Company socked by layoffs, restructuring
NEW YORK — Viacom’s net profit plunged 69% last quarter to $173 million as a dismal economy pummeled both the ad market and DVD sales and the company took a hefty charge for restructuring and layoffs announced in December.
Chairman Sumner Redstone also disclosed that an agreement between his holding company National Amusements and its bank lenders is “within reach.”
The mogul provoked a storm of criticism last year after NAI was forced to sell chunks of Viacom and CBS stock to meet loan covenants.
Investors feared Redstone might have to unload more. “I can confirm that NAI has not sold, and does not expect to be required to sell by its lenders, another share” in either company, Redstone said on a conference call Thursday.
Viacom’s revenue came in flat at $4.2 billion.
CEO Philippe Dauman predicted things will get worse before they get better but believes Viacom’s strong balance sheet, cost cuts and strategic focus will help the company weather the worst recession in a generation.
Wall Streeters are hopeful that’s the case. Viacom bucked a generally down market Tuesday, rising nearly 4% to close at $17.70. The broader market lost ground early on investor jitters that the stimulus plan bouncing around Congress this week won’t be enough to jump-start the economy. It rallied late in the day on word the Obama administration is working on a plan to subsidize mortgage payments.
Viacom’s filmed entertainment profit fell 81% for the fourth quarter to $22 million. Revenue for the division dipped 2% to $1.8 billion, due largely to a 6% drop in home entertainment sales to $1.02 billion.
The industrywide slump in DVD sales, which had been a driver of studio profits in recent years, is of great concern for Hollywood and Wall Street alike. Sales had started to taper off even before the current economic downturn. Asked if the latest weak numbers reflect a secular or a cyclical decline, Dauman blamed the economy.
“The flattening or modest decline before that in certain categories was not nearly as significant as the sharp downturn that is attributed to the economy. I don’t think there’s enough data in this environment to analyze what the secular trends may be,” he said.
Paramount’s theatrical revenue surged 28% to $350 million on the strong performance of “Madagascar 2: Escape to Africa.”
Television license fees fell 13% to $351 million.
Dauman called 2008 a “pivotal year” for Paramount and touted the studio’s upcoming slate anchored by three tentpoles, J.J. Abrams’ “Star Trek,” “Transformers 2: Revenge of the Fallen” and “G.I. Joe: The Rise of the Cobra.”
He said the big franchises, like Par’s “Iron Man,” seem able to buck the DVD downturn, so those are the movies on which Paramount will focus going forward.
At media networks, which includes a stable of cable properties under MTV Networks and BET Networks, income fell 44% to $509 million.
Revenue nosed up 1% to $2.5 billion. Worldwide advertising sales dipped 3% to $1.35 billion. Ancillary revenue, which has been a booming business, was flat as the economic downturn chills consumer spending. Worldwide affiliate revenue rose 12% to $667 million.
Dauman said ratings trends are improving at core network MTV, the juggernaut that had been struggling of late to keep its viewers and attract new ones.
But on the advertising front he said the “picture will get worse before it gets better.”
Scatter pricing is strong, but volumes are down. Advertisers have been shifting dollars from quarter to quarter. Some have been canceling upfront commitments to come back and buy less in the scatter market.
“They take a little money off the table, and come back with what they have,” said chief financial officer Thomas Dooley.
Viacom took a $454 million hit last quarter to write down programming costs at its networks division and restructure its operations, including laying off 850 staffers — about 7% of its workforce. The moves, which Dauman said will save the company about $200 million this year, also freezes salary increases for senior management.
Viacom has folded specialty label Paramount Vantage into parent Par, and, like other Hollywood studios, announced that it will make fewer movies. Dauman also noted that Paramount had “revised its relationship with DreamWorks co-founder Steven Spielberg in a way that reduces our costs.”
Spielberg ankled Paramount last year and earlier this week inked a marketing and distribution pact with the Walt Disney Co. The Mouse House will distribute 30 DreamWorks pics under the Touchstone banner over the next five years.
For the full year 2008, Viacom posted revenue of $14.6 billion, up 9% from the year before. Net profit fell 32% to $1.25 billion.
But it was the fourth quarter when things turned really ugly as reflected in a string of grim numbers from media and entertainment congloms.
Last week, News Corp. reported a loss of $6.4 billion on a hefty writedown of the value of its assets. Chairman Rupert Murdoch cited advertising and DVD sales. The company also slashed its full-year forecast.
Time Warner posted a $16 billion quarterly loss, also on a massive writedown. Disney said net income fell 32%.