Viacom Cable Ad Sales Up Just 4%

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In its debut report since separating from CBS Corp., Viacom Inc.’s cable networks aren’t quite sprinting the way they were supposed to be, posting underwhelming results during the `quarter.

For the three months ended March, Viacom’s MTV Networks and BET increased revenues just 7% to $1.6 billion and boosted operating income 8% to $621 million. That’s dramatically lower than the 15%-25% annual growth the networks have been generating during each of the past three years.

One major problem is ad sales, which grew a mere 4% to $876.6 million. U.S. ad revenues were up just 6% while international sales dropped 13%. By comparison, MTV Networks’ U.S. ad sales soared 25% during 2005.

Part of the problem is ratings. In aggregate, the total audience for MTVN’s networks dropped 2.6% during the first quarter, compared with the same period a year earlier. But the company says ad sales were also stunted by a seasonal issue: Easter.

The holiday fell in the first quarter last year, but in the 2nd quarter in 2006. That means an ad spending burst that Nickelodeon enjoys each year wasn't included in this week’s report. The cable unit’s license fees from cable and DBS oeprators increased 9% to $489 million. Cable operating income rose 8% to $621 million.

Viacom executives predicted that ad sales will pick up for the rest of 2006 and expect to post 12% growth for the full year.
We're seeing a really good recovery in the domestic ad sales business, and that's both the upfront base and also the scatter market,” CFO Mike Dolan said during a conference call to discuss earnings.

MTV Networks is making the heaviest online push of any TV network. The company didn’t disclose revenues, but Viacom CEO Tom Freston predicted that the digital effort would be generating $500 million a year by the end of 2008. “Our goal really is every day to try and figure out ways to accelerate our growth there, whether that's internally building out networks that we have, driving traffic on our sites, or making acquisitions in this space that would increase our inventory,” Freston says.

It just closed on one of those acquisitions, its $102 million purchase of online video gaming company Xfire.

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