Viacom Posts Drop in Quarterly Profit Amid Lower DVD Results

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NEW YORK - Viacom on Thursday reported a lower profit for its fiscal first quarter as weaker film unit financials, driven by lower home entertainment and TV licensing results, more than offset growth in the company’s TV networks business.

The weaker home entertainment results came amid a tough comparison with the year-ago period when the company had more DVD releases and blockbuster titles on DVD.

But management on an earnings conference call said the company expects a strong year thanks to continued creative successes.

President and CEO Philippe Dauman cited a lineup of upcoming films based on franchises and star power, such as animated Rango featuring the voice of Johnny Depp, Justin Bieber: Never Say Never and the latest Transformers movie. Plus, he said Viacom's hit TV shows, such as Jersey Shore, are "driving the cultural conversation." 

He also mentioned early ratings for MTV's new controversial show Skins, but didn't discuss a slew of advertiser losses or the future of the series.

The success of its TV shows means that Viacom is "extremely well positioned" for the upfront advertising market and that its upfront sales should come at the high end of ad rate increases for the industry, Dauman said.

Popular content also helps Viacom's goal to boost its financials via digital distribution deals that create incremental revenue, while not hurting existing content windows, Dauman also told analysts on Thursday. He emphasized that such deals are complementary to TV viewing.

Asked about Wednesday's deal to bring The Daily Show and other shows back to online video site Hulu, the CEO said he was attracted by Hulu's recent addition of subscription service Hulu Plus, which he said replicates the dual revenue streams of traditional cable and satellite TV distribution and allows for a three-week window on Hulu Plus for hit shows. Dauman also said that Viacom chose to strike a shorter-term deal - something it plans to do in the case of all digital media deals - that "extends into 2012," so that it can evaluate its effects. 

Asked whether that could also mean that Viacom could bring more content to Netflix's streaming under similar circumstances, Dauman said more content and improved economics are possibilities that Viacom will explore.

Asked about whether Viacom's movie output could land on a streaming video service that Amazon.com is planning, Dauman said a deal between premium TV venture Epix, of which Viacom is a part, and Netflix for streaming rights is exclusive for two years. After that, deals with other digital-only distributors are possible. 

Dauman also hinted at additional rewards for shareholders, saying Viacom's board will consider a dividend increase that could kick in mid-year in addition to further stock buybacks.

Viacom's quarterly profit fell 12 percent to $610 million. Adjusted profit from continuing operations decreased 11 percent to $620 million. In the media segment, operating profit rose 7 percent, but film profit declined 77 percent due to the lower home entertainment and TV licensing figures and higher film costs amid a higher number of releases.

Viacom's total revenue fell 5 percent to $3.83 billion as growth in advertising, affiliate and theatrical revenues was offset by predicted declines in home entertainment.

Media networks unit revenue rose 6 percent, driven by a 10 percent improvement in U.S. advertising revenue, which marked yet another quarter-over-quarter acceleration of growth. However, film revenue fell 16 percent as home entertainment revenue dropped 44 percent and TV license fees declined 38 percent.

The weaker home entertainment results came amid difficult comparisons with the strong performance of year-ago releases, such as Transformers: Revenge of the Fallen, Star Trek and G.I. Joe: The Rise of Cobra. The year-ago period also had more DVD releases. TV license fees were affected by fewer available titles. Theatrical results rose though thanks to seven releases, such as DreamWorks Animation's Megamind, The Fighter and True Grit, compared to four releases in the same quarter a year earlier. 

In an earnings statement, management also lauded the firm's creative resurgence, which it said will set the stage for growth ahead.
"Viacom is off to a solid start to what is shaping up to be a very strong year," said chairman Sumner Redstone. "Our businesses are strong, our creative engines are producing more hits than ever and, most importantly, we are continuing to deliver greater shareholder value."

“Our focus on nurturing our brands and investing in the creation of world-class content is paying off in a multitude of ways,” said Dauman. He cited such cable TV hits as BET’s The Game and said “MTV is thriving with three of the top five original cable series last quarter.” Those shows are Jersey Shore, Teen Mom and 16 and Pregnant.

Discussing the film unit, he said: "Paramount Pictures delivered a stellar box office performance this past quarter with popular and critically acclaimed films, including Academy Award nominees The Fighter and Ethan and Joel Coen's remake of True Grit. Looking ahead in fiscal 2011, we have a powerhouse line-up of franchise films and we expect our home entertainment results to improve as we now move past the last few quarters of difficult year-over-year comparisons.”



 

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