels of RealNetworks (NSDQ: RNWK) and Viacom’s MTV Networks’ move to spin off music service Rhapsody. During the analysts call, Sumner Redstone, Viacom’s executive chairman opened by striking a theme similar to what Rupert Murdoch said during News Corp.’s earnings last week: “Content, content, always remains king.”

Redstone then handed the call over to “my friend and adviser” Dauman, who discussed the value of brand building during a weak economy. Looking Q1 ad sales, “the tone is clearly more positive” with an improvement expected over Q4. But Dauman emphasized that the company is still cautious.

Turning to MTV, Dauman touted the ratings successes of guilty pleasures like Teen Mom and Jersey Shore, which recently got the greenlight for a second season. Dauman couldn’t resist channeling Jersey Shore’s Snooki, who would probably say the news is “a very good thing.”

100 million global uniques, which helps increase buzz around original programming. Dauman is also looking to more web productions. “If you were to aggregate all our gaming properties, it would be the number one destination in the U.S. No one knows how the world is going to change, but our digital strategy is pivotal to our success.”

During the Q&A, Dauman was asked about the weak performance associated with Rock Band in Q4, quite a difference from past quarters when the game was considered a major revenue driver: “It was a challenging year for video games in general. We’re focusing more on software than hardware and looking to reduce costs associated with Rock band. Also, the music industry will have to assist this category in lowering costs as well.”

Earlier, Dauman had talked about the high hopes for the Epix movie channel. “We’re pleased with the distribution deals we’ve received. Cox will launch it in April, Charter (NSDQ: CHTR) will launch it in May. Verizon has also signed on. We expect Epix to be cash positive by next year. We’re following the trajectory we anticipated.”

The call ended with more discussion about Rock Band. As one analyst noted, Electronic Arts (NSDQ: ERTS) has said that it will reduce the distribution of third party games. Dauman was asked about the negotiations and he again reiterated that it’s been a tough year for video games. In the meantime, EA is still distributing Rock Band. But Viacom is also taking another look at future distribution relationships for Rock Band titles.

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