Films, DW boost Viacom bottom line

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Viacom's purchase of the DreamWorks studio helped it post a fourth-quarter profit that more than tripled compared with a year ago, though some on Wall Street looked at Thursday's earnings report and focused on the media giant's modest 4% revenue growth at its cable TV networks.

Shares of Viacom dropped 2.4% on Thursday to $38.61.

The company posted a $480.8 million net profit, up from the $129.5 million it earned last year, when results were dragged down by one-time charges. Revenue grew 32% to $3.6 billion, besting Wall Street's expectations of $3.2 billion.

Revenue at Viacom's filmed entertainment unit doubled to $1.6 billion as its Paramount Pictures studio saw improved performance and DreamWorks made a hefty contribution.

Speaking to analysts during a conference call, president and CEO Philippe Dauman stressed the company's digital strategy, reiterating that his intention is for Viacom to generate $500 million in sales this year, largely via online advertising.

To help achieve that goal, he recently forced Google to take Viacom video clips off YouTube. Dauman said the decision already has paid off because it has resulted in a traffic surge at Viacom's own Web sites, in particular ComedyCentral.com.

He expressed enthusiasm about a recent deal to provide MTV, Comedy Central and other TV programming to online video company Joost, where Viacom gets to keep "vast amounts of profits." Dauman said he expects the initiative to be successful "right out of the gate."

The executive said he is seeking similar partnerships and even "smaller acquisitions" and that Viacom will be a major player in the small but fast-growing business of mobile entertainment.

"We are always happy to supplement our distribution channels," he said.

Chairman Sumner Redstone, also on the conference call, defended his decision to split CBS from Viacom and seemed a bit put off by one analyst who suggested Viacom might be a takeout candidate.

"I am not going to even consider the possibility that things won't work out," he said. "And, no, I have no intention of selling this company. I love the company. I love the management."

Dauman said he would like to preserve the status quo in terms of movie distribution windows, though he added that his studios, in conjunction with competitors, have been experimenting with the timing of VOD windows.

He said Viacom should grow in the low-double-digit percentage range for the next three years, which analysts consider a conservative estimate.

"We would characterize the quarter as mixed," Prudential Equity Group analyst Katherine Styponias said, "with strong results out of the studio offset by weakness in domestic advertising revenues."

Styponias said that investors are awaiting signs that slow growth in cable television is temporary because of weak programming or something more serious, like teens and tweens abandoning television in favor of the Internet.

Barrington Research analyst James Goss, though, is more bullish on Viacom, rating shares "outperform" with a $54 price target.

"The intensified focus on digital and other multiplatform distribution of its content will provide a strong complement to its traditional cable network operations," he said.
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