Streaming Revenue Powers Viacom Earnings Increase

$20B Stock Buyback Plan Announced 8/02/2013 4:36 AM Eastern


Viacom reported a big jump in its earnings as streaming income boosted its cable networks.

Net earnings for Viacom's fiscal third quarter rose 20% to $653 billion, or $1.31, from $534 million, or $1.01 a year ago.

Revenues rose 20% to $3.7 billion. Domestic affiliate revenues were up 28%. Advertising revenues rose 6%.

The performance beat the Wall Street consensus for revenue and net earnings and was even with expectations for earnings per share.

"Viacom's aggressive investment in content, outstanding operational execution and fiscal discipline helped deliver a strong quarter with double-digit revenue and profit growth," CEO Philippe Dauman said in a statement. "Domestic advertising revenue gains continued to accelerate at our Media Networks, as new, original programming drives improving ratings momentum.  Viacom is also expanding partnerships with traditional cable operators and new digital distributors to deliver solid affiliate revenue gains."

Viacom also said it was doubling its stock repurchase program to $20 million. The move comes a few days after CBS, like Viacom controlled by mogul Sumner Redstone, raised its buyback to $6 billion. Stock buybacks and dividend increases bolstered Viacom's stock when ratings and revenues from its cable networks declined in past quarters.

"The significant expansion of Viacom's stock repurchase program highlights the confidence we have in our business and the value of Viacom's stock," Dauman said. "We will continue to focus on maintaining a strong and flexible balance sheet, which supports robust investments in our brands and franchises as well as substantial capital return to shareholders."

Operating income at Viacom's Media Networks group -- which includes Nickelodeon, MTV and Comedy Central -- rose 24% to $1.2 billion. Revenues rose 13% to $2.6 billion. Affiliate revenue growth was driven by digital distribution arrangements and rate increases. Viacom's big licensing deal in the U.S. with Netflix expired, but was replaced by a deal with Amazon. Excluding streaming deals, the domestic affiliate growth rate was in the high single digits.  The company said it expects to have 10% growth in domestic affiliate revenue for the year, and growth in the high-single digits or low-double digits next year and for the foreseeable future.

Speaking on the company’s earnings call with analysts, Dauman said that while Amazon Prime has less reach now, “our content will help drive their sub number up.” He added that “we also like the Amazon environment in that our brands are brought out more clearly in the Amazon Prime environment than they are in the Netflix environment. Viacom continues to do business with Netflix around the world and expects to do so in the future, Dauman said.

Domestic ad revenues were up 6% as ratings for some of Viacom's networks, particularly Nickelodeon, improved. Worldwide ad revenues were up 5%. For several quarters, Viacom had been turning in negative ad growth at its cable networks until the second quarter, when growth turned positive at 2%. The company had forecast that ad revenues would increase this quarter.

Dauman said that the company expects ad revenue growth to be greater in the September quarter than it was in the June quarter. Looking further ahead, he noted that there were a number of game and family movie launches upcoming that would be good for Nickelodeon, which was having ratings issues a year ago. “We were unable to meet demand in that we didn’t have enough inventory to meet the holiday season advertising demand,” he said. Now, we have more inventory to sell, as our ratings have improved.

Dauman also said the company completed upfront negotiations “early and very successfully, achieving significant volume increases in a difficult market.” In the adult upfront market, Viacom secured mid-single digit volume growth by moving early he said, while also improving its advertiser mix. “We saw a great outcome on the kids side, too, where we maintained volume and increased our share in a market that was down overall.”

Advertisers have been interested in the apps Viacom has been rolling out for its networks. Since its launch in June, the MTV app has been downloaded more than 500,000 times, Dauman says. In addition to full-length programming, the short form content created by the MTV Other studio in adding sponsors. The studio struck a marketing partnership with media agency Starcom, he said.

Dauman said the company doesn’t differentiate between its traditional advertising revenue and digital ad revenue.

“The way we sell now, we sell multi-platform packages to our major advertisers. So when we have a campaign, that campaign for many of our advertisers will live across multiple platforms. And, as we roll out apps across our different brands, that is a part of what we offer. So, the distinction that used to be made between digital and so-called traditional revenues, it's just blurring,” he said.

“The same goes for the creation of content. Those lines are blurring, as well, organizationally within our company, he added. “We have really folded in the organization such that we talk less about the manner of distribution and focus more on how we reach consumers, both from a creative standpoint and from an engagement standpoint. So it all works together. Clearly, in terms of the sequential trend, we have been increasing our resources in presenting content, creating content, and providing richer opportunities for our advertising partners to engage consumers.”

Viacom expects to spend than $3 billion on content this year. “We are investing in original content with a focus on improving both demos and day parts that have the greatest impact on ad sales, said COO Tom Dooley.

With all that content, measurement is an issue, particularly with the young, digitally hip audiences Viacom’s networks tend to attract.

Dauman said Viacom is not participating in Nielsen’s Online Campaign Ratings system, which the company believes has a number of flaws. “But what we are able to do, we have first-party data on our digital distribution. So, we provide, we can marry the first-party data that we have with, for example, traditional Nielsen ratings on our television stream,” he said. “And, increasingly, you will see the importance of first-party data growing, as well as other third-party data sources growing. That all works to our benefit because we have a lot of viewing that is not measured by traditional sources.




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