Viacom gets Street heat

NEW YORK — Viacom Inc. deputy chairman Tom Dooley fueled a sudden rally in Viacom stock Friday when he promised a group of investors that the entertainment conglomerate would show “dramatic changes” in its balance sheet and performance next year.

Speaking at the PaineWebber media conference, Dooley said Viacom was “very focused on reducing our debt.” He also appeared to hint that Viacom was considering selling its Simon & Schuster book publishing company, as some Wall Streeters have been pushing the company to do, which could raise several billion dollars.

Not only did he tell the conference that the book publishing industry needed to consolidate, but when asked by influential money manager John Kornreich why Viacom continued to hold on to Simon & Schuster, Dooley answered abruptly: “That’s a good question, John. I’m not making any announcements today.”

His presentation helped Viacom stock rally $1.37 to $37.56 by the close of trading Friday, after it had risen $1.81 Thursday, bringing its total rise in the two days to 9%.

Backpedaling on books

Dooley played down his remarks about book publishing when questioned later by reporters, insisting that Viacom was not considering any sale of its publishing division. Dooley said Viacom was looking at a number of measures to highlight the value of the division to Wall Street but he would not elaborate.

People listening to his remarks said Dooley was clearly sending investors a message, however. “What that says is, ‘We are going to do some major transactions that change the way the company looks,’ ” said Sal Muoio, principal of SM Investors, who noted that Dooley could have given Kornreich reasons why Viacom wanted to keep Simon & Schuster.

“It was a little bit of an intimation that they would partner their consumer book division with somebody else,” said UBS Securities analyst Ed Hatch.

Hatch said the sudden rally in Viacom stock, which has lifted it to its highest point in eight months, was also the result of speculation on Wall Street that Blockbuster will be spun off or sold by Viacom within the next 12 to 18 months.

Focus on changes

And while Dooley did not address that prospect, he focused much of his speech on changes under way at the troubled video rental chain, which he promised would show improvement in 1998 after this year’s dramatic earnings slump.

Dooley said that same-store sales were looking positive for the fourth quarter, although he emphasized that the final two weeks of December have a big impact on the quarter’s performance.

In a detailed presentation, Dooley laid out Viacom’s missteps on Blockbuster over the past two years and outlined a number of measures under way to fix the problem, such as new store formats that were being tested, a new marketing campaign, cost-cutting and a more selective approach to international expansion.

Dooley said the new distribution center was also being tested before its opening, early next year. And he said that some videotapes were in Blockbuster outlets under a new “revenue-sharing” arrangement that Viacom is trying to negotiate with several major Hollywood studios.

Dooley was vague about the status of the talks, noting, “We have had a mixed response.

“Several studios have been very receptive to the concept, several are playing with it and some don’t like it,” Dooley said, adding that revenue-sharing would force Hollywood to spend money marketing video rental. Dooley questioned why Hollywood spends so much money marketing the theatrical release of films and very little on video rental, which generates twice the revenue that the box office does.

Dooley said Blockbuster had to better distinguish itself from other video rental chains. “We want to give people a reason to come back to Blockbuster,” he said, adding that the chain’s best customers still rented videos from rivals 40% of the time.

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