Viacom’s perennially upbeat chief operating officer Mel Karmazin tread more carefully Tuesday trying to explain to hundreds of investors the shrinking revenue at the conglom’s giant Infinity radio.
Infinity’s ad growth is slower than the overall market, and it may be losing share to Disney Radio.
“More and more local ad time is being bought closer to time it airs, and that’s been weakening the price,” Karmazin said during a media conference in Gotham put on by Goldman Sachs. In back-to-back presentations, media execs postured, traded barbs and anticipated an advertising bounce next year.
Karmazin basically warned a beefed-up News Corp. not to “do anything stupid” with DirecTV, like squeezing Viacom’s cable nets. News Corp. chief operating officer Peter Chernin said the one deal he feared would be a Viacom-Comcast merger.
“The distribution business is a very good business, but it just doesn’t happen to be in our DNA,” Karmazin said. “We don’t think we have to get into it for defensive reasons.”
Commented one fund manager present: “There’s a big game of chicken going on. A lot of people are standing around with their gloves up waiting to see what will happen.”
Time Warner’s Done Logan and James Robbins, CEO of cabler Cox Communications, blasted the skyrocketing cost of sports programming and said they’d consider a tiered system where viewers who want it pay extra.
Robbins said Fox Sports and ESPN are asking untenable price hikes of, respectively, 35% and 20%. At that rate, the two nets would rep 32% of Cox’s total programming costs — with only 18% of its viewers.
Chernin and Disney’s prexy-chief operating officer Robert Iger lashed back: “The 35% rate increase he’s talking about is just not true. That relates just to the city of Phoenix,” Chernin said.
“I understand the only comedy relief was Jim Robbins’ presentation,” Iger added later. ESPN may cost, he said, but it drives cablers’ ad revenue.
Regarding radio, Karmazin said, “There is nothing fundamentally wrong” with the biz but a sluggish economy and a sales force that needs to work harder.
Yet Iger said the Mouse’s radio revenue was up in the “mid-to-high” single digits in the last quarter.
“There’s a deeper issue at Viacom,” one Wall Streeter said. He thinks Infinity loaded up its programming with way too many commercial spots, making it especially vulnerable when demand slowed.
After a soft 2003, Karmazin, Iger and Chernin see growth in 2004 from political advertising, the Olympics and the fact that President Bush will likely do just about anything to jumpstart the economy.
Other points to emerge from a wide-ranging Q&A:
- Karmazin reiterated Viacom’s narrow view of Paramount. He said more than 80% of Viacom’s cash flow comes from radio, TV and outdoor advertising — growth businesses with high margins that are more predictable than movies. “We don’t want to find ourselves missing our numbers because of something that happened at the studio,” he said.
- He said Viacom’s 80%-owned Blockbuster isn’t a strategic asset and the conglom is still keeping its options open on whether to buy it in, sell it or maintain the status quo.
- Iger said Disney continues to negotiate with Pixar but wouldn’t comment on the talks. He said the Mouse is also developing its own CGI capacity, training hundreds of animators and inking deals with producers.
- Karmazin and Chernin said that sports and news — live events in real time — will be the main beneficiaries from the rollout of personal video recording devices like TiVo, which let people record shows and skip ads. Scripted series will have to be more creative with advertising, exploring sponsorship and other options, Chernin said.
- They acknowledged that retransmission consent is programmers’ big stick as they tango with cable operators. “It gives us a good seat at the table,” Karmazin said.
Broadcast nets still get the biggest shows and events, and “we expect to get fair value for that,” Chernin said. Payment can take the form of price increases for existing channels, carriage of new channels and cash.
On the new-channel front, he said Fox News topper Roger Ailes is looking “in a few broad areas” for potential cable network spinoffs.
- Viacom had a tough year in sports. The NCAA basketball finals were set to start the night Bush sent the first planes to Iraq. The U.S. Open was plagued by rain, and the Masters golf tournament carried no advertising.
Karmazin said CBS is turning a profit on the NFL but only if one factors in revenue from affiliates and owned-and-operated stations. “If we booked it just at the network level we would not make money,” Karmazin said. CBS has the Super Bowl on Feb. 1.
There are two more years left on the football contract. Karmazin said he’s interested in renewing, but not in paying more than he did before.