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Karmazin Blames Sales For Poor Radio Results

Radio sales people at Viacom's Infinity Broadcasting will be seeing a lot more of the big boss in the coming weeks, and he won't be there to hand out bonuses for a job well done.

The radio division was Viacom's one downer in the first quarter, when just about every other unit at the company turned in both revenue and cash-flow increases over first quarter 2002. Radio revenues were down 2% to $443 million for the quarter while cash flow was flat at $197.5 million.

Viacom President Mel Karmazin expressed his displeasure with the radio division, which is headed by John Sykes, during a conference call with analysts and investors last week. "It really is disappointing," he said, stressing that he blames the unit's sales effort and not external factors like the economy or the war in Iraq.

Throughout the '80s, Karmazin was CEO of Infinity and the chief architect of its emergence as a major radio group.

Wall Street liked the rest of Viacom's first-quarter performance. Last Tuesday, when Viacom issued its results, company stock shot up $2.43 to $43.30, a 6% jump.

The reason, probably, was that every operating division besides radio showed a revenue gain for the quarter, including cable (up 13% to almost $1.2 billion) and broadcast TV (up 4% to almost $2 billion). Operating cash flow at the cable networks was up 19% to $480 million while broadcast-TV cash flow rose 13% to $280 million.

TV-station sales increased 15%; that includes KCAL-TV Los Angeles, which wasn't in the group a year ago. Same-station revenues were up about 5%.

As for radio, "we need to take a look at the way we're structured," Karmazin said. "There is nothing fundamentally wrong with radio. It is a fabulous business. It's not like anyone believes that satellite radio or any other technology is taking any advertising from us."

Indeed, he stressed that the advertising business is "very strong," as evidenced by results at the company's broadcast-TV and cable divisions. As for radio, he said, "there is no reason other than reasons related to our sales organization why our revenues were not higher."

Karmazin said that, if every radio sales person had sold 8% more advertising in the quarter than in first quarter 2002, radio sales would be up 8%. "My first meeting after this one is a meeting with the New York radio group."

He wasn't just critical of Infinity's sales effort. At one point, he said, "I think that the radio industry has done a horrible job in providing leadership in selling advertising."

Karmazin said he'll make whatever changes are needed. "What will change? Whatever has to change in order for us to get on track" again. Forget about the dotcom boom and bust, he said. "We need to get back to that normal radio performance that went through the four recessions and through the Gulf War. Any things that need to be done to get us back there will be done."

Last month, Karmazin renewed his employment contract with Viacom through May 5, 2006. In an SEC filing last week, the company said Karmazin will continue to receive a $1 million base salary, with a first-year "target bonus" of $6.7 million. His target bonus will increase each year by at least 10%.