Ads, TV boost profit 60% in 1st quarter

NEW YORK — Viacom profit surged 60% last quarter as an advertising rebound and higher ratings buoyed broadcast and cable TV.

Earnings jumped to $710 million in the first three months of 2004 from $443 million a year earlier. Profits were boosted in part by a one-time accounting gain of $141 million.

Total revenue rose 12% to nearly $6.8 billion. Advertising sales soared 21% to $3.2 billion — 48% of the total.

“Well folks, the market’s back — and so is Viacom,” asserted the conglom’s elated chairman-CEO, Sumner Redstone, during a conference call.

Free cash flow rose 38% to $817 million. Debt stood at $9.8 billion at the quarter’s end.

Wall Street had been underwhelmed in previous quarters by Viacom’s financial results, and that’s been reflected in a tepid stock price. Share value was up early in the day but closed off 0.32% at $41.02.

‘A bargain’

Redstone called the shares “a bargain.” And despite pressure from Wall Street to use its bountiful cash for a strategic acquisition, Viacom execs said the company is likely to continue to spend its money buying up stock. Viacom bough $367 million worth in the latest quarter.

At cable networks, Viacom’s top performer, operating income rose 24% to $535 million on revenue of $1.4 billion — up 21% from the year before. Ad revenue grew 35% at MTV and 16% at BET. Affiliate fees rose 9% as hikes at those two nets were partly offset by a 1% dip at Showtime. Nickelodeon’s homevideo and consumer products sales boosted ancillary revenue by 25%.

Comedy Central, acquired in May of last year, contributed 9% to revenue and 10% to operating income.

Higher cable revenue encouraged Viacom to pour 19% more cash into programming and production expenses.

Chief operating officer Mel Karmazin said he expects the group to come in on the high end of an anticipated 8%-20% increase in the cable upfront. “Where are the men 18-24? I’ll tell your where they are. They’re at Spike and MTV, and BET and Comedy Central.”

On the broadcast side, TV income jumped 38% to $335 million. Revenue rose 18% to $2.3 billion. Combined ratings at CBS and UPN rose 26% on the Super Bowl, the NCAA Men’s Basketball Championship and the strength of the Eye’s primetime sked. Station group revenue rose 14% on sports and higher political spending. Fees from “Everybody Loves Raymond” and the renewal of three “Star Trek” series with BSkyB in the U.K. boosted syndication revenue.

Syndie strength

Karmazin said that with a string of hot shows in the hopper, syndication will be a huge source of revenue for the company going forward.

He noted that ratings at CBS were up across all dayparts last quarter, with a 22% boost for “The Early Show” in the 25-54 demo — “the best ratings we’ve had in nine years in that time period.”

“We are very bullish that CBS will pick up significant market share in the upfront. We are in the best position going into the upfront than CBS has been in a decade,” he added, predicting a double-digit increase.

Responding to a query about the viability of the entire upfront, a tradition that many network heads have called outdated, Karmazin said it doesn’t bother him. “The ball is in the advertisers’ court. We are happy to sell the advertising any time they want to buy it. If they want to call us in June, call us at 3 a.m., we have a willingness to do it. As long as they pay.”

At the entertainment division, which includes Paramount Pictures, Simon & Schuster, movie theaters, theme parks and music publishing, income rose 55% to $33.4 million. Revenue grew 7% to $851 million. DVD sales jumped, fueled by “School of Rock” and “The Fighting Temptations” in the U.S. and “The Italian Job” and “Lara Croft Tomb Raider: The Cradle of Life” overseas. Company also cited higher feature film license revenue from cable and broadcast nets and a favorable foreign currency gain.

Domestic theatrical revenue dipped from the prior year’s first quarter, which included “How to Lose a Guy in 10 Days.”

Richard Clarke’s “Against All Enemies” helped boost publishing sales.

At Infinity, Viacom’s giant radio group, profit was up 5% to $199 million. Revenue nosed higher by 3% to $455 million. A pickup in local advertising helped the division, which posted sluggish returns last year.

Speaking up

Karmazin took time to blast the Federal Communications Commission for its “confused” approach to the indecency issue, which may see Infinity slapped with a $1.5 million fine.

“We are concerned any time the government gets involved in speech. We think it’s a slippery slope for government to use its position to influence the content that people hear,” he said. “But we are licensees and we adhere to the rules. If they are saying we need to be in the middle of the envelope and not on the edge, we are putting in blocks and taking other steps. But at the same time, we are going to take the FCC aggressively to court.”

Things were so much easier when there “used to be seven dirty words that constituted indecency,” he said.

Outdoor advertising income plunged 46% to $13.8 million, reflecting higher fixed costs and unfavorable exchange rates. Revenue rose 7% to $403 million.

At Blockbuster, which reported earnings earlier this week, income fell 16% to $125 million and revenue was down 1% at $1.5 billion. Viacom is preparing to divest its 80% ownership stake in the video retailer, probably through a split-off. Conglom is still saying it will continue to consider other alternatives, however.

In a delicate dance of words, execs continued to praise Blockbuster as a fine business but said the two companies would be happier on their own. Karmazin noted that once unshackled from Blockbuster’s high capital expenditures and relatively slow growth compared with Viacom’s other units, the conglom will see a jump in free cash flow.

Looking ahead, Viacom sees overall earnings for the year rising 13%-15%, operating income up 12%-14% and revenue growing 5%-7%.

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