Updated: Viacom Sees 32% Decline in Q2 Profit

Viacom on Tuesday reported a 32 percent decline in second-quarter profit, as an unstable advertising market continued to a erode performance at the conglomerate’s media networks division.For the three-month period ended June 30, Viacom posted net income of $277 million (or 46 cents a share), down from $406 million (or 64 cents a share), in the second quarter of 2008. Total revenue decreased 14 percent to $3.3 billion.The media networks unit, which includes the cable networks MTV, VH1, Comedy Central, Spike TV and Nickelodeon, saw revenue decline 8 percent to $1.97 million, on a 6 percent drop in domestic advertising dollars. Worldwide ad sales fell 8 percent, to $1.07 billion.In the lead-up to Viacom’s Q2 earnings announcement, analysts were expecting some stabilization on the ad sales front. In Q1 ‘09, Viacom’s domestic ad sales haul declined by 9 percent, and most analysts were looking for slight improvement on that score, anticipating a drop of 8 percent. By that measure, Viacom’s sequential improvement of 3 percent suggested that a turning point in the ad sales marketplace may have been reached.As the ad business showed faint signs of life, the second part of the dual-revenue stream helped contain some of the damage, as global affiliate revenue grew 9 percent, to $712 million. Domestic fees increased 12 percent.During the media conglomerate’s Tuesday morning earnings call, president and CEO Philippe Dauman said the MTV Networks have all but wrapped up their respective upfront sales, which if accurate, would put the group ahead of the TV pack. “I am very happy to report we are just about done with our advertising upfront,” Dauman said. “Given current conditions, we are very pleased with the results from both a volume and pricing standpoint.”Short of saying that the upfront was well on its way to completion, Dauman offered little in the way of detail, declining to fill in the blanks on pricing or total dollar volume. (“Out of respect for our ad agency customers, we’ll hold back on specifics.”)Later in the call, Dauman returned to the upfront topic, saying that early fears of a washout had been dispelled as the stock market began to rebound. “I think the feeling on the part of advertisers that perhaps they could extract dramatic reductions in prices because the economy was going to hell in a hand basket, that feeling has dissipated as we see signs of recovery in the general economy,” Dauman said. “So it’s no longer perceived to be a safe bet to assume that they will be able to get favorable pricing in the scatter market in the next broadcast year.”Dauman added that despite the rush of recent business, MTVN experienced “some pressure on volume, as advertisers want to maintain flexibility in how they plan their advertising budgets.” He noted that marketers who had pulled back on 2008-09 upfront commitments had begun coming back in scatter. By way of announcing Viacom’s Q2 performance, Dauman said the company would continue to take an aggressive stance on costs. “We are not hunkering down waiting for the economy to improve or for an easier set of comps,” he said. “Among other things, we have substantially reduced our expenses, and there is more of that to come. We have made changes in key leadership positions in our divisions ... And we are investing prudently in content production, which is the lifeblood of this organization. While Dauman said he saw improvement across the portfolio, in terms of viewership trends, the MTV Networks group was actually a mixed bag in Q2. Flagship net MTV fell 14 percent in prime time, averaging 778,000 total viewers, while its share of viewers 18-34 fell 13 percent to 406,000. Comedy Central declined 9 percent to 973,000 viewers, of which 355,000 were members of the 18-34 demo, representing a year-over-year decline of 16 percent, while Spike TV dropped precipitously, averaging 1.01 million viewers, down 27 percent from Q2 ‘08.Meanwhile, VH1 showed further signs of growth, gaining 11 percent in prime with an average delivery of 774,000 viewers. The network boosted its standing among the 18-34 crowd by 10 percent during the quarter, drawing 326,000 members of the demo in the period. As was the case in the previous quarter, BET continued to skyrocket, averaging 859,000 viewers in prime, an increase of 44 percent, per Nielsen ratings data. Significantly, the quarter marked the first time that BET out-delivered its sibling music nets in prime.In total-day, Nickelodeon retained the crown, averaging 2.15 million viewers in the quarter, off just 2 percent versus the year-ago period.Viacom indicated that it had not paid off any outstanding debt in the quarter, as that figure remained at the same level as it was at the close of the first three months of 2009 ($7.37 billion). At the same time, the company's cash balance dropped to $250 million, from $259 million, a sequential drop of 4 percent.In a prelude to Tuesday’s earnings call, executive chairman Sumner Redstone indicated that he continued to have faith in Dauman, assuring investors that they can “certainly count on Philippe and the entire Viacom team to stay focused ... and make sure we are in a great position to benefit when the economy recovers.”Shares of Viacom dipped 2.1 percent, or 51 cents, in late-afternoon trading, to $23.74.

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Updated: Viacom Sees 32% Decline in Q2 Profit

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