Viacom Profit Misses Estimates on Lower Advertising Sales

Viacom Inc. (VIAB), owner of the Paramount film studio and cable networks such as Nickelodeon and MTV, said fiscal third-quarter profit dropped 7 percent after advertising sales declined the most in more than three years.

Net income fell to $534 million, or $1.01 a share, New York-based Viacom said today in statement. Excluding items such as tax benefits, earnings were 97 cents, trailing the $1 analysts predicted on average, according to data compiled by Bloomberg.

Viacom, which is relying on its cable-television business for 92 percent of annual operating income, is struggling with a ratings drop at Nickelodeon, the channel aimed at children. Viacom’s ad sales slumped 9 percent, the most since the March 2009 quarter, during the U.S. recession. Advertising will improve sequentially this quarter, helped by BET’s awards shows, Chief Executive Officer Philippe Dauman said.

“I’m confident in the steps we’re taking,” Dauman said on a conference call. “If you look at Nickelodeon, we have a very strong lineup coming forward.”

Viacom, controlled by Chairman Sumner Redstone, rose 3 percent to $47.20 at the close in New York. The stock has increased 3.9 percent this year.

Sales dropped 14 percent to $3.24 billion, trailing the $3.49 billion analysts estimated. In the year-earlier quarter, net income was $574 million, or 97 cents.

Programming Fees

The networks unit, which also includes Comedy Central, gets revenue from advertising and programming fees paid by TV-service providers such as DirecTV and Comcast Corp. Those fees, which rose 1 percent last quarter, will grow by more than 10 percent in the U.S. in the period ending next month, Dauman said.

Viacom renewed a rights deal with DirecTV (DTV) last month after contentious negotiations that led to a 10-day blackout. The contract gives Viacom more than $600 million annually over the next seven years, a 20 percent increase over the last agreement, a person familiar with the matter said. The blackout during negotiations caused some DirecTV customers to cancel their service.

The increase in fees helped offset a drop in advertising dollars due to ratings declines at some of Viacom’s networks, Michael Nathanson, an analyst with Nomura Securities Inc. in New York, said in a note today.

“Valuation remains compelling but shares will likely continue to be tied to commentary around forward affiliate fee, advertising and national scatter trends, Nickelodeon and the company’s ability to manage cost growth,” wrote Nathanson, who recommends buying the shares.

Nickelodeon’s daytime viewership fell 27 percent during the three months ended in March, according to David Bank, an analyst with RBC Capital Markets in New York.

“However, we see some bright spots for MTV,” Bank, who recommends buying the stock, said in a note last month, citing the popular MTV programs “16 and Pregnant,” “Teen Wolf” and “Teen Mom.”

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Anthony Palazzo at apalazzo@bloomberg.net

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