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Viacom Earnings Fall on Advertising Drop, Weaker Film Slate

Viacom was stung by the lack of a “Transformers: Age of Extinction”-sized hit and weighed down by falling ad revenue at its cable channels, as earnings at the media conglomerate dropped during the fiscal fourth quarter.

Revenues declined 5% to $3.79 billion over the three-month period ending in September, while adjusted earnings per share fell from $1.71 to $1.54. Net income did improve, spiking 21% to $884 million.

Those results missed Wall Street’s projections. Analysts had expected the company to post adjusted earnings of $1.55 per share on revenue of $3.88 billion.

Viacom’s stock has been dragged down in recent months by lower advertising results and softening ratings at its suite of cable channels. To that end, the quarterly results were disappointing. Domestic advertising revenues declined 7% while worldwide advertising revenues decreased 1%. Overall revenues in the unit grew 5% to $2.79 billion, which the company attributed to a 15% increase in domestic affiliate fees and a 10% rise internationally in rates.

Viacom’s film studio, Paramount, was a source of weakness. Although “Mission: Impossible — Rogue Nation” was successful, it could not match the results of the “Transformers” sequel released during the prior year period. The company also released “Terminator Genisys,” which flopped domestically, but did strong business overseas. Revenues for the division declined 24% to $1.03 billion. Theatrical revenues fell 20%, while home entertainment revenues plummeted 54%.

The company has drastically reduced the number of films it releases annually, but has said it plans to release 15 films in 2016 — a four film increase. The studio is in “active development” on a fifth “Transformers” movie and has lined up projects such as a World War II thriller from director Robert Zemeckis and Brad Pitt, as well as “Downsizing” from Matt Damon and director Alexander Payne.

“We had too few movies,” Dauman said on a call with analysts after earnings were announced. “We’re very optimistic about where Paramount can go. … We believe Paramount will come back and come back strongly in the years to come.”

In a statement accompanying the results, Viacom CEO Philippe Dauman continued to press his case that the audience for the company’s cable channels, which include MTV and Comedy Central, aren’t being properly measured. Companies such as Nielsen fail to track viewership on streaming and on-demand services, he argues.

“We are making great progress in tackling industry-wide inefficiencies in audience measurement, while expanding our audience reach with landmark distribution agreements,” Dauman said in a statement.

In recent months, Viacom properties such as Nickelodeon and VH1 have been clawing back in the ratings, but there are concerns about the future of other channels, such as MTV.

The company has also unveiled Vantage, a data-driven program that combs through consumer information to help advertisers reach specific niches. On the earnings call, Dauman said Viacom has 11 advertisers using Vantage and expects that number will triple by 2016’s television upfront.

Viacom reports its earnings at a time of greater scrutiny for the media sector. Entertainment companies were battered earlier this year, bruised by investor fears that viewers were fleeing cable television for cheaper streaming alternatives. Dauman pushed back against the pessimism about the longterm health of the sector.

“Those with a more long term view than is currently en vogue will be richly rewarded,” he said at one point, adding that “technology is our friend and it is good to be on the content side of the business.”

Shares of Viacom were up 1.96% at $49.35 as markets closed on Wednesday. It lost those gains in pre-market trading, falling 1.93% to $48.40.

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