Viacom Gets AOL's Comedy Stake

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After months of speculation, AOL Time Warner Inc. announced Tuesday morning
that it would sell its 50 percent stake in Comedy Central to Viacom Inc. for
$1.23 billion in cash.

Viacom, which owns the other half of the cable network, was long thought as
the logical buyer for Comedy.

AOL Time Warner has been strapped for cash as it looks to reduce debt by more
than $4 billion by the end of the year, and it has said in the past that it
would raise at least part of that money by divesting noncore assets.

In addition to Comedy, analysts have expected AOL Time Warner to sell its 50
percent stake in Courtroom Television Network (Liberty Media Corp. owns the
other 50 percent), its professional-sports teams and its book-publishing
unit.

Earlier this year, AOL Time Warner raised about $800 million in cash by
selling its 8.4 percent stake in Hughes Electronics Corp. to Bank of America
Corp.

"Our expected strong free-cash-flow generation and favorable prospects for
future sales of other nonstrategic assets give us confidence that we can and
will achieve our debt-reduction targets," AOL Time Warner CEO Dick Parsons said
in a prepared statement.

"We are very pleased to have reached this amicable agreement with Viacom,
which has been a great partner at Comedy Central," he added.

Analysts had
valued Comedy at about $2 billion, making the price Viacom paid relatively high,
although lower than the $1.5 billion AOL had originally been rumored to be
asking for its 50 percent stake.

It is expected that Viacom will be able to extract cost savings by
consolidating Comedy onto its balance sheet, mainly through reductions in sales
force and human-resources personnel.

Viacom president and chief operating officer Mel Karmazin, speaking on a
conference call with analysts discussing Viacom's first-quarter results, said he
expects revenue and cost advantages in the acquisition.

For example, Karmazin said, from time to time, Comedy was included in
Viacom's cross-platform sales division, Viacom Plus. But if Viacom saw an
ad-revenue opportunity for MTV: Music Television or Comedy Central, it usually
went to MTV because it was 100 percent-owned. Now that will change.

Comedy will be folded into Viacom's MTV Networks division, which also houses MTV, VH1, Nickelodeon, TV Land, The New TNN (soon to be Spike TV) and Country Music Television.

Current Comedy president Larry Divney will remain in that position with the network, according to an internal memo from MTVN chairman Tom Freston.

Karmazin also hinted at changes in Comedy's affiliate-relations division.

"Comedy Central was operating an independent affiliate-relations department,
working with MSOs as an independent channel even though it had two strong
owners," Karmazin said. "Now they will be part of Viacom, and we expect to see
advantages there."

Viacom reported a strong first quarter, fueled by growth at its cable
networks.

For the period, Viacom increased revenue 7 percent to $6.05 billion, cash
flow was up 12 percent to $1.23 billion and operating income rose 14 percent to
$987 million. Free cash flow -- or cash flow after interest payments and capital
expenditures are made -- increased 56 percent to $592 million.

At the cable networks, revenue rose 13 percent to $1.2 billion, cash
flow was up 19 percent to $480 million and operating income increased 21 percent
to $432.2 million.

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