Viacom‘s shares have been hovering around their all-time high and, unless I’m missing something in the weeds, the latest earnings report shouldn’t change that. In the September quarter the entertainment company generated net earnings from continuing operations of $806M, +25.4% vs the period last year, on revenues of $3.65B, +8.6%. The revenue number beat analyst expectations for $3.6B. Adjusted earnings from continuing operations at $1.55 a share also topped forecasts for $1.44. At the main Media Networks unit revenues came in at $2.46B (+7.4%) with operating income of $1.04B (+10.9%). Domestic and overseas ad sales each were up 10% while rate increases elevated fees from pay TV and digital streaming providers by 6%. The Filmed Entertainment operation, which includes Paramount, exceeded the Street’s expectations with revenues +11.1% to $1.21B and operating income +49.2% to $291M. The company says that World War Z helped to drive a 31% increase in theatrical revenues. Home entertainment — which had one additional release vs last year — was +24%. “Viacom’s commitment to creative and operational excellence, and our continued investment in content, delivered an outstanding quarter and a strong fiscal year,” CEO Philippe Dauman says. He adds that he’s “very optimistic about Paramount’s ambitious pipeline of branded and franchise films” and notes that the company repurchased $2.7B worth of stock in fiscal Q4 — bringing the total cash returned during the year to $5.4B.
With declining ratings at its cable networks and a light film slate, analysts didn’t expect much from Viacom in the quarter that ended in June. But it missed even the Street’s modest predictions. The company reported net earnings of $534M, -7% vs the same period last year, on revenues of $3.24B, -13.9%. The revenue figure is short of the $3.49B that analysts forecast. And adjusted earnings for continuing operations at 97 cents a share missed the Street’s $1.00 target. Revenue at the Media Networks, the core business, was -5% to $2.3B while operating income was -10% to $934M. Analysts expected to see a drop considering the ratings decline in the quarter at most of Viacom’s channels including Nickelodeon, Nick-at-Nite, MTV, and Comedy Central. But the -7% in domestic ad revenues and -9% worldwide may come as a surprise; several company watchers were looking for just a 4% slip in ad sales. Payments from pay TV distributors also fell 1%. Viacom says that the operation was hurt by “the timing of event-driven programming compared with the prior year’s quarter.” Meanwhile, revenues fell 29% to $1B, and operating income was -6% to $46M, at the Filmed Entertainment unit which includes Paramount. The slate in this year’s quarter — led by Madagascar 3: Europe’s Most Wanted, The Dictator, and Titanic 3D — was no match for last year which included Kung Fu Panda 2, Thor, Super 8, and Transformers: Dark Of The Moon. In addition, worldwide home video sales dropped 8% while worldwide TV license fees were -24%.
UPDATE, 7:00 AM: CEO Philippe Dauman rejects the growing view — articulated yesterday by Time Warner CEO Jeff Bewkes — that Nickelodeon’s ratings are down because kids are watching much of the channel’s content on Netflix. “There is no silver bullet” Dauman told analysts who wanted to know about the 32% drop in Nick’s audience so far in 2012. Viacom says that Netflix can’t be the culprit: Less than 25% of TV watchers get Netflix, and the time kids spend watching Nickelodeon content on Netflix only amounts to 2% of the viewing time for the cable channel. Even if Netflix-watching kids stopped viewing the cable channel, he says, “it would have minimal impact.” Meanwhile, “we are getting nice revenues from these (subscription VOD) deals.” Dauman still believes that Nick’s woes are at least partly due to glitches in the Nielsen rating system. In addition, he says there’s been “compelling programming on some of our competitors.” Dauman says not to worry: “We’ve seen this level of impact on other major networks in the past and we’ve overcome it….This is what we do.” He says he remains confident that investments in new Nickelodeon programming — including a revival of the Teenage Mutant Ninja Turtles franchise — “will gradually build on our ratings and we will not stop until Nickelodeon gets to bigger and better places….We feel very, very good about the direction. The pipeline is extremely strong.”
UPDATE, 6:54 AM: Here’s how much the 20.4% viewing drop at Nickelodeon – or, as CEO Philippe Dauman euphemistically calls it, “previously disclosed ratings softness” — hurt Viacom in the last quarter of 2011: Without that decline, ad sales for the Media Networks unit would have been up for the quarter, instead of down 3%, he told analysts in a conference call. Dauman continues to characterize this as largely a problem with Nielsen’s measurements as opposed to Nick’s programming: “We believe there were some ratings systemic issues,” he says. ”The set top box data in no way reflects what we see in the Nielsen measurements.” Still, he says that he’s ”confident that as the year progresses you’ll see improvement in Nickelodeon’s ratings” as the network introduces more than 500 episodes of original shows. Viacom plans to spend $3B on programming for its networks this year.
UPDATE, 7:10 AM: CEO Philippe Dauman told analysts that he’s surprised by the attention being paid to the Paramount arrangement with DreamWorks Animation that ends next year. Still, he says that his studio …