Earnings and Ratings Down, Viacom Declares Victory in DirecTV Spat

Analyst: When will you start firing people?

Viacom chairman Sumner Redstone began Friday's Viacom earnings call by praising company CEO Philippe Dauman for his role in the carriage dispute with DirecTV last month. "Philippe has been a great warrior," Redstone enthused. "The battle he conducted against DirecTV was spectacular. He has the same passion to win that I've always had, and in the long run, he will win."

For his part, Dauman tried to debunk the popular notion that the fight had ended in DirecTV's favor. "The deal that Viacom ultimately signed was materially better than the deal that was on the table when DirecTV made the unfortunate decision to end the negotiations," Dauman said.

The odd-sounding retroactive declaration of victory was one of the few congratulatory moments during the call; earnings for the quarter fell 7 percent (more than expected) and revenues were off by 14 percent. Executives admitted that the trouble was largely a function of lower ad revenues, as well as fewer movies with grosses as high as last year's Transformers: Dark of the Moon and Captain America films. Revenue in Viacom's TV division fell 5 percent to $2.27 billion.

And shareholders should brace themselves for next quarter, too, said COO Thomas Dooley. "Domestic advertising in the September quarter will be affected by the blackout," Dooley said. "This will reduce the advertising growth rate by approximately 150 basis points (1.5 percent) for the quarter."

Still, Dauman and Dooley emphasized the quality of the deal with DirecTV, which also seems pretty happy about the arrangement. Dauman claimed that "we forced a long-term agreement for DirecTV to offer Paramount films on pay-per-view." The effect of the blackout, he continued, artificially worsened a ratings problem at struggling networks like Nickelodeon, where viewership was actually on the mend.

Analyst questions were blunt. One bank representative essentially asked Dauman when he would start firing the people in charge of the flagging networks. Dauman then pointed the finger at the programming folks. "We're obviously very, very focused on ratings issues, and it does go through a cycle," Dauman said. "We have great leaders in the company, and we've made changes in the programming departments across several of our networks."

Another analyst accused Dauman of changing his story on Nick's ratings woes—first ratings were down because of Nielsen, then it was a one-time-thing, now it's cyclical, the analyst said. "If the ratings declines do continue," he asked, "do you think you'll be able to continue repurchasing stock at this rate?"

Dauman reiterated that there was a lot of good stuff on the way at Nick, including 14 new projects announced today. "It doesn't happen in two weeks!" he said.