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Viacom 2Q Profit Tumbles 60% on Restructuring Charge

Viacom said profit in its second fiscal quarter fell 60% as the New York owner of Nickelodeon, Comedy Central and MTV took charges totaling $280 million related to restructuring and programming and grappled with declines in advertising revenue, even as its Paramount movie operations showed better results than they have in some time. Without the charges, net income would have risen 5%.

Revenue for the period increased 8%, or $255 million, to $3.26 billion, owing to performance at the company’s filmed-entertainment unit and international operations.

Viacom said its second quarter net income came to $121 million, or 30 cents per share, compared with $303 million, or 76 cents per share, in the year-earlier period.

The company is in the midst of a prolonged turnaround effort, working to revitalize its movie operations as well as shore up cable networks that have seen gradual declines in younger audiences who are adapting to mobile devices and streaming video.  In recent months, Viacom has placed emphasis on six core cable networks – BET, Nickelodeon, Nick Jr., MTV, Comedy Central and its soon-to-launch Paramount Network – while selling off a stake in the Epix pay-cable service and installing new leadership and its movie operations. “There is a lot of work still to do, but we are making important changes at Viacom, taking substantial strides towards revitalizing our portfolio of brands and returning the company to consistent top-line growth,” said Bob Bakish, the company’s CEO, who was named to the role last year.

Viacom shares took a hit on the earnings news, dropping more than 4% in early trading Thursday.

Viacom said ad revenue fell 1% to $1.11 billion as U.S. ad revenue fell 4% due to lower ratings at its TV networks. Ad revenue at its overseas operations, however, rose 11%. Affiliate revenue at the TV networks rose 2% to $1.16 billion, largely owing to rate increases.

Revenue from filmed entertainment rose 37% to $895 million, owing to gains gains in revenue from licensing, home entertainment, and theatrical releases. Viacom said. domestic revenues increased 25% to $458 million in the quarter, while international revenues increased 51% to $437 million. Viacom cited the performance of “xXx: Return of Xander Cage,” which it said grossed more than $346 million at the worldwide box office.

During a conference call with analysts, Bakish talked up the company’s progress in executing the turnaround plan unveiled during its previous earnings call in February. He emphasized the momentum at Nickelodeon with its expanded slate of programming. Nickelodeon Group chief Cyma Zarghami joined Bakish on the call. He also gave a big thumbs up to the overhaul in the works at MTV, which is moving away from scripted programming and returning a large component of its daytime schedule to live programming.

“This thing is going somewhere,” Bakish said of MTV.

Viacom CFO Wade Davis confirmed that Paramount Pictures is moving forward with a slate financing deal with Chinese investors that was believed to have collapsed amid the general crackdown by the Chinese government on overseas investment initiatives.

Bakish gave a big plug to Viacom’s participation in the Open AP advertising sales initiative designed to give advertisers greater flexibility in buying ads across Viacom, 21st Century Fox and Turner networks by discreet audience targets rather than broad age and gender demographics. Open AP is one of a number of efforts underway to reinvent Viacom’s advertising sales. The company is working with two MVPDs on innovative ways to handle local cable avails.

Bakish also stressed that Viacom is in talks with MVPDs in an effort to craft what he called an “entertainment pack,” or a low-cost programming bundle that would exclude pricey sports and news networks. There are institutional hurdles for established MVPDs to carve out a narrow package — many cable carriage deals require that networks be carried on the most widely distributed bundle — but given the evolution of the market and rise of digital MVPDs, traditional cable and satellite distribs are trying to find a “path” to themed channel packages in line with those commonly found in the U.K. and Europe, he said.

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