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Viacom profit falls 32%

The media company is hit by lower sales of TV advertising, movie DVDs and its video game 'Rock Band.'

July 29, 2009|Meg James

Viacom Inc. generated static in the second quarter, with profit plunging 32% because of softer sales of TV advertising, its "Rock Band" video game and movie DVDs. The company's Paramount Pictures film studio lost money.

For the quarter ended June 30, Viacom reported net income of $277 million, or 46 cents a share, compared with $406 million, or 64 cents, for the year-ago period. Revenue for the New York company, controlled by Sumner Redstone, fell 14% to $3.3 billion.

The advertising downturn has chewed into the bottom lines of all media companies. Viacom has also struggled because its flagship MTV network has seen lower ratings. Executives have begun to adjust the mix of reality programs to better appeal to younger viewers.

On Tuesday, Viacom Chief Executive Philippe Dauman sounded an upbeat note when he told analysts that the company was close to wrapping up its "upfront" advertising sales for the coming TV season.

The industry's summer ad sales have been slower than in recent years because advertisers have been demanding steep discounts, and some networks have refused to budge. Other companies have been quick to roll back rates, although Dauman wouldn't say whether Viacom was among them.

Earnings were in line with analysts' estimates.

"Overall, Viacom results came in modestly lighter than we had expected, but we see some glimmers of positive trends in the underlying results," Barclays Capital media analyst Anthony DiClemente said in a report.

Viacom's networks unit, which includes MTV, VH-1, Nickelodeon, Comedy Central and MTV Games, said operating income slid 12% to $671 million. Revenue fell 8% to $1.97 billion. Viacom said ancillary revenue was down 41%, "driven by lower sales of the music video game 'Rock Band.' "

"The soft retail environment led us to reassess our pricing strategy and lower prices on 'Rock Band' hardware," Chief Financial Officer Tom Dooley said. He and others hope they'll be singing "Getting Better" after the September release of "The Beatles: Rock Band" video game.

For the quarter, Viacom's only standout performer in the retail market was "SpongeBob SquarePants," which is celebrating its 10th anniversary.

Paramount Pictures' results suffered compared with the year-ago period, when it had "Iron Man" and the "Indiana Jones" sequel. Home video revenue was also down.

Although the studio has had big hits this summer in "Star Trek" and "Transformers: Revenge of the Fallen," it had to book marketing costs in the quarter, which cut into operating income. Only the first seven days of ticket sales for "Transformers" were included in the quarter.

The filmed entertainment division lost $25 million, compared with operating income of $86 million a year ago. Revenue was down 22% to $1.38 billion.

"The studio's profit margins must and will improve," Dauman said, adding that it has cut costs and "made significant changes in management."

Meanwhile, Redstone said the sale of his National Amusements movie theaters was going well. Tuesday was the deadline for bids for the U.S. theaters being auctioned.

"There is substantial interest from a number of our bidders," Redstone said. "We are extremely pleased with the progress we are making."

And Epix, the planned movie channel that is a joint venture of Viacom, Lionsgate and MGM, reached a milestone Tuesday by signing its first distribution deal with Verizon, which has about 2.5 million subscribers for its Verizon FiOS television service. Distribution of the channel has been slowed as some cable operators have declined to carry it.

Viacom's Class B shares fell 50 cents to $23.75 on Tuesday. The stock is up 25% year to date.

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meg.james@latimes.com

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