Viacom facing soft ad sales

'Increasing challenging' economy

The hot phase of entertainment earnings season kicked off Tuesday with more signs of a U.S. advertising recession.

Viacom Inc. has been hit by an "increasingly challenging" economy that hurt its ad sales in the second quarter more than feared, president and CEO Philippe Dauman said, adding that scatter market sales remain soft in the current third quarter.

He declined to provide ad sales guidance but highlighted that the film business and the success of the video game "Rock Band" mitigated the ad woes to help Viacom beat earnings estimates.

Asked about the likely savings of a possible loss of DreamWorks, Dauman in a conference call predicted "significant" savings, including in such areas as staff, marketing, distribution and development. However, he emphasized the question was a speculative one at this time.

Dauman had no update on Viacom's premium-TV service venture with Lionsgate and MGM beyond saying the company was in "very productive" advanced discussions with potential distributors.

After the market close, Viacom posted a 6% decline in its second-quarter profit to $407 million. Revenue rose 21% to $3.86 billion, driven by a 35% film gain thanks to the success of "Iron Man," the latest "Indiana Jones" film and "Kung Fu Panda."

Cable networks recorded an 11% revenue increase as a 12% affiliate fee gain helped make up for weak 2% ad growth. U.S. ad revenue rose only 1%, below reduced guidance of 3%-4% growth that had caught investors by surprise. Dauman cited a sudden weakening in retail, auto and certain consumer goods advertising midway through the second quarter as well as low ratings at some networks.

The company's film unit, which houses Paramount and DreamWorks, boosted operating profit from $22 million to $86 million.

The networks unit reported a 4% operating profit gain. In an update to the unit's adults upfront sales, Dauman reported double-digit volume increases and high single-digit price increases.

Viacom chairman and controlling shareholder Sumner Redstone acknowledged that a tough U.S. economy has hurt media companies and stock prices but vowed Viacom would emerge stronger than others because of its strong brands and content, global reach and "visionary and seasoned" management team.

In the current environment, Dauman said Viacom will continue to look for cost-saving opportunities without hurting the quality of the firm's output. He mentioned recent layoffs at Paramount Vantage as an example.

Dauman also predicted a ramp-up in profits from "Rock Band," which has shipped 4.8 million units, next year and said the company is looking to develop more demographics-focused gaming franchises.