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Viacom qtr. comes up tails, off $33.7 mil

NEW YORK — Viacom Inc. lost $33.7 million in the first quarter, compared with a profit of $12.8 million a year earlier, dragged down by the highly publicized slump at Blockbuster, a dip in its entertainment group’s earnings and bigger seasonal losses at Simon & Schuster.

The only growth came from the MTV cable networks and broadcasting group, which posted 17% higher earnings before interest, taxes, depreciation and amortization (cash flow) of $160 million on 11% higher revenues of $577 million. The cable networks’ growth was particularly striking because it occurred despite startup losses at several ventures such as TV Land.

As Viacom warned late last month, Blockbuster’s earnings before interest, taxes, depreciation and amortization fell 15% to $160 million despite a 15% increase in revenue to $973.2 million. The company has blamed the downturn on weaker film product and expenses related to the move of Blockbuster headquarters from Florida to Dallas.

Viacom chairman Sumner Redstone had little good news on the Blockbuster front Wednesday, telling Wall Street analysts on a conference call that video rental revenue dropped 2% in the first quarter — when adjusted for new store openings — and was down 4% so far in the second quarter, according to analysts on the call.

“I don’t think that’s very positive,” said Cowen & Co. analyst Harold Vogel, who added that Wall Streeters are largely skeptical about Viacom’s promise to spin off Blockbuster early next year, given the questions about the video chain’s performance.

Better than expected

Blockbuster aside, however, analysts said Viacom’s quarterly result was slightly better than expected, apparently prompting Viacom stock to pick up 68 cents to $28.93 despite a broader market selloff.

“I thought there was continued overall strong results from the content side of the company,” said Lehman Bros. analyst Larry Petrella.

The entertainment group, including Paramount Pictures, suffered a 28% drop in cash flow to $127 million on 14% higher revenue of $1 billion. But this dip was expected, as it reflects last year’s inclusion of a big profit on Viacom’s licensing deal with the Kirch Group of Germany.

With this one-time profit excluded, the entertainment group’s cash flow rose 30% to $98 million, driven by foreign theatrical and homevideo revenues from “The First Wives Club,” as well as the improvement at 75%-owned Spelling Entertainment.

MTV Networks up

The cable networks group did better than expected. MTV Networks —including MTV and Nickelodeon — increased cash flow 23% to $115 million on 15% higher revenue of $305 million, despite startup costs at TV Land, Nick Latin America and M2.

Offsetting this stellar performance was a 10% dip in cash flow at premium channel Showtime to $18.5 million. On the other hand, Viacom’s TV station group cash flow rose 11% to $30.1 million on 6% higher revenue of $94.5 million.

Viacom formalized its interest in the UPN netlet in January, exercising its option to buy a 50% stake from Chris-Craft Industries. As a result, Viacom reported $15 million in losses from associated companies for the quarter, compared with a profit of $1 million a year earlier.

Simon & Schuster, which traditionally makes its money in the second half of the year, more than doubled its quarterly losses to $19 million on 2% higher sales of $398.7 million. Viacom said the higher losses were due to increased costs to support growth in educational markets.

Issues unresolved

Questions about Viacom’s future plans for Blockbuster dominated the company’s conference call with Wall Street analysts, but Redstone left many dissatisfied. “They still have to resolve the management issues and explain how Blockbuster is going to expand,” Cowen’s Vogel said.

Redstone reaffirmed past comments that Blockbuster will re-emphasize the video rental business in future, a shift in strategy from the past two years, but he did not explain what the future mix would be between video and sell-through. He also gave no clear timetable on replacement for Bill Fields, the star retailer who quit as Blockbuster CEO two weeks ago.

Blockbuster had some good news in the quarter, however. The long-troubled music stores turned a small profit on 7.7% higher revenue of $143.1 million.

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