Viacom says ad upswing continues

Q2 revenue unchanged, profit up, U.S. ads rise 4%

NEW YORK -- Viacom management on Thursday said it is seeing a continued strengthening of the U.S. advertising market.

While the economic recovery is coming only in fits and starts, "the overall advertising market continues to strengthen," president and CEO Philippe Dauman told analysts in a conference call. Touting "growing momentum," he predicted a sequential improvement in U.S. ad growth in the current third quarter.

Chairman Sumner Redstone summarized the current state of the economy and ad market this way: "Of course, we are not all the way back, but the horizon is brighter."

The comments came after Viacom reported a higher second-quarter profit even though revenue was unchanged from the year-ago period.

The entertainment company recorded $418 million in adjusted net earnings from continuing operations, up 40% from the year-ago period.

Revenue of $3.3 billion was flat as growth in affiliate, theatrical and advertising revenue offset lower home entertainment contributions.

Revenue at Viacom's media networks unit rose 6%, while revenue fell 10%.
Adjusted operating profit rose 14% at the networks division, while the film arm swung from a slight loss to a $69 million profit.

The former benefited as U.S. advertising revenue increased 4% amid a strong scatter market and MTV's second consecutive year-over-year ratings growth. Dauman also touted mid to high single digit ad price increases in the recent upfront ad market across Viacom's cable networks and said the firm sold out a bit more than 50% of its ad inventory.
Worldwide affiliate fee revenue grew 11% in the latest quarter. Meanwhile, music video game "Rock Band" recorded lower revenue, but reduced costs so much that its profitability was higher.

In the film unit, second-quarter home entertainment revenue declined 43%, partly due to fewer releases, but theatrical revenue grew 10% thanks to "Iron Man 2" and "Shrek Forever After." Due to fewer releases, the studio's bottom line also improved.

"Viacom's strong bottom-line results reflect our focused strategy, our creative ingenuity and our disciplined financial approach," chairman Sumner Redstone said in touting the results.

Dauman said: "Importantly, this was achieved without sacrificing our investment in programming, which allows us to further build our brands, launch major new hits and create even stronger connections with our audiences."

On Thursday's call, he highlighted the continued popularity of long-established brands, such as SpongeBob SquarePants, but also newer franchises, such as MTV's "Jersey Shore." The show's second season brought in the strongest season premiere ratings for the network in several years, management highlighted.

Asked if sometimes controversial hits like "Shore" and "Teen Mom" scare off advertisers, Dauman said the contrary is true with marketers "scrambling" to get on the shows.

Asked about Viacom's deal with DVD rental kiosk operator Redbox, which doesn't call for the 28 day delay in DVD availability that other studios use, Dauman said "real world data" that the two collected in a trial - which other studios lack - made this setup best for Viacom. The companies in the trial found "extremely little degradation in DVD sales," and Viacom gets paid higher fees from Redbox for day-and-date access, he said.

Dauman also reiterated Thursday that Viacom plans to pursue an appeal in the YouTube litigation, saying a recent court ruling in YouTube's favor was "inconsistent with rulings of other courts."
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