Blockbusters Drive Viacom In Q2

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Viacom reported strong second-quarter results, with revenue up 21% in the period to $3.8 billion and operating income rising 13% to $792 million, led by increases in its filmed entertainment division.

Viacom’s Paramount Pictures was the first major movie studio to reach $1 billion in box office sales this year, fueled by blockbusters like Indiana Jones and the Kingdom of the Crystal Skull, the animated King Fu Panda and Iron Man. For the period, filmed entertainment generated $1.8 billion in revenue, a 35% increase over the previous year.

At its media networks division, which includes MTV Networks and BET, revenue rose 11% to $2.1 billion. But operating income at the media division was up just 4% in the period to $765 million, reflecting a weak domestic advertising market.

In a conference call with analysts, Viacom CEO Philippe Dauman said that like its peers, Viacom faced challenges from the weakening economy, but that its diverse assets helped to secure double-digit growth in revenue and operating income.

Dauman said that softness in the domestic ad market in the second half of the second quarter put pressure on domestic ad sales. 

Back in May, Dauman warned at an industry conference that advertising revenue would rise between 3% and 4%, roughly half of analysts’ expectations. Viacom missed Dauman’s conservative forecast, with domestic ad revenue rising just 1% in the second quarter.

During the conference call Dauman said that midway through the second quarter, scatter market volume for several of its networks “dropped off.”

Dauman said that Viacom continues discussions with key advertisers and is targeting new advertiser categories that have not been as dramatically impacted by the economic downturn.

“We do see potential opportunity to counter this trend as we enter the back-to-school season and prepare for major tentpole events at our networks, such as the season premiere of The Hill and the Video Music Awards in September,” Dauman said.

Dauman said the media giant expects to make up some ground on the affiliate fee front. Without giving specifics, Dauman said that the affiliate fee structure for most of Viacom’s networks is significantly undervalued. He added that long-term carriage deals for networks like Comedy Central and Nickelodeon are also beginning to roll off.

“Across our portfolio of networks there is opportunity that should drive growth as we provide value for many years to come,” Dauman said on the call, adding that Viacom expects to see “double-digit growth in affiliate revenue for the foreseeable future.”

Viacom shares were down 17 cents each to $29.83 per share in 4 p.m. trading July 29, but fell to $28.70 each (down $1.30 per share) in after-market trading.   

Viacom also issued earnings guidance for the next three years, stating that it expects to deliver double-digit annual growth in diluted earnings per share for each of the years between 2008 and 2010.

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