Cable Helps Viacom to Record 3Q

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Strong performance at its cable networks continued to drive results at Viacom Inc., offsetting a sluggish local ad market and driving third-quarter revenue and cash flow to record levels.

Viacom reported revenue of $6.6 billion, up 5%, and operating income before depreciation and amortization, also known as cash flow, increased 7% to $1.6 billion in the quarter.

Free cash flow -- or cash flow after interest payments and capital expenditures have been made -- more than tripled to $708 million in the quarter compared with $214 million in the same period last year. Net income increased 9.3% to $700 million, or 40 cents per share.

While advertising revenue was up 8% overall, local ad sales are still sluggish. In a conference call with analysts, Viacom chairman Sumner Redstone praised the company’s quarterly performance -- its best third quarter ever -- but added that local ad sales were improving at "a slower rate than had been expected earlier in the year."

That local-ad weakness appears to be infiltrating national ad sales, as reflected in weak scatter pricing for broadcast-television and cable-network advertising.

On the same conference call, president and chief operating officer Mel Karmazin said scatter pricing in the broadcast market was "flat to slightly up" from upfront pricing in the quarter and at a "slight premium to the upfront" for the cable networks.

Karmazin stressed that cable networks are still attractive to advertisers, adding that they had the option to pull out of about $70 million in ads this quarter after a 90-day window expired, but only $3.5 million worth of ads were pulled.

"That is a very, very low number," he said.

At the cable networks, revenue spiked 17.8% to $1.5 billion and cash flow rose 18.7% to $661 million in the period.

Advertising sales at the cable networks -- including MTV Networks, Nickelodeon and Spike TV -- rose 25% in the period and affiliate revenue was up 8%.

Viacom reaffirmed its full-year-2003 guidance of mid- to high-single-digit growth in revenues and operating income, with low- to mid-teen growth in earnings per share.

For full-year 2004, the company expects revenue growth of 5%-7%, operating-income growth of 12%-14% and earnings-per-share growth of 13%-15%.

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