NEW YORK — Viacom posted a mind-boggling $18.4 billion loss last quarter after a taking an $18 billion charge to write down the value of its ailing radio and outdoor advertising business.
It was the fifth-largest quarterly loss in American business history.
Viacom lost $385 million the year before. Quarterly revenue rose 6% to $6.3 billion.
Hit reflects an accumulation of several glum years at Viacom’s Infinity Radio, the nation’s largest radio group with $2.1 billion in annual sales.
The units that drowned the conglom in red ink are overseen by co-prexy/co-COO Leslie Moonves, who inherited them when he was promoted last summer and divvied up Viacom’s portfolio with co-prexy/co-COO Tom Freston. It seems whatever headaches the former MTV topper faces at Paramount are child’s play compared with the vagaries of radio.
Moonves and Freston — who happened to be throwing an A-list bash for Par’s new head, Brad Grey, Thursday night — said both problem divisions were starved for investment in content and programming and are starting to turn around with new strategy and leadership.
Chairman-CEO Sumner Redstone, during a conference call, cast 2004 as a transition year, a stepping stone — “a short-term moderation in our growth strategy.”
He called it “a year when the tough calls were made” and one when Viacom “laid the foundation for the company’s resurgence,” referring in part to high-profile management changes.
Those who ankled include former Par toppers Sherry Lansing and Jonathan Dolgen and former chief operating officer Mel Karmazin. Last month, chief financial officer Richard Bressler resigned.
The massive quarterly charge, which was completely unexpected, knocked Viacom stock, which fell 2.46% to $35.28. Still, some Wall Streeters noted the charge was a non-cash, one-time item. Viacom said excluding the charge, net income from continuing operations rose 22% to $714 million.
Radio posted an operating loss of $10.7 billion last quarter including the charge — or a profit of $231 million without it. Unit earned $252 million the year before.
Radio’s quarterly revenue was about flat at $550 million.
Moonves promised hefty investment in programming and marketing and an exodus from small markets to large — meaning top 25. “Over the past few years, no money was spent on marketing. Like, zero,” Moonves said.
He said the company recently invested $13 million in eight radio stations, and six have shown double-digit ratings growth. Infinity’s now targeted six or seven more stations for a cash infusion.
He didn’t discuss the defection of star shockjock Howard Stern, who will ankle Viacom for Sirius Satellite Radio next year.
On the studio side, Freston again articulated a new strategy under Grey characterized as aggressive, free-spending, holding tight to foreign rightsand committed to specialty pics.
“We want to make the studio a more accommodating place for new and, more importantly, emerging talent,” he said.
New Par ‘Hustle’
Grey officially starts next week “but has already been on the case for the last month,” Freston said. Grey helped snap up John Singleton’s “Hustle & Flow,” one of the hottest pics at Sundance, for $9 million. Pickup was part of a three-picture pact with Singleton for $15 million.
With that deal, Freston said, “We’ve shown the community there’s a new Paramount.”
In response to a question from an analyst jittery about Par’s deeper pockets, Freston defended the $9 million pricetag, which is rich for Sundance. He called it “a fair price” considering the larger deal. “That’s five million a picture … what we think is reasonable for specialty.”
Deal actually called for Singleton to produce two more unspecified pics for about $3.5 million each.
The new Par “will have to pay a bit more,” Freston told Wall Streeters. “We will be more willing to step up to bat.”
He described Par’s new slate as “all over the map — from big to small.”
“It will have a younger skew,” he said, noting that MTV Films was an integral part of the “Hustle” deal.
Par will keep putting out between 14 and 17 films per year, he said, while the specialty arm will move to four to eight pics a year over time.
Viacom groups Paramount Pictures in its entertainment segment, which also includes Simon & Schuster, Famous Players, Paramount Parks and music publishing.
Last quarter, operating income for the division fell 20% to $53 million and revenue dipped 9% to $1.2 billion, due mostly to weak comps in homevideo.
After a tough year theatrically, the last three months of ’04 were buoyed by “The SpongeBob SquarePants Movie” and “Lemony Snicket’s A Series of Unfortunate Events.”
Dry spell over?
Add recent release “Coach Carter” and “We think that the creative dry spell is clearly behind us,” Freston said. He touted Par’s next three pics, “Sahara,” “The Longest Yard” and “War of the Worlds.”
Freston confirmed that parks and Famous Players theaters were on the block. He didn’t say that was so for Simon & Schuster, despite rumors the book publisher may be for sale as well. The unit had a “stellar” 2004, he noted, with annual sales rising 8%.
He said publisher will launch two imprints this year, one Latino-oriented and one for children’s coloring and activity books.
Freston also oversees cable networks, including MTV, Nickelodeon, Comedy Central, Showtime, BET, Spike TV and CMT. For the quarter, cable operating income rose 9% to $691 million.
Revenue rose 15% to $1.9 billion on higher ad sales and affiliate fees.
Comedy Central homevid sales and Nick consumer products powered a 30% spike in so-called ancillary revenue, which is now 9% of the cable unit’s total.
BET has been “revamped and re-positioned,” Freston said, with a focus on reality and comedy shows.
“We think Showtime also needs re-positioning to continue to grow” — primarily a focus on original programming, he added. “Queer as Folk,” “The L Word,” “Huff” and “Fat Actress” (which debuts in March) will be joined by “four other additional series that we picked up and will begin to roll out,” he said.
Net Logo, aimed at gay, lesbian and transgender viewers, will launch in June.
Freston also cited growth at MTV Intl.; an alliance with Microsoft to develop content for new digital platforms; and a digital music offering that will provide video clips to Verizon cell phones. He sees the cell phone and wireless market as analogous to the early days of cable.
Redstone said a cable network is one of the few acquisitions Viacom would consider — otherwise, he said, there were no major deals in the works.
Eye lifts conglom
The television arm — CBS , UPN, stations, production and syndication — which reports to Moonves, saw operating income rise 22% for the quarter to $295 million. Revenue rose 5% to $2.2 billion.
Moonves lauded the outstanding perf at CBS, which he said is having its best season since 1991-92. He flagged “a major change in the competitive landscape” as the Eye tied for first in adults 18-49 and said the improved ratings muscle will have significant financial impact on the net.
“It really puts us in the catbird seat again this year to capture a greater share of the upfront,” he said.
For the full year, Viacom lost a total $17.5 billion compared with a profit of $1.4 billion in 2003.
Company noted that the second-quarter included $56 million in severance costs due to management changes.
Without the charge, annual net income from continuing operations rose 19% to $2.7 billion.
Viacom’s full year revenue rose 8% to $22.5 billion.
Redstone piqued some interest from the financial folk on the call when he said he planned to meet with Viacom’s board soon to discuss the company’s credit rating, with the implication that a top-tier rating wasn’t all-important.
He said Viacom plans to plow cash into its businesses, continue buying back stock and possibly raise the dividend.
He said the company has purchased $3 billion worth of stock under an $8 billion buyback program and indicated he wouldn’t object to setting an even higher target.