Film unit boosts Viacom Q4

Film operating profit up to $298 million in Q4

NEW YORK -- Viacom management on Thursday joined other sector giants in highlighting improving advertising market trends, while remaining more cautious than some peers.

The company reported an improved and better-than-expected fourth-quarter profit thanks to a strong performance from its film unit, which has been in turnaround mode, and TV ad declines that were less bad than some had feared.

"Viacom beat ours and the Street's bottom line estimates significantly on film, as home video surpassed expectations," said Barclays Capital analyst Anthony DiClemente.

"The tone is clearly more positive" in the ad market, Viacom president and CEO Philippe Dauman said on a conference call. But he also emphasized: "We are not out of the economic woods yet," especially given high U.S. unemployment and weaker economic trends overseas.

First-quarter ad trends should be up over the fourth quarter, Dauman said without mentioning the likely comparison with the year-ago quarter. He also said scatter ad market prices for Viacom have been up in the double-digit percentage range.

"There's a steady drumbeat," added chairman and controlling shareholder Sumner Redstone in discussing signs of continuing economic and ad improvements.

The owner of the Paramount film studio and such cable networks as MTV, VH-1, BET and Nickelodeon, posted an adjusted profit from continuing operations of $663 million, up 43% from the year-ago period.

Adjusted operating income rose 24% to $1.2 billion.

Revenue declined 3% to $4.1 billion.

In the latest quarter, Viacom took a $60 million non-cash impairment charge related to the value of broadcast licenses held by an unnamed broadcaster, in which Hispanic-oriented cable network MTV Tr3s holds a 32% stake. It acquired the stake to expand its reach to Hispanic audiences in LA and other southwest markets.

Revenue for the full year 2009 decreased 7% to $13.6 billion as growth in affiliate revenues was offset by declines in feature film, ancillary and advertising revenue.

Adjusted operating income rose 1% for the year to $3 billion driven by the filmed segment. Adjusted earnings from continuing operations grew 5% to $1.6 billion in 2009.

Executive chairman and controlling shareholder Sumner Redstone lauded Viacom's 2009 results as "extraordinary" and said the firm performed "extremely well" despite the global recession.

"Our disciplined and content-focused strategy helped Viacom close out the year with a stronger balance sheet, a streamlined cost structure and a reinvigorated creative mandate across the company," said president and CEO Philippe Dauman. "Despite a global recession that impacted all aspects of our business, the multiple revenue streams of our cable networks helped temper the impact of an industry-wide downturn in advertising and retail, and also allowed us to continue to invest in new programming to build our brands."

He lauded the improved profitability at Paramount and recent ratings momentum at MTV and other networks.

Viacom's media networks unit, which saw lower ad momentum last year, had revenue fall 6% in the latest quarter to $2.3 billion and 5% for the full year to $8.3 billion. Operating profit rose 3% in the quarter to $921 million, but fell 3% for the year to $3 billion.

Lower sales of video game "Rock Band" and a 3% decline in worldwide and 4% drop in domestic ad revenue were a drag on the TV financials for the latest quarter.

Film unit revenue fell 1% in the fourth quarter and 9% for the year to $1.8 billion and $5.5 billion, respectively. Film operating profit jumped from $84 million to $298 million in the fourth quarter and from $88 million to $236 million for the full year.

The unit had difficult year-ago theatrical comparisons in the final quarter of 2009, but home entertainment revenue rose 12% thanks to "Transformers 2: Revenge of the Fallen," "Star Trek" and "G.I. Joe: The Rise of Cobra." TV license fees were also up.

Here a look at other highlights from Thursday's earnings call:

* Redstone lauded the turnaround at Paramount, saying "we are making hits and making money," and his old friend Dauman, saying his team "far exceeded my expectations" with Thursday's set of financials.

Asked by an analyst why he thinks Paramount will keep up its momentum, Dauman said Viacom now has "a structurally sounder studio." He highlighted its focus on fewer releases with an emphasis on tentpoles and branded films.

* CFO Tom Dooley said Viacom has closed a deal to take full control of and consolidate the DreamWorks live-action library in a $400 million deal, which closed Monday, with its previous financial partners.

* Dooley predicted a first-quarter loss in the film unit due to a lack of major DVD releases and costs related to the upcoming release of DW Animation's "How To Train Your Dragon," which Paramount distributes.

* Dooley said Viacom has invested $82 million in premium TV service Epix since its launch and received $110 million in payments from it for its films. And Dauman said the company still expects Epix to be operating cash flow positive for next year.

* Dauman said that after a recent U.S. distribution deal for his firm's Hindi-language network Colors, Viacom will look to bring more of its international channels to the U.S.

* Dauman said Viacom is looking to cut costs at the "Rock Band" gaming business, including possible help from music labels on the cost of license fees. The firm is also evaluating future distribution for "Rock Band" at a time when partner Electronic Arts has been looking to reduce its number of distribution deals.

* One analyst asked Dauman about the health of the kids ad market after Time Warner recently said its Turner unit has seen sluggishness in the segment. Dauman said he feels good about the kids market, emphasizing that Nickelodeon owner Viacom is the leader in the space and suggesting that the competition may face a tougher sell than his company.
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