Viacom Inc.'s fourth-quarter profit fell 69%, hurt by weakness in advertising sales at MTV and other cable channels, and the company said ad revenues are likely to get worse in 2009 before they get better.
New York-based Viacom reported a net profit of $173 million, or 28 cents a share, down from $560 million, or 86 cents, earned in the fourth quarter of 2007.
The company said that excluding $454 million of restructuring and other charges, it would have earned 76 cents a share from continuing operations in the latest three months.
Quarterly revenue was little changed at $4.24 billion.
Analysts polled by FactSet Research had, on average, expected Viacom to earn 80 cents a share on revenue of $4.25 billion.
Viacom's Class B shares rose 14 cents to $15.77, a gain of 1%, bucking a downward trend on the broader U.S. market.
Investors were encouraged by news that Viacom will focus less attention on its film studio, says Laura Martin, senior media analyst at Soleil Securities in New York.
Having less money committed to the film business is a good thing, Martin said, because the film business typically destroys value with enormous amounts of risk on any particular film. I think a good outcome of the recession is that less money will go into theatrical motion pictures, industrywide.
Martin also says she was glad to hear that ratings are improving at MTV, which has had difficulty sustaining the interest of its young target audience.
Viacom Inc. and CBS Corp. Executive Chairman Sumner Redstone reiterated on a conference call that he has no intention of selling any further shares in Viacom or CBS.
His National Amusements holding company sold a total $233 million of stock in the two companies in October to make certain debt payments following steep declines in the value of both stocks over the previous month.
Redstone says he's close to a new agreement with National Amusements' creditors.
Chief Executive Philippe Dauman told analysts Thursday that the company doesn't see macroeconomic improvement on the horizon just yet.
Dauman said visibility into advertising sales trends is still very limited.
Advertisers' commitments made last year to buy ads for this year's first quarter are holding firm, and an increasing number of advertisers are exercising options to buy commercial time for the second quarter, he added. However, he cautioned: It is clear that while as cable network owners we are in a more favorable media segment than most, advertising [comparisons] are likely to get worse before they get better.
Revenue generated by Viacom's media networks rose 1% to $2.48 billion, while ancillary revenue for the quarter was flat at $462 million, as hardware sales of the video game Rock Band declined in conjunction with a slowdown in retail sales that has been blamed on the economic crisis. Viacom is new to the video game business, having entered it in 2007.
As we move forward in 2009 we will be more focused on the software side of the business for 'Rock Band,' which enjoys significantly better margins [than the hardware], said Chief Financial Officer Tom Dooley.
Ad sales declined 3% to $1.35 billion, on ratings weakness at certain channels. The company owns cable channels such as MTV, VH1, Comedy Central, TV Land, BET and Nickelodeon.
Viacom has missed out on some of the cable-network advertising strength seen by such rivals as Time Warner and News Corp. , partly due to ratings difficulties at MTV, which has had trouble holding the attention of its young audience.
Dauman said ratings are beginning to improve at MTV, with ratings in the current quarter down 12%, compared with a decline of 21% in the fourth quarter.
Another problem channel, VH1, is also seeing improvement. Ratings were down 8% in the fourth quarter -- which is better by a double-digit percentage than the network's third-quarter ratings.
Fees paid by cable and satellite operators rose 12% to $667 million.
Also in the latest quarter, Viacom's filmed-entertainment revenue declined 2% to $1.81 billion on a 6% decline in home-entertainment sales.
Declining DVD sales, especially of previously released titles, has been a problem for other media conglomerates. Time Warner, Walt Disney Co. and News Corp. each made note of the phenomenon recently. See related story.
According to The Digital Entertainment, Group, U.S. DVD sales declined by 9% in 2008 to $14.5 billion -- a far cry from the format's boom years earlier this decade. In 2004, DVD sales jumped nearly 34% to $15.5 billion.
It is worth noting that we did see a strong performance from blockbuster hits such as 'Iron Man' and 'Indiana Jones [and The Kingdom of the Crystal Skull]', said Dauman.
In the fourth quarter we saw the conversion rate of box office revenue into DVD purchases decline on all but the most popular titles, said Dooley.
Because DVD sales are better for franchise titles, Paramount Pictures will bear this in mind when it decides what features it will produce, Dauman remarked.
Viacom's theatrical revenue grew 28% to $350 million in the latest quarter, primarily due to the strong performance of Madagascar 2: Escape to Africa.
Rounding out the quarter's performance, Viacom said television license fees fell 13%.