Viacom to Boost Originals

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Media giant Viacom said it would step up original programming production and create programming blocks for some shows in an effort to hold onto its key teen demographic for longer periods of time.

For the third quarter, overall revenue was up 4% to $3.4 billion and operating income declined 15% to $689 million. At its Media Networks division, revenue rose 6% to $2.1 billion, fueled mainly by gains at its Rock Band video game and operating income declined 4% to $761 million. Worldwide advertising revenue was down 2% to $1.2 billion and domestic ad sales, pressured over the past few quarters, were down 3% in the period.

On a conference call with analysts, Viacom CEO Philippe Dauman said that the domestic ad market is challenging, and the outlook for the fourth quarter doesn’t look any better.

“Clearly we had our challenges in the third quarter,” Dauman said on the call. “The impact was compounded at a handful of networks where ratings were lower than expected, particularly at MTV, VH1 and BET. As we move toward the fourth quarter, the advertising picture hasn’t changed much.”

But Dauman said that he was encouraged by Viacom’s position in the upfront—he said that revenue is consistent with past performance—and the fact that the national ad market (in which Viacom participates) is proving to be much stronger than the local advertising market.

Dauman said that the there will be some changes in Viacom’s ad sales organization nonetheless—ad sales leaders will now report directly to the president’s of each network, to foster a stronger relationship with each brand.

On the programming front, Dauman said that networks like MTV continue to show strength in attracting their core audiences—he pointed out that the most recent MTV Video Music Awards was the highest rated non-sports program on an ad-supported cable network within its core 12-24 year-old demographic this year.

MTV’s ratings softness lies in repeat viewership, Dauman said, which is why the network will increase original programming. A big part of that effort will be to entice viewers into watching shows a second and third time—he pointed to a new game called “backchannel,” a chat interface that runs live on line during the airing of MTV’s popular The Hills, that will update during repeats.

Dauman said that the network also is experimenting with new ways to serve its audience and advertisers, creating programming blocks that serve subsets of the core demo.

“This will allow us to sell more strategically to a broader set of advertising partners,” Dauman said on the call.

Dauman didn’t say how much Viacom will spend on original programming, but that didn’t seem to matter much to investors, at least initially. Viacom shares were up significantly in after-hours trading Monday—around $22 per share, after closing at $21.08, down (37 cents).

Viacom chairman Sumner Redstone reiterated his vow during the CBS third quarter conference call last week to not sell a single share of Viacom or CBS stock.

Redstone has come under scrutiny after National Amusements Inc., the theater chain he controls, had to sell $233 million worth of Viacom and CBS stock last month to cover loan covenants. Redstone said that NAI continues its negotiations with its lenders and those conversations are going smoothly.

The Viacom chairman also hinted that NAI’s large real estate holdings—it owns 1,500 screens and the land under them in the U.S., Latin America, U.K and Russia—and that property could be used to satisfy any further capital needs.

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