At Viacom: Weak Movies, Low-Rated Cable Shows And Optimism

Revenue at Paramount dropped 29 percent in the wake of three summer releases that did not live up to last year's blockbusters. "Madagascar 3," "The Dictator" and the 3-D re-release of James Cameron's "Titanic" underperformed in comparison to 2011's "Transformers: Dark of the Moon," "Kung Fu Panda 2" and "Thor." The studio also released a fourth film during the third quarter last year: J.J. Abrams' "Super 8," which performed well for its relatively modest budget of $50 million.

Paramount's drop in revenue points to an increasing reliance on big-budget summer tentpoles -- a common strategy for studios these days, but one in which the success or failure of a single movie can sometimes make the difference in quarterly earnings. On Wednesday, for instance, Universal Studios (Nasdaq: CMCSA) posted a loss of $83 million, thanks largely to the underwhelming performance of "Battleship." On a budget of $209 million, the film took in a paltry $25 million over its opening weekend, a record low for a film of its budget. A similar effect was seen at Paramount, thanks to the combination of moderate box-office performances and a lighter release slate.

Meanwhile, sales and advertising declines at Viacom's cable networks have made matters worse for the world's fourth-largest media company. Sales dropped 5 percent to $2.27 billion, while domestic advertising revenues dropped 7 percent. Both declines were partially the result of weak ratings at MTV and Nickelodeon.

Last month, tenuous viewership at those two vital networks caused UBS analyst John Janedis to downgrade Viacom's stock from buy to neutral, saying the stock was likely to "trade sideways" until MTV and Nickelodeon could improve their performances. "From a content perspective, our sense is that returning series at MTV are under-performing," Janedis wrote, "which will translate to further make goods [adjustments to advertisers] and a drag on ad growth in F13."

On a conference call with analysts Friday, CEO Philippe Dauman said the company is taking the necessary steps to improve its cable networks. Citing a new slate of more than a dozen kid-friendly offerings at the floundering Nickelodeon, Dauman said Viacom is "aggressively investing" in its brands. That investment includes the talk show/prank show hybrid "You Gotta See This," a TV movie based on a children's book by "The Sopranos'" Steve Schirripa and a spin-off series from the hit comedy "iCarly."

As for MTV, while less-than-stellar ratings for its "Jersey Shore" spin-offs suggest that Snooki and the gang may be approaching their expiration date, well-performing programs such as "Teen Wolf" and "Teen Mom" offer glimmers of hope.

Despite the fact that earnings fell below analysts' estimates, Dauman essentially told investors not to worry. "Viacom remains committed to pursuing its long-term strategy of international expansion, continued programming investment and ongoing focus on operational discipline," he said in a statement. "Looking forward, we will continue to operate efficiently to maintain our competitive and creative edge and, over time, return significant value to shareholders."