Viacom revs up; merger near OK

Partners await expected FCC approval

NEW YORK — Viacom’s first-quarter net profit has sailed past expectations — a report made even sweeter by news that the Justice Dept. has signed off on the entertainment conglom’s merger with CBS Corp.

The prospective partners still await FCC approval, which is expected imminently. The DOJ, the government’s antitrust watchdog, put no conditions on the deal despite reports that it might take issue with the combined company’s huge presence in the syndication market.

The Federal Communications Commission is likely to require some TV station sales, but with a yearlong grace period.

Meanwhile, Viacom’s net profit jumped 69% to $76 million on upbeat numbers from MTV Networks —that’s MTV, VH1 and Nickelodeon. Revenue firmed 2.5% to just over $3 billion.

In conference calls this week, execs at both companies were almost at a loss for words to describe the exalted state of the ad market. “Advertising is so vibrant. It’s incredible. It’s hard to overstate,” Viacom chairman-CEO Sumner Redstone said Wednesday.

The bullish outlook boosted shares of Viacom Wednesday — up 6% to $54.69 — and carried other entertainment stocks higher as well. Disney Co., with an ABC network that’s on a roll, rose 5% to $42.50.

MTV nets saw ad revenue rise 20% in the quarter, compared with last year. Overseas ventures such as MTV Europe, MTV Asia and VH1 Germany powered ahead. Domestically, VH1 passed the 70 million subscriber mark. MTV remains the top-rated cable network for 12- to 24-year-olds, while Nickelodeon kept a firm hold on youngsters 2-11. During the quarter, Ford became the first automaker to advertise on the kiddie net.

Total cable network revenue, which includes revs generated by Nick at Nite and Showtime, rose 14%. Operating income soared 32%.

On the entertainment front, which includes Paramount Pictures and television along with diverse assets — TV stations, movie theaters and music publishing — revenue dipped 3% to just over $1 billion and operating income nosed up 3% to $117 million.

Theatrical results were lower, although not broken out. “Snow Day” was virtually on its own last quarter, against “Payback” and “Varsity Blues” from the 1999 period. “I’m surprised we did as well as we did during the quarter with no important pictures,” Redstone said, waxing enthusiastic about upcoming pics “Shaft,” with Samuel L. Jackson and Christian Bale, and John Woo’s “Mission: Impossible 2,” with Tom Cruise. “ ‘Mission 2’ is a better picture than (the first) and may be the highest grossing picture of the season,” Redstone predicted.

Keeping entertainment numbers afloat last quarter was an inflow of syndication revenues from “Judge Judy,” “Judge Joe Brown,” “Entertainment Tonight” and library product plus strong homevideo performance for “Runaway Bride” and “Double Jeopardy.”

Revenues at the TV station group rose 12% on higher ad revenues and lower costs. The station assets of a combined Viacom/CBS will exceed the current 35% federal cap on national reach, which is why the FCC may request station sales. But Viacom will have some time to work that out, and Redstone said he hopes the ownership limits will be history by then.

“That’s our hope. This rule doesn’t make any sense, with everything that’s going on with cable and the Internet” and the proliferation of voices in the media, he said. “In Washington, they know it doesn’t make sense,” he added.

If the rules don’t change, however, Viacom/CBS can easily swap assets with other station owners, Redstone said. “We’ll swap into duopolies and swap out of stations that extend the reach,” he explained.

A duopoly, or ownership of two stations in the same market, only counts once for the purposes of determining national coverage. “It’s very do-able,” Redstone said, noting that Viacom has already been approached by parties interested in such a deal.

It appears that Viacom will also wind up owning two TV networks once the CBS deal is done since the FCC appears willing to let Viacom keep 5-year-old UPN. Company gained 100% control of UPN in March and will consolidate the net for the first time in its second-quarter results.

Viacom said loss in affiliated companies for the first quarter narrowed to $6 million from $16 million due to improved ratings at UPN and continued strength at Comedy Central.

Viacom’s giant Blockbuster Video saw revenue rise 9% to $1.2 billion, due mainly to the addition of 749 new locations from the year-earlier quarter. Operating income dipped 11% to $45 million. Redstone said “The Sixth Sense” looks set to become the top rental movie in the history of Blockbuster and predicted that DVDs will continue to drive sales at the unit.

The video rental chain has been inking a number of deals with Internet and other partners whom it hopes will aid its transition into the digital age. Many believe the company’s core business will gradually become obsolete as cable starts to offer more sophisticated video-on-demand.

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