'Transformers,' 'G.I. Joe' boost earnings
Viacom’s profit jumped 15% last quarter to $463 million, buoyed by a newly energized Paramount, where “Transformers: Revenge of the Fallen” and “G.I. Joe: Rise of the Cobra” boosted earnings by $88 million.
Par “is benefiting from a creative resurgence, coupled with a disciplined approach to the bottom line. They are on a roll,” said Viacom chairman Sumner Redstone during the company’s third-quarter earnings conference call.
Viacom shares rallied in early trading after releasing its numbers, reaching a 52-week high of $31.42 before closing at $30.18, up 1.4% for the day. The stock has been as low as $13 during the year as the economic downturn hit companies across the board but knocked media companies particularly hard.
Chief exec Philippe Dauman confirmed the studio will make a sequel to “Paranormal Activity,” the surprise horror hit that cost no more than $15,000 to make and has grossed more than $85 million.
He also said Viacom is beefing up its West Coast animation production operations, looking to produce more original TV programming as well as feature films.
Viacom’s total revenue eased 3% to $3.3 billion as robust theatrical revenue and affiliate fees largely offset lower home entertainment and advertising sales.
Dauman sees an emerging recovery, noting a livelier ad market in the third quarter from the second.
“While I expect the road to recovery will be a bumpy one, I do believe the economy, particularly in the U.S., now is moving in the right direction,” he said. “There are a lot of companies out there who are coming back in, who have stepped it up.”
Amid conflicting data, there have been indications in recent weeks that the country may have climbed out of recession. Investors are scouring corporate earnings for signs. Viacom is the first in a string of major media congloms that will report quarterly results this week and next.
“Speaking for myself, I am very pleased to get the events of the past year behind us,” Redstone said. He was referring to the economic downturn that trampled Viacom shares and also forced him to sell chunks of his own stock in Viacom and CBS to pay off bank loans. With a final sale of stock last month, however, he’s in the clear with creditors and still controls both companies.
During the call, Dauman addressed the status of Epix, the pay TV channel launched late last week by Paramount, MGM and Lionsgate. The venture has faced an uphill climb in securing carriage from major cable and sat-TV operators. Dauman said Epix was close to signing additional distribution deals — beyond the one inked with Verizon’s FiOS video service — and had hoped to announce them “around now.”
“But the conclusion of these negotiations, while they are going well, is taking just a little longer,” he said.
If Epix continues to struggle on the distribution front, it will put a dent in Viacom’s bottom line because it is no longer receiving pay TV revenue from an outside source on its recent theatrical releases. Par, MGM and Lionsgate joined forces on Epix in the face of steep cuts in pay TV output deals that each distrib previously had with Showtime.
Tom Dooley, Viacom’s chief financial officer, downplayed the immediate impact, saying Epix “will begin to have an impact in the fourth quarter as both we and the other studios begin to deliver film to it and it goes live on the air. It won’t have a material impact on our margins for the foreseeable future, though, for any of our businesses.”
On the studio side, Viacom’s filmed entertainment division surged to a profit of $69 million for the three months ended Sept. 30 from a $19 million loss the year before.
Worldwide theatrical revenue rose 16%.
Restructuring and hefty cost cuts also boosted Paramount’s earnings.
Dooley said expenses were down by $173 million in the quarter as fewer releases meant lower distribution and production costs.
Revenue, however, slipped 6% to $1.2 billion on a 21% drop in home entertainment sales. The studio cited tough comps with “Iron Man” in the year-earlier quarter, as well as sluggish catalog sales.
But execs anticipate a homevid bonanza in the current quarter as “Transformers: Revenge of the Fallen,” “G.I. Joe” and “Star Trek” DVDs roll out.
“Revenge of the Fallen” has sold more than 8.3 million units after less than two weeks in release, Dauman said.
Paramount has five pictures left in a distribution deal with Marvel, which was recently acquired by Disney. It also has a distrib pact with DreamWorks Animation that may or may not be renewed. That begs the question of whether Viacom wants or needs a content acquisition to beef up its slate — Summit Entertainment, perhaps? asked one analyst on the call.
“We have no interest in putting cash in that direction,” Dooley said.
“Our long-term strategy is not dependent on the continuation of either deal,” Dauman added. He said the studio is well supplied with its own franchises and top-drawer producer deals.
As for Par’s latest coup, Dauman cautioned that a sequel to “Paranormal Activity” likely won’t pack the punch of the original.
“Brad Grey says, ‘In showbiz, every once in a while you get a miracle, and this was one,’ ” noted Dauman, quoting Par’s chief. “Low budget was not the word. It was extremely low budget,” he said.
“We obviously will not be able to have the same level of surprise (for the sequel). Our team will come up with the right creative and marketing approach. It took many years after ‘Blair Witch’ to come up with ‘Paranormal Activity.’ There may be another one. But you can’t expect these.”
Par’s slate through year’s end includes Jason Reitman’s “Up in the Air,” with George Clooney, and Peter Jackson’s “The Lovely Bones.” The 2010 slate features Martin Scorsese’s “Shutter Island,” “Iron Man 2,” “Shrek Forever After” and M. Night Shyamalan’s “The Last Airbender.”
In media networks, including MTV, VH1, Nickelodeon, Nick at Nite, Comedy Central, Spike, CMT, TV Land and Logo, profit rose 2% to $773 million. Revenue was flat at $2.1 billion.
Lower advertising and ancillary revenue largely offset solid growth in affiliate sales and the boons from cost cutting.
Worldwide affiliate revenue grew 10%.
Worldwide advertising revenue fell 5%. Domestic ad revenue fell 4% — but that still marked a 2% improvement over the second quarter.
Dauman was upbeat on kidvid juggernaut Nickelodeon, which has emerged at the head of the cable pack as MTV still struggles.
“Nickelodeon is one of our greatest, if not our greatest, brand,” Dauman said.
Viacom recently acquired the rights to “Teenage Mutant Ninja Turtles” for $62 million. “We do have our eye on a number of low-priced opportunities” in the space, Dauman said.
He said Viacom plans to increase its investment in original animation to create programs both for Nickelodeon and for the adult-oriented nets like MTV, Comedy Central and Nick at Nite.
To that end, it will expand its animation studio in California as well as its animation support facilities in Asia and elsewhere into a hub for TV programming. The company is also exploring leveraging those capabilities into movie production.