Viacom Inc. president Mel Karmazin offered analysts and investors more details on how terrorist attacks in New York and Washington affected his company's cable and broadcast networks, saying the events of Sept. 11 cost it about $200 million.
Viacom's television networks — including broadcast giant CBS Inc. and cable networks MTV: Music Television and VH1 — switched to round-the-clock news coverage in the days after the attacks; the cable networks aired a CBS News feed through the weekend after the incident.
Naturally, CBS took the biggest hit: It lost about $85 million in advertising revenue. At Viacom's 35 television stations, $40 million in advertising revenue was forfeited, while UPN lost $3 million and the cable networks gave up about $5 million in ad sales.
Karmazin, speaking at the Goldman Sachs & Co. Communacopia conference here last Tuesday, also said Viacom's Infinity Broadcasting Corp. radio group — which includes about 180 stations — dropped $25 million. Increased costs at the news operations totaled about $13 million, including $7 million for CBS, $5 million for the TV stations and $2 million for Infinity.
"Before that, we thought the industry had seen the bottom in the advertising business," said Karmazin, who added that CBS and the TV stations were pacing ahead of the same period last year on Sept. 10. "On [Sept.] 29th, they were down significantly."
As a result, third-quarter cash flow should be about $1.3 billion, down from the $1.5 billion previously anticipated. The company expected to reach about $1.6 billion in cash flow in the fourth quarter, but that number too should be down by about $300 million.
Cash flow for the year should be about $5.1 billion — less than the anticipated $5.6 billion, but slightly above last year's figure of $5 billion. Karmazin said those numbers are the company's most "bearish" estimates.
"This isn't a function of a slowing of the advertising market," Karmazin said. "It's a function of the evil acts attributed to Sept. 11."
Although Viacom said in late September that its revenue and cash-flow growth for the period would be similar to last year, instead of the double-digit growth previously expected, Karmazin said the company already is beginning to see a rebound with some advertisers.
Rental car giant Hertz Inc., the U.S. Marine Corps and Southwest Airlines all have restarted their advertising campaigns, said Karmazin, adding that the scatter market also is beginning to improve.
After this spring's dismal upfront, Viacom was criticized by some in the industry for holding back inventory for the scatter market. Some observers anticipated the company would never make up the difference in the weak advertising climate.
But Karmazin said his gamble is beginning to pay off. Last week, CBS sold $40 million in advertising on the scatter market at rates higher than the spring upfront.
Karmazin tempered his enthusiasm for an advertising rebound, adding that there still was a fair amount of uncertainty in the market, given the likelihood of a military retaliation for the Sept. 11 attacks. That would likely cause Viacom networks to return to extended news coverage.
But future lost ad revenue or not, Karmazin stressed that although ads make up about 50 percent of total revenue, Viacom has other businesses that do not depend on advertising revenues.
Video-rental giant Blockbuster Inc. is expected to meet its third-quarter guidance of $600 million in cash flow, largely because television viewers are staying home in light of the attacks.
Karmazin said Viacom's strength lies in its balance sheet, which remains highly unleveraged, and its large amount of free cash flow, which it can use to buy its own stock or to make more acquisitions.
"We believe acquisition opportunities could present themselves," he said. "There are a lot of very leveraged companies out there. If there is a silver lining in all of this, it could be that some of our competition is not as strong."
Karmazin said there also is an opportunity for more federal deregulation. After the Persian Gulf War in 1991, he said, the federal government started a wave of deregulation, including the television station duopoly rule and the Telecom Act.
Karmazin also fended off rumors that he and Viacom chairman Sumner Redstone are not getting along. Those rumors started after Redstone neglected to mention Karmazin as his successor during a book tour last summer and Karmazin moved to sell some of his Viacom stock shortly afterward.
"One thing that is great about working for an icon — Sumner Redstone has been Sumner Redstone for 78 years," Karmazin said. "There has not been one surprise I have had working for Viacom. Every decision we have agreed on."
Karmazin noted that his management contract — part of the 1999 CBS Corp.-Viacom Inc. merger — says he will run the company until at least 2003.
"Viacom is a very focused company," Karmazin said. "I am pleased with the assets and the management."