04 November 2009

Viacom Up, Sees TV Advertising Demand Rising

from the Wall Street Journal

Viacom Inc. executives said Tuesday that they were seeing increased demand and strong prices for television advertising heading into the holiday season, adding to an up-tempo chorus from media executives after a brutal year in which advertisers have slashed budgets.

The comments came as Viacom reported a 15% increase in second-quarter income, with cost cutting boosting brisk ticket sales for summer blockbuster movies.

Viacom, which owns a suite of cable networks including MTV, Nickelodeon and Comedy Central, saw its U.S. ad revenue decline 4% in the third quarter from the year-earlier period. But that was an improvement from a 6% decline in the third quarter.

"There is demand out there at the moment," Philippe Dauman, Viacom's chief executive, said of the advertising market. He said prices in the fourth quarter for last-minute ads, known as "scatter," are up "double-digit" percentages above ads sold in advance, in what is called the "upfront" market.

But Mr. Dauman added that many commercials remain unsold for the fourth quarter, because both cable and broadcast networks received fewer advance commitments in the upfront season.

"The next several weeks going forward will really tell the tale, as companies in different industries evaluate their own condition," Mr. Dauman added during a conference call to discuss results.

There are some signs that advertisers are spending more money, however, after months of cutting commitments and tightening purse strings. Some cable-TV networks are running out of spots to sell in November and early December, driving prices for last-minute ads well above prices for those sold in advance, ad buyers say.

"Inventory's very tight on some networks, especially in November or early December," said Chris Boothe, president and chief operating officer of Publicis Groupe SA's Starcom USA in an interview.

In part, TV ad spending appears increased because it comes against easier comparisons to last year's historic economic collapse. Increased prices for ads sold close to airdate also face easier comparisons to the lower prices TV networks were forced to accept over the summer in the upfront market. It was the first time since 2001 that many major network groups were forced to take across-the-board rate cuts.

Executives at major advertising holding companies have said recently that it's too early to call an ad recovery. While the tone of conversations with advertisers about the economy is improving, advertisers "generally remain cautious about committing to new marketing expenditures or increasing spending behind existing efforts," Michael I. Roth, chief executive of Interpublic Group of Cos., said last week on a conference call to discuss third-quarter results.

But ad buyers say some advertisers that cut money earlier in the year are putting that money back into the ad market in time for the holidays. Viacom's Mr. Dauman said he sees potential growth in some categories of advertisers, including technology companies and even car manufacturers.

"You see some categories that suffered a lot in the recession, such as automotive, who are coming back in," Mr. Dauman said.

Viacom reported a profit of $463 million, or 76 cents a share, up from $401 million, or 65 cents a share, a year earlier. Excluding a tax benefit as well as an after-tax loss related to paying off debt in the latest quarter, earnings rose to 69 cents a share from 55 cents a share. Analysts polled by Thomson Reuters expected earnings of 57 cents a share on revenue of $3.3 billion.

Revenue dropped 2.7% to $3.32 billion, as Viacom's Paramount movie studio saw revenue decline 6.5% to $1.2 billion. Paramount's results were dragged down by enduring weakness in DVD sales, more than offsetting an 16% increase in world-wide theatrical revenue from big summer blockbusters like "G.I. Joe: The Rise of Cobra."

The home-video picture could improve somewhat in the fourth quarter because of DVD releases of its summer popcorn films, Viacom executives said. "Transformers: Revenge of the Fallen" has sold 8.3 million DVDs since its release on Oct. 20, Mr. Dauman said.

For the last year, Viacom's results have also been dragged down by the poor performance of its flagship MTV cable channel. In the third quarter, viewership in its target audience of people between 12 and 34 years old declined 2.8%, compared with the year-earlier period, according to Nielsen Co. The company has shifted executives and increased the number of programs on the air, helping slow the decline in recent quarters.

"We are continuing to adjust MTV's content mix and schedule, bringing in more original shows, as well as targeted acquisitions that are being used to help lift daytime and afternoon ratings," Mr. Dauman said, adding that MTV will have a "bigger marketing presence" off the channel.

Viacom's new version of the "Rock Band" game, which features songs from the Beatles, helped boost the company's revenue, selling 595,000 copies in September, according to tracking firm NPD Group. Because of the expensive hardware sold with the game, "Rock Band" is a drag on Viacom's profit margin. But Tom Dooley, Viacom's chief financial officer, said the company expects the game to break even or become "slightly profitable" in the fourth quarter, depending on how many copies sell in the holiday period.

"It really depends literally on the next three to six weeks," Mr. Dooley said.

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