It wasn’t a quarter for the record books, but could have been worse. Viacom says this morning that net income improved 16.3% to $557M in the last three months of 2013 on revenues of $3.2B, -3.5%. The top line missed analyst expectations for $3.3B. Earnings from continuing operations, at $1.20 a share, were a penny ahead of forecasts. At the main Media Networks business, revenues increased 6.1% to $2.5B and operating income was up 8.2% to $1.1B. Most of the growth came from the 10% jump in fees paid by pay TV distributors, the result of rate increases. Ad sales were up 3% in the U.S. and 4% worldwide to $1.3B. But much of that was offset by Filmed Entertainment. Revenues fell 30.2% to $681M with an operating loss of $74M, a 47% improvement from the $139M loss in the period last year. Paramount had fewer releases contributing to a 52% drop in theatrical revenues, and 37% decline in home entertainment. But that also lowered the division’s costs. CEO Philippe Dauman says that the company benefited from investments in content and “our ongoing financial discipline.” He adds that with recent releases including Anchorman 2: The Legend Continues, Jackass Presents: Bad Grandpa, Nebraska, and Wolf Of Wall Street “Paramount is off to a strong start as the studio continues building its animation and television production capabilities alongside …
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: Viacom Says Nielsen Snafu Led To Decline In Nickelodeon Toy Ads; Forecasts Strong 2012 Despite Economic “Headwinds”
UPDATE, 8:50 AM: Listen up Occupy Wall Streeters: Viacom CEO Philippe Dauman told analysts that the company is doing better than ever financially – yet is still cutting jobs. It reported a $130M restructuring charge in the fiscal 4Q — $77M coming from the Media Networks and $53M from Filmed Entertainment. That will mostly go toward severance payments over the next year. Viacom expects to benefit from $140M in annual savings, improving profit margins even if the economy weakens, COO Tom Dooley says. Company SEC filings indicate that the Viacom cut 320 positions over the last year, ending with 10,580 full and part time employees in September. Most of the cuts took place overseas. Dauman says that in late October the company announced that it will hire 100 people for accounting, finance and corporate support at cable channel CMT’s headquarters in Tennessee, which means Viacom is “able to bring jobs onshore.”
Dauman cited two problems that worry some investors: He cited economic “headwinds” hurting ad sales — although he quickly added that Viacom can make up for any problems with additional revenues from rising fees that cable and satellite companies pay. Also, he said that Nickelodeon lost ad sales, especially from toy companies, beginning in September when Nielsen ‘inexplicably” reported unusually weak ratings. Although Dauman offered few details, Morgan Stanley’s Benjamin Swinburne says he believes live-only ratings in Nick’s key demos fell 9% in September and 15% in …
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 is “proceeding on the operating assumption that we will not be extending” the deal. He doesn’t rule out a renewal but says that Viacom’s film unit is greenlighting and slotting its own computer-animated films with plans for one each year beginning in 2014. ”Paramount will do just fine under any scenario and DreamWorks Animation will do just fine,” Dauman says, adding that talk of friction between the companies “is a fantasy.”
Analysts mostly wanted to know about Viacom’s plans to sell content to digital services such as Netflix. Dauman says he’s in “a number of discussions right now,” emphasizing that many of these conversations involve overseas companies. ”You will see more of these deals — not just with Netflix, but with other players.” They like the fact that young people watch Viacom’s clips, shows, and movies. Although the deals typically last about two years, with all of the competition in digital streaming Dauman says it “should be easy to achieve” at least high-single-digit revenue growth from program licensing for the foreseeable future. Dauman says that Viacom’s profit margin on the deals is “over 75%.” The CEO wouldn’t say whether he might license an entire channel to a digital service. “I don’t like to deal with hypotheticals or negotiate in …