New York -- Viacom Inc.'s crown jewels are its cable
networks, and chairman and CEO Sumner Redstone would like to expand the company's
Redstone, who discussed third-quarter results with
reporters and analysts last Wednesday, said cable networks represent "the best
business in entertainment," and they would be Viacom's top acquisition targets.
Without naming names, Redstone said he thought that some networks might become available
and, if so, "We'd be interested in expanding our cable-network business."
Otherwise, Viacom's largest looming transactions are sales.
The company is selling most of its Simon & Schuster publishing business, and it plans
a first-quarter initial public offering of stock in Blockbuster Video. By the end of next
year, after the IPO of 10 percent to 20 percent of Blockbuster, Viacom plans to sell or
spin off that entire unit.
Viacom's 80 percent stake in TV producer Spelling
Entertainment would also be "disposable," if the price were right, Redstone
At MTV Networks, cash flow rose 18 percent in the quarter,
to $207 million, and revenue rose 19 percent, to $478 million, powered by 20 percent
ad-sales growth and a 9 percent rise in affiliate fees. Nickelodeon's and Nick at Nite's
ad revenue rose 18 percent; MTV: Music Television's ad revenue rose 17 percent; and VH1,
from a lower base, reported 39 percent ad growth in the quarter.
At Showtime Networks Inc., revenue rose 1 percent, to $182
million, as direct-broadcast satellite gains overcame international-market losses, and
cash flow rose 12 percent, to $31 million. Profit margins improved as Showtime replaced
some studio movies with lower-cost original fare.
Subscriptions at Showtime rose about 7 percent, from 17.6
million homes to 18.8 million as of Sept. 30.
Overall, Viacom's cash flow rose 19 percent in the quarter,
to $800 million; operating income rose 25 percent, to $566 million; and revenue rose 14
percent, to $4.02 billion. Net income from continuing operations rose to $157 million, or
39 cents per share, from $27 million (3 cents) in the same period a year ago.
Excluding publishing operations, as most of those are being
sold to Pearson PLC for $4.6 billion, Viacom's cash flow rose 31 percent, to $578 million,
and its operating income rose 49 percent. Redstone told analysts that the fourth quarter
also looks to be "terrific."
There may have been no better sign of Viacom's improving
financial health than last week's invitation to reporters to listen in on the analyst
conference and, later, to directly question Redstone, vice chairmen Thomas Dooley and
Philippe Dauman and Entertainment Group chairman Jonathan Dolgen.
Redstone said Viacom has no interest in buying either the
CBS or NBC broadcast networks, despite United Paramount Network's travails. UPN, which is
owned by Viacom and Chris-Craft Industries, has strong distribution through 177
affiliates, but its low-rated programming figures to drive down Viacom's TV-station cash
flow by 12 percent in the second half of 1998, according to a report by SG Cowen
Dolgen said he was encouraged by recent ratings
improvements, and he has confidence in UPN CEO Dean Valentine's ability to improve the
Viacom's Paramount movie- and television-production cash
flow soared by 44 percent, to $149 million, and revenue rose 22 percent, to $993 million.
Cash from home-video sales of Titanic made the difference.
Blockbuster, which is continuing to reap benefits from
revenue-sharing deals with movie studios, reported 22 percent higher cash flow, at $138
million, and 21 percent higher revenue, at $985 million. Same-store sales and rental
revenues were up at mid-single-digit rates, and new membership sign-ups were up by 20
After loading on $10 billion in debt to buy Paramount in
1994, Viacom is on pace to have its debt pared down to about $4.2 billion following the
closure of the Pearson deal. Redstone said the company will end up being
"underleveraged" after it sells off Blockbuster.