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Viacom profit rises on cable, entertainment results

Thu, 08/04/2005 - 8:00pm

Copyright 2005 MarketWatch.com Inc., All Rights Reserved

CBS MarketWatch

August 4, 2005 Thursday 8:39 AM

By David Wilkerson

From Lexis Nexis

SAN FRANCISCO (MarketWatch) - Entertainment giant Viacom said Thursday that second-quarter profit rose 6% on strong growth at its filmed entertainment and cable networks units.

Viacom (VIA.B) (VIA) said net income was $762 million, or 47 cents a share, compared to a profit of $717 million, or 41 cents a share, in the year-ago period.

Revenue rose to $5.9 billion from $5.4 billion.

Analysts polled by Thomson First Call were expecting a profit of 46 cents a share on revenue of $5.74 billion.

Excluding one time charges associated with its planned spinoff into two publicly traded companies, Viacom said it is on track to post 2005 revenue growth that will be better by a mid-single digit percentage than the 2004 total of $22.5 billion.

Earnings are expected to improve by a high single-digit percentage over the year-ago total of $1.54 a share. The year-earlier figure excludes impairment and severance charges and a tax benefit.

After the spinoff, one company, headed by Co-Chief Operating Officer Tom Freston, will retain the Viacom Inc. name, and include the cable networks, along with the Paramount motion picture production and home video units.

This is considered the "growth" company, as the cable networks have consistently rising revenue, and the company has major plans to tap into its barely exploited film and television library for DVD sales.

The other, led by Co-Chief Operating Officer Les Moonves, will be called CBS Corp., and will be comprised of the CBS and UPN broadcast TV networks, the Paramount television production entity; Infinity Radio; its theme parks and other units.

CBS Corp. will be targeted to value investors, who are expected to appreciate the steady, predictable cash flow thrown off by the radio and television units.

Viacom said CBS expects to pay a regular dividend to shareholders that will be no less than Viacom's current yearly dividend payout of about $450 million.

CBS should have an adjusted debt to operating income before depreciation and amortization ratio in the range of 2.5x - 3.0x., Viacom said.

"One of our objectives here is to be conservative, to really make sure that both companies as they start their new lives have solid balance sheets, that they have strong ratings and have access to the debt markets on very beneficial terms going forward," said Freston, speaking to analysts during a conference call.

In the second quarter, Cable Networks revenue rose 14% to $2 billion. The increase was driven by 19% growth in advertising revenue, with gains at the MTV networks and BET. Affiliate fees paid by cable and satellite operators rose 9%.

Ancillary revenue climbed 13%, as home video proceeds from the DVD box set "Chappelle's Show: Season 2" led the way. Ancillary revenue represented about 15% of the division's revenue in the second quarter.

Freston told analysts the unit has a number of new cable channels in the development stage.

"These networks will be both linear networks, but would have a very major VOD [video-on-demand] component," Freston said. "It's too premature to talk about them precisely now.

"I'll also say that we have a focus on launching ethnic networks in the United States," Freston went on. "We just launched last month a network called MTV Desi, which is targeted at second-generation South Asians. We also have sort of queued up similar networks for Korean-Americans, Russian-Americans and Chinese-Americans... I think it's going to be a great business for us."

Television revenue declined 1% to $2.03 billion, as a 4% gain in advertising revenue was more than offset by lower television license revenue. The absence of proceeds from "Star Trek: Deep Space Nine," licensed in the second quarter of 2004, was cited as a main cause for the decline in licensing revenue.

Moonves said he's "guardedly optimistic" about Infinity's advertising sales in the third quarter.

"We plan to stay the successful turnaround course in radio, investing in content and promotion and selectively rebalancing our stations to more attractive markets," Moonves said. "Upgrading, revamping and improving our formats is already underway, as evidenced by our recent launch of nine Jack FM stations, which are doing extremely well, with huge turnarounds in L.A., Seattle and Dallas."

Entertainment revenue climbed 24% to $879.6 million, driven by higher DVD sales, including the proceeds from "Coach Carter" and "Lemony Snicket's: A Series of Unfortunate Events." Theatrical film results were bolstered by "War of the Worlds" and "The Longest Yard."

Viacom's Class B shares rose 29 cents to $33.87 on Thursday.

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