Sluggish economy drain on Viacom

Entertainment firm's share fall sharply

The sluggish U.S. economy might be a bigger drag on Viacom than previously thought.

Shares of the entertainment company fell sharply Wednesday after CEO Philippe Dauman signaled second-quarter U.S. advertising revenue growth at the firm's cable networks would come in at only half the company's guidance from the beginning of the month.

At the Sanford C. Bernstein & Co. 24th annual strategic decisions conference in New York, Dauman also downplayed suggestions that the Paramount film studio might not be core to Viacom. In addition, he said his firm will look at a possible future acquisition of the Scripps cable networks that he suggested could come up for sale, though he expects no major acquisitions in the "foreseeable future."

Investors seemed to mainly react to the latest ad guidance late in the trading session, pushing down the company's Class A stock 4.3% to $36.73 after dragging it as low as $36.02, close to its year-low of $36.

When Viacom reports first-quarter results on May 2, management predicted 7% year-over-year gains in U.S. cable network ad revenue. But on Wednesday, Dauman said U.S. ad revenue should be up 3%-4% over the year-ago period, comparable to gains recorded last year. The downward revision came a day after UBS analyst Michael Morris had called Viacom the entertainment giant least exposed to an ad downturn amid a possible U.S. recession (HR 5/28).

Asked about ad momentum, Dauman on Wednesday cited "some signs of softness in some categories" like automotive, where his company doesn't have a big stake but can still take a hit. He did however predict solid ad momentum for core Viacom ad categories like movies.

He also emphasized the weakness is in the scatter market, while he feels Viacom is looking solid in terms of upfront ad business. "We are getting good deals, positioning us well in the upfront," he said.

The Viacom CEO also said he expects no major acquisitions anytime soon even though he suggested that the Scripps networks could come on the market sooner or later.

Asked whether Paramount should be sold and considered a noncore part of Viacom's business, Dauman didn't directly rule out a sale. But he said his team's strategy has been to make the studio "an integral part of our brand-building" via releases of movies using the company's MTV, Nickelodeon and other brands. "Strategically ... it fits within the rest of our company," Dauman said.

The CEO told investors that Paramount is looking to optimize its performance by focusing on franchises and brands and planning its releases three years in advance. "We have a much more rigorous greenlight process," he said about the studio led by Brad Grey.

Asked whether it would have been easier to run a TV production business -- which Viacom is building again with a focus on cable productions -- without a split from CBS, Dauman said he is not dwelling on the past and things that could or should have been. "That's history," he said.

He went on to tout the recently launched premium TV venture with MGM and Lionsgate, saying the three studios' old deals with CBS' Showtime "restricted us." For example, Dauman pointed out that the latest James Bond film "Casino Royale" was available in the premium TV window last year but didn't air until last month.