Viacom posts better Q1 profit

U.S. TV ad revenue turns corner; film unit loss narrows

NEW YORK -- "Our momentum is continuing to build," Viacom Inc. president and CEO Philippe Dauman said Thursday after the company reported higher first-quarter earnings on better TV revenue and operating profits and a narrowed loss in its film unit despite lower revenue - a sign that cost cuts are having their effect.

While all other entertainment conglomerates have returned to revenue growth after the recession, Viacom once again saw a slight overall revenue decline. But its closely-watched U.S. advertising revenue finally turned a corner to eke out a 1% year-over-year gain.

Dauman and chairman Sumner Redstone on an earnings conference call Thursday morning also touted the continuing improvements in ad momentum ahead of the annual upfront market. "The overall mood of our clients is increasingly optimistic," Dauman said. "The advertising environment is definitely on an upswing." And Redstone similarly spoke of the "growing enthusiasm" of marketers. "Just one year ago, we found ourselves operating in a very different environment," he said in a reference to the recession.

Dauman predicted further improvements in the current second quarter over the first, but didn't provide specific forecasts. And he forecast a more upbeat tone to this year's upfront.

Management also told investors on Thursday that it will explore ways to return money to shareholders in the coming months. Various media giants have done share buybacks and paid dividends to do that.

Viacom posted a profit from continuing operations of $243 million, up 37% over the year-ago period.

Revenue dropped 4% to $2.8 billion as growth in affiliate and ad revenue was more than offset by lower film revenue. Operating expenses declined 13%.

"Over the past quarter, we have seen momentum building in our television and film businesses as our efforts to stoke the creative fires across Viacom and an improving economy continue to take hold," said Dauman. "With a boost in ratings at our core networks and the advertising market showing signs of strength, our ad revenues moved into positive territory and are continuing that upward trend."

He lauded MTV, including such hit shows as "Jersey Shore" and "Teen Mom," for delivering its highest-rated quarter in nearly two years and accounting for five of the top 15 original cable series in its target demographic.

Film unit revenue declined 18% in the first quarter, but its operating loss narrowed from $123 million to $86 million. "Film revenues were well below expectations, although the $86 million operating income (loss) was better than our estimate, suggesting some cost improvements at Paramount," Barclays Capital analyst Anthony DiClemente said.
Dauman cautioned that film revenue will be lower over the near-term as the company has reduced its slate.

The home entertainment revenue from first-quarter release "Up in the Air" and continuing sales of "Star Trek," "Transformers: Revenge of the Fallen" and "G.I. Joe: The Rise of Cobra" were down 34% from the year-ago period, which had a strong performer in "Madagascar: Escape 2 Africa." "While there were tough comparisons, the tapped-out consumer still appears to be renting instead of buying," Miller Tabak analyst David Joyce said.

Theatrical revenue declined 6% due to lower contributions from films originally released in the fourth quarter, partially offset by the strong performance of "Shutter Island." A 16% decrease in TV license fees was also a drag on the film unit.

Dauman was bullish on upcoming films "Iron Man 2," Shrek Forever After" and "The Last Airbender." Plus, he said the 2011 slate is "shaping up nicely."

Media Networks revenue increased 4% and operating profit rose 9%. The 1% domestic ad revenue gain was fueled by a strengthening scatter market, and worldwide ad revenue rose 3%. Affiliate revenue grew 9%, but ancillary revenue declined 7% amid lower sales of "Rock Band" music video games.

Dauman said not only is the U.S. ad market improving, but so are ad trends in key European markets, especially the U.K. and Germany.

Here is a look at other highlights from the Viacom earnings call:
* Dauman lauded the recent Comedy Central contract extensions of Jon Stewart and Stephen Colbert, who he called "brilliant."

* Dauman said Viacom is planning to introduce an increasing number of 3D TV concepts for viewers and advertisers with an initial focus on major music events for its music networks and sports for Spike.

* Nickelodeon is planning to launch 20 additional iPad apps this year.

* At premium TV venture Epix, "momentum is continuing" with a recent carriage deal with satellite TV giant Dish Network, Dauman said. He explained that each carriage deal is different, but typically Epix gets minimum revenue with built-in upside potential. Asked if Viacom could buy in MGM's stake in Epix under certain circumstances, CFO Tom Dooley signalled no need for such a move.

* Dauman also lauded the Obama administration for championing intellectual property rights and said Viacom is hoping for more progress on that front soon. He also said some European countries have made "even bolder" moves against piracy as of late.

* Redstone introduced Dauman as "my forever friend."
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