Lower distrib costs more than offset lower revenues

Low budget pics that clicked with auds like “The Devil Inside” fired up Viacom last quarter as net income surged 56% to $585 million.

Paramount profits surged by 195% to $115 million as lower distribution costs more than offset lower studio revenues.

“Paramount Pictures is cementing its reputation as one of the best run studios in Hollywood, capturing profits from innovative and highly profitable releases” like “Devil Inside” and the “Paranormal Activity” franchise, CEO Philippe Dauman said on a conference call.

Dauman said pay channel Epix, a partnership with Lionsgate and MGM, “continues to increase in value” and that Epix will keep a relationship with Netflix after the exclusive window in their five-year distrib pact expires this fall. Netflix stock took a hit on speculation that Epix will soon begin offerings its movies to other rival services.

Netflix shares fell 7.6% to $75.95. Viacom stock rose 3% to $52.59.

Viacom’s total revenue nosed up 2% to $3.33 million, buoyed by higher affiliate fees for cable networks.

Filmed entertainment revenue fell 5% to $1.17 billion, reflecting lower theatrical and TV license fees offset in part by higher ancillary revenues.

Worldwide theatrical revenues dropped 19% in the quarter, as the mix of films, — “Devil,” ”A Thousand Words” and ”Jeff, Who Lives at Home” — which generally were less widely distributed, didn’t match the performance of year-earlier releases, which included ”Rango,” ”No Strings Attached” and ”Justin Bieber: Never Say Never.”

Ancillary revenue rose 41% to $111 million in the quarter. Home entertainment sales were up slightly, by 1%, the company said.

Asked about its pic pipeline as a distribution agreement with DreamWorks Animation expires, Dauman cited new filmmaker deals, new distribution pacts and the company’s own animation division that’s currently ramping up.

Upcoming Par pics include “The Dictator,” “G.I. Joe: Retaliation” and “Katy Perry: Part of Me 3D.”

Revenue at media networks, including MTV Networks, Nickelodeon, Comedy Central and BET, grew 5% to $2.2 billion and operating income rose 11% to $893 million despite ratings challenges.

Dauman said he sees encouraging signs of a strengthened ad market entering the upfronts.

Affiliate revenue increased 15% domestically and 17% worldwide from a digital distribution deal with Amazon Prime for library content as well as rate increases. Execs anticipated affiliate revenue would be up 10% for fiscal 2012.

Domestic advertising revenues increased 1%. Worldwide ad revenue was flat at $1.07 billion.

Nickelodeon and MTV in particular have seen a nasty slide in ratings the company’s been addressing with new programming even as it keeps a tight rein on costs.

Dauman said advertisers were still on board and that Viacom’s been able to work with them and meet their needs.

Investment in programming will rise in the “mid-single digit range” and that the company is also “coming off some expensive third-party licensing deals and redeploying those dollars into relatively inexpensive original programming.”

Viacom is seeing strong growth overseas from Comedy Central as it hones in on “adult-focused business,” and it launched the first Paramount Network in Spain in March with plans to roll out more.

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