Viacom's third-quarter earnings took a hit as the
company announced plans to sell the division that produced the disappointing
video game Rock Band.
Net earnings were $189 million or 31 cents a share , down
from $463 million, or 76 cents a share, down from $463 million, or 76 cents a share, a year ago. The result includes a $299
million loss from discontinued operations including the Harmonix video game
unit. Rock Band was seen as an opportunity for Viacom to get itself into a hot
new business, but the company failed to generate the profits it was
Net earnings from continuing operations rose 7% to $461
Revenues rose 5% to $3.3 billion.
in our content and our brands has been and will continue to be the cornerstone
of Viacom's strategy. We never wavered from it even as we managed through
the global recession," said Philippe Dauman, president and CEO.
" As a result, many of our cable networks today are achieving new
ratings highs and producing hit shows that feed the cultural dialogue in the
U.S. and abroad. This creative success coupled with the improving economy
has fueled our advertising revenues, which were up 8% in the U.S. this quarter,
our third consecutive quarter of sequential improvement."
the company's earnings conference call with analysts, Dauman said that
Viacom was selling Harmonix to "focus entirely on what we do best."
He said that to be in the game console business required expertise and scale
that Viacom did not have and that talks were ongoing with potential buyers who
would place a higher value on Harmonix.
lost $65 million during the quarter. Viacom also took an impairment charge of
$230 million on Harmonix good will and a $30 million pre-tax write down of Rock
Viacom's Media Networks group, which includes MTV,
Nickelodeon and Comedy Central, had operating income of $873 million, up 9%
from a year ago. Revenues were up 8% to $2.1 billion
Domestic ad revenue rose 8%, a bigger gain than in the
prior quarter, thanks to a strong scatter market. But ad growth was slower than
at the cable networks owned by Discovery Communications and Scripps Networks.
Dauman said after a good upfront and with the scatter market staying strong,
Viacom was expecting the growth rate for domestic ad revenue to increase
sequentially again next quarter.
Viacom expects its programming expenses to grow at a high
single digit rate in 2011. Dauman noted that 91% of what Viacom's major
networks spend on programming goes for original programming.
Domestic distribution income rose 12%. CFO James Barge said
that 80% of that improvement came from rate increases, with the rest from
increases in subscriber.
Dauman said that Viacom's Epix movie service would be
profitable next quarter, thanks largely to its distribution agreement with
Netflix, which was reportedly worth $1 billion over 5 years, but might have
made Epix even less popular with cable operators because it allows Neflix to
stream movies 90 days after they've been on the channel.
"This deal represents an inflection point. It was the
first time that a non-traditional distributor valued content, in this case a new
segment of the pay window, at a level that is comparable to, indeed higher
than, the rates traditional distributors pay," Dauman said. "This
new partnership has Epix on a clear path to profitability which it will have
this quarter and has done so in record time. We expect to continue to add
incremental digital dollars-not dimes-for our entire Viacom
business in the future."
Epix was responsible for a $16 million in equity losses in
the third quarter.
Viacom is changing its fiscal year to end on Sept. 30, which
means 2010 will have just nine months and the next time the company reports
earnings, it will be for the first quarter.