Affiliate fees, lower costs drive profits up 13%
As Wall Streeters increasingly focus on the question of succession at Viacom and CBS Corp., Viacom chairman Sumner Redstone on Wednesday called CEO Philippe Dauman his “most trusted adviser” and someone who “has been at my side in all that I have built over the past 25 years.”Redstone’s remarks at the start of Viacom’s quarterly earnings call on Thursday added fuel to the speculation about the long-term future of Redstone’s empire and the roles of Dauman, CBS chief Leslie Moonves and Redstone’s daughter, Shari Redstone. “I am sure he will provide operational skills for many years to come,” Redstone said of Dauman. Viacom posted profit of $650 million, up 13% for the September quarter as lower costs offset a steep revenue drop at Paramount. Few films and tough comps with “Transformers: Dark of the Moon” a year ago squeezed studio revenue by 40% to $1.1 billion. Par’s operating profit grew 5% to $195 million as the tiny slate kept costs down. Viacom’s total revenue fell 17% to $3.4 billion. Cable led by MTV Networks saw operating profit dip 3% to $933 million on flat revenue of $2.3 billion. Costs rose on higher programming spend as the company tries to reverse ratings declines at Nickelodeon. Domestic ad sales dipped 6%, much less than ratings did, which led to sighs of relief on Wall Street and gave the stock a boost to close at $49.23, up 2.5%. CEO Dauman defended Par’s meager summer slate, saying it’s focused on margins and looking “for the optimal schedule. We look at what our competitors are doing, and if (it) gets overly crowded we don’t want to bang our head against the wall.” Par’s target is 15 films a year. The studio is ramping up with eight this quarter including “Paranormal Activity 4,” “Flight,” Tom Cruise starrer “Jack Reacher,” DreamWorks Animation’s “Rise of the Guardians” and David Chase’s “Not Fade Away.” Next year come “Hansel and Gretel Witch Hunters,” “G.I. Joe: Retaliation,” J.J. Abrams’ “Star Trek Into Darkness” and “World War Z” with Brad Pitt. In the development pipeline is Darren Aronofsky’s “Noah,” set to star Russell Crowe; a rebooted “Jack Ryan”; a new “SpongeBob” pic; a fourth “Transformers”; and Michael Bay’s “Teenage Mutant Ninja Turtles” from the new TV series Dauman sees as the centerpiece of Nickelodeon’s rejuvenation. The “Paranormal” franchise — with No. 5 coming next Halloween — cost a total of $27 million and has grossed $700 million worldwide, Dauman noted. “It’s as impressive a slate as I’ve seen from any studio,” he said. Television revenue from pay deals and international syndication rose 19%. Digital pacts pushed ancillary sales up 21%. Asked on the call if he’d be interested in buying Sony Pictures (which Sony Corp. chairman Kazuo Hirai insists is not for sale) or something else, Dauman said he “continues not to see any large-scale acquisition that make sense for Viacom.” Dauman envisions small, inexpensive purchases, probably overseas. He said Viacom will focus on adapting its programming to evolving platforms. That “creates more value than large M&A deals which, as you know, have pitfalls associated with them,” he said. Viacom was cowed by an unsuccessful merger with CBS in 2000 that was later unraveled, although both are controlled by Redstone’s National Amusements holding. Time Warner has also been cautious after its rocky marriage with AOL that also ended in divorce. Viacom’s media networks saw year-over-year ad sales fall 6% in the U.S. and 7% overseas with affiliate fees up 12% and 11%, respectively. Dauman noted a “modest sequential improvement” in domestic advertising from the previous quarter despite a 10-day blackout on DirecTV’s network. Viacom has been aggressively retooling Nick’s schedule with some success ever since the network experienced a plunge in ratings last fall. Dauman said viewership is stabilizing, with ratings flat to up in several dayparts, and it’s recaptured the lead on Saturday morning among kids age 2-11. Nick centralized its content team on the West Coast and has been actively recruiting in animation. Now some investors are turning a critical spotlight on MTV, with one asking Dauman if it’s “broken.” He said no, “MTV is very healthy indeed” with a strong development pipeline and the appointment this week for former Lifetime and WB programming chief Susanne Daniels as head of programming. “We have just added one of the major talent in our business, so I have no concern about MTV’s vitality,” he said. Daniels will soon be announcing some new hires in reality and scripted series. He and CFO Tom Dooley stressed that current measurement tools can’t accurately chart the different ways people watch an abundance of original programming. “We look forward to the day when total content consumption is more accurately measured,” Dauman said. “We believe that in the long term, we have to provide consumers with the content they want on the gadgets and platforms they want, and we are going to do it in a way that intelligently expands the window and work with advertisers to monetize it. Part of it is measurement, and we are working with Nielsen, and I am convinced we will see gradual improvement.” Revenue for Viacom’s full fiscal year that ended in September fell 7% to $13.9 billion. Net profit fell to $1.98 billion from $2.14 billion. Advertising revenue was down 5% for the year.