The axe continues to swing in the entertainment industry amid a recession, with Viacom Inc. unveiling 850 layoffs Thursday morning across its operations.
The company also said it will suspend senior level management salary increases for 2009 and take writedowns on programming and other assets, whose value has declined. It didn’t immediately provide details on the writedowns.
Viacom said the restructuring is designed “to better align its organization and overall cost structure with evolving economic conditions.”
The 850 jobs affected amount to 7 percent of the company’s workforce.
In a note to MTV Networks staffers, chairman and CEO Judy McGrath indicated that there would be a consolidation of certain units, with individual department heads set to meet with their respective teams throughout the day. “We’re centralizing functions and outsourcing others, and aligning our resources across brands and platforms,” McGrath said. “This is not just about MTVN, Viacom or even sister media companies––it’s happening in every industry, all over the world. ... The changes we’re making today are necessary, difficult, and the responsible way for us to move forward.“
Cuts have been carried out across nearly every division, including ad sales, programming and administrative services.
Viacom president and CEO Philippe Dauman said the moves come with an eye on strengthening Viacom for the longer-term.
“We are moving rapidly to adapt to the challenges presented by the current economic environment," he said. "The changes we are making in our organization and processes will better position Viacom to navigate the economic slowdown and generate sizable efficiencies that will help us to drive our business as the marketplace stabilizes and conditions improve."
In an internal memo, Dauman and Viacom CFO Tom Dooley said that while the corporation “still has a strong hand to play...[its] advantages and best efforts can’t completely protect Viacom from the very serious and broad-based challenges of this economic recession.”
The restructuring and write-downs will result in a pre-tax charge against earnings of $400 million- $450 million, or 42 cents to 48 cents per share, in the current fourth quarter. They will lead to pre-tax savings of $200 million-$250 million in 2009.
“Change like this is so tough, to say the least,” McGrath said. “But we must accept that we operate today in a state of constant evolution, constant change. We believe the next chapter for each of us will be all about new possibilities, creativity and invention. This is where our opportunity lies.”
The MTV Nets face a variety of challenges, as ratings at the flagship channel have plummeted. MTV averaged just 743,000 nightly viewers in November, a dropoff of 39 percent versus the same time a year ago. Even women are starting to flee from the home of such targeted fare as The Hills; according to Nielsen ratings data, MTV averaged 264,000 women 18-34 in November, representing a loss of 37 percent of that particular segment versus the year-ago period.
VH1 has also been in decline, losing 10 percent of its prime-time audience last month.
The ratings slump and the global economic implosion has had a damping effect on the ad business. Viacom’s domestic ad sales fell 3 percent in the third quarter of 2008, as MTVN saw pullback in categories such as automotive, beverages and videogames. Global ad sales fell 2 percent to $1.16 billion.
Viacom also faces a credit crunch, as its controlling shareholder, Sumner Redstone, looks to find a way out of a $1.6 billion debt at his privately-held National Amusements Inc. In October, Redstone was obligated to sell $233 million worth of non-voting shares in Viacom and CBS Corp. in order to raise money to comply with NAI’s debt covenants.
Shares of Viacom in early-afternoon trading Thursday slipped 10 cents to $15.91. Since the year began, Viacom’s stock has declined 63 percent.