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Viacom Exceeds Forecasts, Says It Will Buy Channel 9

Media: Purchase of the independent television station, for $650 million, would make it the firm's second broadcast outlet in Los Angeles.

February 14, 2002|SALLIE HOFMEISTER | TIMES STAFF WRITER

Viacom Inc. posted a fourth-quarter loss, but the media giant beat Wall Street's expectations and spurred hopes by indicating that television advertising sales are starting to improve.

As expected, the company also said it has agreed to buy Los Angeles independent television station KCAL Channel 9 from Young Broadcasting for $650million in cash, gaining a second broadcast outlet in the nation's second-largest market.

Broadcasters such as Viacom, which owns the CBS and UPN television networks, are eager to take advantage of relaxed federal rules that allow them to own two stations in the largest cities. Los Angeles would be the eighth city with two Viacom-owned stations.

Viacom, which already owns KCBS in Los Angeles and 33 other television stations, said the company would build on KCAL's specialty in sports and news and would keep the station independent. Young has improved the profitability of the station since buying it in 1996 from Walt Disney Co. for $368 million.

The ad climate hurt Viacom in the fourth quarter, when the nation's third-largest media company lost $42.5 million, or 2 cents a share, compared with net income of $30.4 million, or 2 cents, in the year-earlier period. Sales fell 5% in the quarter, to $6 billion.

Excluding a pretax gain of $288million from TV station swaps and a one-time charge of $159 million from layoffs at MTV and UPN, the company reported a net loss of $140 million, or 8 cents a share. Analysts were projecting that Viacom would lose 11 cents a share in the quarter.

In a conference call Wednesday with analysts, Mel Karmazin, Viacom's president and chief operating officer, said Viacom's huge cash resources would allow the company to make other acquisitions despite the economic slump of the last year.

Karmazin said that advertising has picked up so far this year but cautioned that this trend might not hold up. He said ad prices for CBS' prime-time shows are up as much as 15% over last year. He said cable and radio ad revenues also are improving this year.

"People are generally feeling more optimistic about the advertising market across the board in television, radio and newspapers," said James Marsh, an analyst at Robertson Stephens.

Viacom's shares rose 25 cents on the New York Stock Exchange, closing at $43.41 Wednesday. Viacom derives 50% of its revenue from advertising--more than any other media concern--and the company's shares have dropped nearly 25% over the last year, largely because of the economic downturn.

Though CBS' television rival Fox took a $909 million write-down on three expensive sports contracts this week, Viacom said it would not be taking such a charge.

In the conference call, Viacom Chief Executive Sumner Redstone also attempted to put to rest concerns on Wall Street of a rift between him and Karmazin. "Mel and I are getting along great, and you should feel great about your investment in Viacom," Redstone said.

The tension between the two media moguls spilled into the national press in January, prompting independent board members of Viacom to hold a special meeting this month. After being instructed to put aside their differences by the board, the two executives have been working to project an image of collegiality and cooperation, holding a dinner in New York for money managers and analysts Wednesday as part of that effort.

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