Business and Deals

Viacom Earnings Jump in Third Quarter

Digital deals pump up distribution income 8/05/2011 07:52:24 AM Eastern

Viacom's third-quarter earnings rose on higher ad sales and profits at its cable networks. The company also benefited from high-margin agreements with digital distributors.

Net earnings were $574 million, or 97 cents a share, up 37% from $420 million, or 71 cents a share, a year ago. Adjusted net earnings from continuing operations were up 35%, the company said.

Revenues rose 15% to $3.8 billion.

The results topped analysts' estimates of revenues of 86 cents a share in earnings and $3.52 billion in revenue.

At Viacom's media networks group, which includes MTV, Nickelodeon and Comedy Central, operating income rose 27% to $1 billion.

"Our media networks are thriving," said CEO Philippe Dauman during the company's earnings conference call with analysts. "Our decision to increase our investment in original programming is continuing to bear fruit." He noted that scripted programming is having success at MTV, BET, TV Land, and most recently VH1.

COO Tom Dooley said that the company expects that programming expenses will grow in the range of 7.5% to 8% for the full year.

Revenues at the media networks unit rose 16% to $2.4 billion.

Worldwide affiliate revenues increased 19% to $971 million. Domestic affiliate revenues were up 20%, according to CFO James Barge, who said the rise was driven by digital distribution agreements. Without those agreements, affiliate revenue was up in the high single digits, he said.

Analyst Richard Greenfield estimated that the company added about $70 million to its affiliate fees with digital distribution agreements. Dauman said margins on digital deals are about 75%.

"Digital distribution revenue will increase every year for the foreseeable future as far as I can say," Dauman said. "We are talking with a number of new partners who are entering to digital distribution arena by making our long-form and short-form content available on their emerging platforms. As a result of these new deals we have set a new higher base for affiliate revenues this year and we expect to continue to increase those revenues from this higher base at a high single to low double-digit annual rate every year."

Dauman added that "traditional" distributors of Viacom's programming are also interested in acquiring additional digital rights. "Some of those discussions are taking place as well," he said.

 Domestic ad sales were up 12% and worldwide ad revenues grew 14%.

"While there were notable spending increases in several categories such as movies, toys and autos the growth was fairly widespread," Dauman said. "During the quarter we saw year-over-year spending growth in more than 20 different categories. Looking ahead, we are targeting double-digit growth in domestic ad revenues in our fourth fiscal quarter."

Dauman said he was satisfied with the upfront. He said average unit pricing increases were in the double-digit range across Viacom's network and volume was up in the mid-teens.

Given the economic uncertainties that have hit the stock market in general and media shares in particular, an analyst asked if Viacom was seeing an increase in clients cancelling advertising orders. CFO Barge said the company has not seen "any increase of that level whatsoever at this point in time."

Operating income fell at Viacom's filmed entertainment division, and corporate expenses and equity based compensation rose.

Equity income from investments was $12 million in the quarter, most from its stake in EPIX.

With the market rebounding after a week of steep declines, Viacom stock was up almost 3% to $45.42 a share in afternoon trading.

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