Strong film results fuel Viacom's Q3

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NEW YORK -- Viacom reported better-than-expected third-quarter earnings Friday thanks to its reinvigorated film unit and signs of a turnaround in its cable networks unit.

The success of "Transformers" and the sale of Viacom's music publishing unit boosted the company's profit by 80%.

President and CEO Philippe Dauman emphasized his team's continued focus on building new revenue streams, including branded entertainment deals like one between BET and Toyota, and online subscription services, like a new MyNoggin feature on cable network Noggin's site.

"As far as the potential WGA strike is concerned, we feel we are very well positioned on an overall basis, starting with the studio," Dauman told analysts Friday, signaling he expects no real financial hit. "We have a good pipeline of movies that are already produced or in production, which will not be affected. In the long term, it depends how long the strike goes on."

On the TV side, he admitted that Comedy Central hits "The Daily Show With Jon Stewart" and "The Colbert Report" will be the firm's biggest strike-related challenge, with reruns eyed as the initial solution.

Meanwhile, chairman Sumner Redstone again lauded his CEO in a conference call. "The progress that Philippe and the entire Viacom team are making across the company is impressive, not only in its breadth, but in its pace."

He added that the rewards for Dauman's appointment are "becoming more and more apparent and, as the future evolves, will become even more apparent."

Viacom's third-quarter profit rose from $356.8 million a year ago to $641.6 million. That included a $192 million one-time gain from the July sale of Famous Music to Sony/ATV Music Publishing. Revenue increased 24% to $3.3 billion.

At the MTV Networks cable channel unit, quarterly revenue rose 9% to $2 billion, and operating profit edged up 2% to $796.8 million. Advertising revenue rose 7% overall and a better-than-expected 5% in the U.S. Affiliate fees rose 14%.

So far in the current fourth quarter, U.S. ad sales growth is on par with the third quarter, overall ad sales rates are up in the "strong double digits," Dauman said.

Viacom on Friday also disclosed that a broad-based restructuring of its networks unit will lead to full-year restructuring charges of $80 million, up from a previous estimate of $70 million.

Filmed entertainment swung to an operating profit of $71.7 million from a loss of $7.8 million as revenue jumped 57% to $1.3 billion. "Transformers" has brought in worldwide sales of $702.4 million since opening in late June. The studio has also sold 8.3 million copies of the film's DVD since it came out Oct. 16, the company said.

Analysts generally lauded the stronger-than-expected results. "With the start of a ratings turnaround and a healthy scatter market, we have increasing confidence in our above consensus estimates for 2007 and 2008," Bear Stearns analyst Spencer Wang said.

Analysts generally kept their ratings on Viacom shares though, saying they are still waiting for clear signs that the company could reach higher growth.

Bank of America analyst Jonathan Jacoby said film margins are "still relatively low at around 6%, but better than (my) expected 3%." He believes the weak margins are partly due to write-downs for "Hotrod" and "Stardust."

Viacom Class A shares closed up 2.9% at $41.56.
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