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Updated: Viacom Q4 Profit Drops 69 Percent

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Viacom on Thursday announced that its fourth-quarter profit fell 69 percent on $454 million in restructuring charges, as a compromised advertising market and expenses related to layoffs took a bite out of the media conglomerate’s bottom line.

Net income dropped to $173 million, or 28 cents a share, from $595.5 million, or 86 cents a share, in the year-ago period. Excluding some items, profit was 76 cents a share, down from 84 cents––a penny shy of consensus estimates.

At the media networks division––the unit that houses Viacom’s stable of cable channels like MTV, Comedy Central and Nickelodeon––operating income fell 44 percent to $509 million, down from $916 million in the fourth quarter of 2007. The drop included $389 million in charges related to programming write-offs and other restructuring charges.

The media networks group posted revenues of $2.48 billion, up 1 percent versus $2.45 billion a year ago, on a 12 percent increase in worldwide affiliate revenues ($667 million). While the recession has made short work of the ad market, the media nets posted only a slight drop, taking in $1.35 billion in sales, a year-over-year decline of 3 percent.

“Our fourth quarter results reflect the realities of a challenging economy,” said Viacom president and CEO Philippe Dauman. “The broad marketplace conditions weighed on our advertising, home entertainment and consumer products businesses.”

Dauman added that the December restructuring, which eliminated 850 jobs (or 7 percent of its workforce), helped Viacom prevent a free-fall. “We acted early and decisively to prepare for the rapid decline in economic conditions,” he said. “Without sacrificing the creation of great content, we aggressively managed our cost structure, which significantly boosted cash flow and further strengthened our balance sheet. ... While it is difficult to know how long these conditions will persist, our actions have positioned us very well to seize the opportunities that will arise as the economy recovers.”

While Dauman talked up ratings improvement in 2009, asserting that “trends at several of [the] core networks are improving as new programming gains traction,” the performance at the franchise nets took a toll on ad sales. MTV continued to struggle in the fourth quarter, as prime-time viewership fell 30 percent versus the same time a year ago, while VH1 was also down, averaging 752,000 viewers each night, a drop of 14 percent.

January showed some improvement, as MTV declined 12 percent versus the first month of 2008. In the same period, VH1 was off 9 percent.

That said, a number of other high-profile MTV Networks properties have fared particularly well of late. Comedy Central enjoyed a strong fourth quarter, increasing its prime-time viewership by 15 percent to 1.2 million, per Nielsen ratings data. Nickelodeon also remains a powerhouse, beating all comers in total-day with 2.23 million viewers, a 4 percent improvement versus a year ago.

Viacom saw domestic ad sales figures decline 3 percent, a downward trend that Dauman expects will continue to color Q1 ‘09 results. “It’s clear that while we are in a more favorable media segment than most, advertising is likely to get worse before it gets better,” he said.

In November, during the company’s third-quarter earnings call, Dauman noted that upfront commitments accounted for 70 percent of MTVN’s overall ad revenue. With pullbacks affecting 12 percent of that business, MTVN has been working to offset the dollar drain with attractive pricing and package deals.

“Some of the people that are canceling are just taking a portion off the table, some are taking more,” said Viacom chief financial officer Thomas Dooley, who added that many clients who have exercised Q2 options have returned to buy scatter inventory, the pricing of which “has held up pretty well, especially the closer to air time that you get.”

Dooley noted that some clients have become emboldened by their competitors’ reduced ad spend. “The more aggressive advertisers are actually coming to the table and putting more money into the pot,” Dooley said. “They can really go after market share during this environment when they see their competitors pull out.  It’s a very interesting environment right now in the advertising world and people with strong capitalizations will take advantage of it.”