Cable Nets Bolster Viacom


Viacom Inc.'s revenue and cash flow declined in the third quarter in the wake of the Sept. 11 terrorist attacks. But continued growth by its cable network and video segments kept a disappointing period from turning disastrous.

Total revenue for the third quarter was down 2 percent, to $5.7 billion, and cash flow dipped 8 percent, to $1.3 billion, excluding special charges.

Broadcast network CBS Inc. was hit hardest, reporting significant losses in revenue and increased news-gathering costs as a result of its 93 hours of continuous news coverage in the days immediately following the attacks. The network also lost revenue from the cancellation and rescheduling of programming and the delay of the fall broadcast season.

Revenue at the television unit was down 7 percent, to $1.6 billion, and cash flow fell 17 percent, to $282.6 million, in the quarter.

While Viacom did not provide any specifics, chief operating officer Mel Karmazin told analysts at an industry conference earlier this month that Viacom's networks incurred about $200 million in lost advertising revenue after the attacks.

It was a different story at the cable networks — including MTV Networks, TNN: The National Network and Nickelodeon — which reported pro forma revenue growth of 9 percent, to $1.1 billion, and cash-flow growth of 19 percent, to $472 million. The gains came from increased affiliate fees, DBS revenue and double-digit advertising gains.

That helped offset sharp cash-flow declines in the entertainment division (down 47 percent) and a near-20 percent drop in the television, publishing and Infinity Broadcasting units.

"Prior to the 11th, we said we saw the bottom and some improvement in a lot of our businesses," Karmazin told analysts on conference call. "Cable was doing better, UPN and CBS were doing a lot better and our TV stations in September were starting to pace a lot better. September 11 changed all of that."

One of the most vocal cheerleaders for advertising growth in the past, Karmazin has changed his tune along with other network executives in the wake of the terrorist attacks.

"We are taking the viewpoint that there is not going to be revenue growth as far as operating our company, so we are looking at ways of dealing with all kinds of expenses," Karmazin said.

He added that advertisers, while coming back, were skittish, avoiding news programs and buying time at the last minute.

In a research note, UBS Warburg media analyst Christopher Dixon wrote that while third-quarter results were in line with his expectations, Viacom's future will be determined by management's ability to sell advertising across its platforms, not via cost cutting.

"With record operating margins in each of the divisions, significant cost cutting may be difficult," Dixon wrote.

Last week, Kraft Foods said it signed a cross-platform advertising deal worth "hundreds of millions of dollars" with Viacom and AOL Time Warner Inc. Karmazin said Viacom was developing a local version of that cross-promotion vehicle, Viacom Plus, offering advertisers a mix of radio, outdoor and spot television advertising.