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Viacom Profits Suffer From Declines in Film

Film revenue dropped 20% in the second quarter

Paramount’s shrunken film slate drove second quarter earnings declines at Viacom, which dropped 18% compared to the prior year period.

Filmed entertainment revenues declined 20%, while worldwide theatrical revenues dropped 15%. Worldwide home entertainment revenues dropped 38%.

The studio attributed the drops to lower carryover revenues and declines in home entertainment. Last year, the company was still enjoying contributions from “Mission Impossible – Ghost Protocol.”

Par has been making fewer films than the other studios in the last few years, and released just two films this quarter: “G.I. Joe: Retaliation” and “Hansel and Gretel: Witch Hunters.”

The studio is banking on the performance of its two summmer tentpoles, “Star Trek” and “World War Z.”

“I’m not too worried about the performance of our strong franchises, it’s just a question of how well they will do,” Viacom president and CEO Philippe Dauman told analysts during an earnings call on Wednesday. The exec pointed to cost-cutting measures at the studio, which he said seeks to balance its more expensive pics with smaller-budgeted fare like the “Paranormal Activity” films.

“It’s more about finding the quality than throwing a lot of dollars at it,” he said.

Dauman said the studio is in discussions with Netflix and other digital distribution platforms before the company’s Netflix deal expires at the end of the month.

Excluding one-time costs, adjusted share price dropped 2% from 98 cents to 96 cents a year before. Revenue fell 6% to $3.14 billion. Operating income declined 9% to $847 million, while adjusted net earnings declined to $481 million.

But the dip in share price still beat analyst expectations of 95 cents per share on average, and Viacom stock was up 4% Wednesday morning.

And despite some of the declines, Viacom chairman Sumner Redstone was effusive in his praise for the studio, which released “G.I. Joe” in March. The pic has grossed $350 million worldwide so far.

“Our creative output is booming,” Redstone told analysts on a call on Wednesday, before calling Viacom president and CEO Philippe Dauman “the wisest man I have ever known.”

Dauman emphasized ratings improvement at flagship network Nickelodeon, whose ratings declines marked the company’s 2012 fiscal year. Ratings at Nick are up 9% in the current quarter, “the strongest ratings growth we’ve seen in two years,” according to Dauman.

Nick’s improvement comes from an aggressive investment in new content aimed at young auds. In February, the company unveiled four new shows aimed at preschool kids, including a spinoff of stalwart series “Dora the Explorer.”

All this bodes well for this year’s upfronts, according to Dauman, who said that marketers were “gratified” by the company’s investment in new programming on the air and in the works.

“The kids upfront marketplace is shaking up well for us,” the exec said, emphasizing the importance of the upcoming holiday season and the toys and video game launches that will come with it. “Our marketers need to be on our Nickelodeon networks.”

Dauman also held up MTV as “The cultural home of the millennial generation,” even as the network has not seen the kind of ratings improvement as Nickelodeon has.

Overall, ad revenue increased 2%.

Viacom is also continuing its aggressive stock buyback program. The conglom repurchased $700 million in its second quarter, and expects to repurchase $2.8 billion in fiscal year 2013.

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