Viacom Turns Profit Again

Despite a slowing economy and declining advertising revenues, corporate parent Viacom today announced its first quarterly profit since the company merged with CBS early last year.

Viacom reported a profit of $16.7 million for the quarter that ended on the 31st of June. A year ago, the company still posted a loss of $495.6 million, as the acquisition of CBS led to extra charges. "[Our] results exceeded expectations in a very difficult operating environment," said Viacom President Mel Karmazin. "We continued to outperform the competition and pick up market share in every major segment. [...] In the first half of 2001, Viacom generated more free cash flow than any media company in the world."

The results were a surprise to analysts, who were expecting the company to only barely break even. On Wall Street, Viacom stock rose by more than 7% this morning. Investors were especially encouraged by the company's belief that the advertising market has finally "bottomed out."

"The softness is temporary. I believe things are getting better," Karmazin said. He also noted that the company was happy with its strategy for the upfront ad sales period, when CBS and UPN refused to cut its prices. "We sold 65 percent of the inventory. We would have liked to have sold 80 percent. But the prices that people wanted to pay were not prices that we would accept. We feel really good going into the scatter market with that inventory."

Some bitterness surfaced when Karmazin took a not-so-subtle shot at competing networks such as ABC, NBC and Fox, who did cut prices. He felt that his company's strategy of holding out for higher prices "sure beats what some of our genius competitors did," and said that lowering ad rates was aking to "mortgaging 2002." Karmazin felt sure that the company would be able to sell the extra advertising time during the actual season, as the company believed "in the CBS lineup and in the lineup of UPN as well."

On the topic of UPN, Karmazin indicated Viacom wanted to continue to run the Enterprise network on its own. Earlier this year, after Fox acquired many of UPN's most important local affiliates, talks had been going on between Viacom and Fox over partnering on the network. But Karmazin said these talks had now ended, and the company didn't "need the money" from Fox to keep UPN alive.

Viacom's revenues for this quarter increased by 18% to $5.72 billion. However, if the purchase of the BET cable channel and other acquisitions over the past year hadn't been taken into account, revenues would only have increased by 1%. For the remainder of the year, the company also slightly lowered expectations, saying its free cash flow would only increase by 13% instead of 20%. This was something that analysts had already predicted, noting that even Viacom isn't completely free from the slowing economy and resulting ad slump.

Full details on Viacom's second-quarter results can be found in this Reuters article, while Viacom's own report can be found on its web site.

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