NEW YORK – Viacom Inc. may take a one-time charge against its fourth-quarter earnings to cover the cost of moving Blockbuster Entertainment’s headquarters to Dallas from Fort Lauderdale, Fla., and closing unprofitable music stores, Viacom chairman and CEO Sumner Redstone told analysts and money managers Friday.
Redstone made his remarks on the final day of PaineWebber’s week-long annual media conference. Friday also featured presentations by Time Warner Inc. and News Corp., among others.
Under the management of former Wal-Mart Stores prexy Bill Fields, Blockbuster is trying to cut costs and increase margins, Redstone said. “Major steps we are already taking include working directly with the studios to distribute product – a strategy that will lead to tens of millions of dollars in annual savings,” he said.
Viacom has found that reformatting and re-merchandising Blockbuster stores at a cost of about $20,000 each increases same-store sales by 10%, Redstone said. As a result, Viacom is rehabbing some 1,500 of its 5,000 Blockbuster video units.
In a wide-ranging discussion, Redstone also revealed that budget overruns on James Cameron’s “Titanic” will not harm Viacom’s Paramount Studios, whose investment in the pic is “capped, unlike Fox’s.” The film is a 20th Century Fox production that will be distributed domestically by Paramount and internationally by Fox.
While he seemed gleeful about Par’s limited exposure, Redstone stressed that he has no ill will toward competitors. “I want all the studios to do well,” he said.Redstone was one of the most senior execs attending the PaineWebber conference. His upbeat, energetic speech was designed to assure Wall Street that he is taking a hands-on approach to fixing the problems at Viacom’s Blockbuster and Spelling Entertainment non-television operations.
Last year, Viacom president-CEO Frank Biondi (now chairman of Seagram Co.’s MCA unit) stood at the same podium a month before being fired by Redstone.
Spelling it out
“For the first time since acquiring Spelling, we have become directly and heavily involved with Spelling management, which had previously reported through Blockbuster,” Redstone said. “And we are impressed by Aaron (Spelling) and his team.”
At Spelling’s Virgin Interactive unit, Redstone and Spelling have beefed up operational management and cut costs. In the first nine months of 1996, Spelling had an operating loss of $10 million, compared with operating earnings of $68 million the previous year.
Although Viacom recently exercised its option to acquire 50% of the fledgling United Paramount Network for $160 million from a unit of Chris-Craft Communications, Redstone threw cold water on speculation that Viacom would buy all of Chris-Craft or its television station group. “We’re not going to buy Chris-Craft unless it becomes cheap,” Redstone said.
However, he noted that the combination of the nine UPN affiliates in the Paramount Stations Group and those owned by Chris-Craft gives UPN one of the largest O&O groups of any network. Redstone also said that Viacom will have more input on the programming of UPN now.
Viacom does not plan to make any major acquisitions in the near future, he said. The focus is on cutting the company’s $10 billion debt load to between $6 billion and $8 billion and obtaining investment grade status from Wall Street’s debt rating agencies.
Viacom class B shares closed down 38¢ Friday at $37.
News Corp. was represented by VP of finance and banking William G. Sorenson, who said the company’s acquisition of New World is on track to close in January. He said News Corp. plans to bring the margins of New World’s Fox affiliates from their current level of 36% to 51% (the ratio for News Corp.-owned Fox stations) by promoting the network better and by making changes to daytime and access programming.
No decision has been made about whether to launch music television channels in the U.S. that would compete with Viacom’s MTV and VH1 properties, Sorenson told Daily Variety. News Corp. ADRs closed unchanged Friday at $20.38.
HBO chairman Jeff Bewkes, representing Time Warner, said HBO’s 1996 operating earnings will exceed Wall Street estimates of $335 million and should continue to grow 15% annually for the remainder of the decade.
With a pre-tax return on investment of 60% for 1996 and using multiple of 11.5 times EBITDA, HBO has a value of $3.9 billion, up from $2.3 billion as recently as two years ago.
He estimated that the number of HBO subscribers grew by 2.7 million in 1996, about the same number as 1995.
In response to a question from the audience, Bewkes said HBO and the MSO investors in E! should reach a decision about the ownership structure of the entertainment channel “well before” mid-1997. Time Warner shares closed up 13¢ at $39 on Friday.