Moguls focus on recovery as crisis wracks conglom profits
NEW YORK — Media moguls, acknowledging an industry in pain, bet on a brighter future Tuesday even as News Corp. lowered earnings projections and warned of cost cuts and Viacom contemplated $500 million in lost profits by year end.
Advertisers are back, insisted an upbeat Viacom chief operating officer Mel Karmazin at a well-attended Goldman Sachs media conference in Gotham — the first such confab since the terrorist attacks on Sept. 11 pushed an already weak ad climate into a steep downturn.
News Corp. prexy-chief operating officer Peter Chernin was more cautious. “It’s a very difficult time,” he said. Still, he expects “significant” growth — albeit lower than anticipated — for the conglom’s current fiscal year ending next June.
AOL Time Warner chairman Steve Case said the “current crisis has affected all our businesss — but the fundamentals are sound.” And USA Networks topper Barry Diller thinks the “horrible events” of several weeks ago and the ensuing economic ills might lead to a faster and sharper recovery next year.
News Corp. became the latest in a string of big media companies to lower its numbers. Chernin predicted cash flow will grow in the high-single- to low-double-digit range, instead of rising 20% or more. Fox will see cash flow rise in the low-to- mid teens, not the 30%-plus increase that was expected.
The dip is purely advertising related. Chernin said higher newsgathering expenses and vanished commercials have cost News Corp. about $100 million — one reason the conglom is tightening its belt.
No large-scale layoffs
“We expect to cut millions of dollars of costs,” he said, by cracking down on vendors, overhead and travel and entertainment. Measures will hit personnel as well, he said, but he doesn’t expect large-scale layoffs. Movie marketing and promotion will be moved inhouse when possible.
At Viacom, Karmazin added some color to the company’s previous earnings warning: He tallied up lost revenue and higher costs to the tune of $200 million for the September quarter — about $85 million at the CBS network.
WCBS in Gotham lost $40 million. UPN had a revenue shortfall as well, as did syndication, cable nets and radio. Viacom execs are figuring on another $300 million in attack-related losses in the fourth quarter in a worst-case scenario.
There’s room for optimism, Karmazin said. Advertisers from Hertz to the Marines to the airlines had pulled out or reworked campaigns, “but now everyone appears to be back.” He even cited “a conversation with Disney yesterday about their returning to promote Disney World.”
“Companies still need to be able to communicate with their customers,” he added, noting that last week CBS was sold out of ad time and also inked $40 million in scatter deals above upfront prices.
Karmazin also thinks the burden placed on TV networks will convince the government to loosen regulations on media concentration — particularly the ban on owning two big nets.
“We’re not asking for a bailout or free money,” he said, but the extraordinary newsgathering and high costs born by media companies in recent weeks “demonstrates the need for more consolidation.”
Investors apparently liked what they heard. Viacom shares rose 2.42% to close at $34.76. News Corp. stock was up 3.17% to $25.68. The two, along with Walt Disney (up 5.44% to $19), were among the best-performing media shares in a market buoyed by the Federal Reserve’s ninth interest rate cut this year.
Not that the pain is over. Showbiz stox have been decimated over the past year and are still well off their highs. “People believe there will be some form of retaliation and we’ll have to preempt commercials” again, Karmazin said. Ditto when the president speaks to the nation, as he certainly will.
Responding to general questions about Viacom’s business, including his relationship with chairman Sumner Redstone, Karmazin said, “I don’t think there’s a reason on earth” to worry. “Sumner Redstone has been Sumner Redstone for 78 years. What you see is what you get, and there has not been one surprise.” He noted that he wouldn’t have moved to Viacom without a management agreement in place.
During a book tour last summer, Redstone declined to discuss a successor or mention Karmazin. More recently, Karmazin sold a chunk of Viacom stock, fueling speculation the two are at odds.
Meanwhile, Chernin joked that News Corp.’s 18-month pursuit of Hughes Electronics “is now officially the longest merger negotiation in the history of the world.” But he said News Corp. is “still actively involved and still enthusiastic” about joining forces with Hughes’ satcaster DirecTV.
Chernin said he expects fast-growing Fox News to be profitable in fiscal 2002 despite the current ad climate. He waxed enthusiastic about Fox’s film slate, prolific TV production arm and syndication backlog and about News Corp.’s vertical integration, which he said will help the company weather any downturn.