MTV Gains Fuel Profit at Viacom

Double-digit gains at its cable networks helped to send
Viacom Inc.'s second-quarter results "sharply" higher, according to the

Leading the pack was MTV Networks, which reported a 22
percent quarterly increase in revenue to $507 million and a 28 percent increase in cash
flow, or earnings before interest, taxes, depreciation and amortization (EBITDA).

MTV: Music Television also reported 20 percent ratings
growth during the period.

In the six-month period, revenue at the cable networks --
which include MTV, VH1, Nickelodeon and a half-interest in Comedy Central -- jumped 20
percent to $1.4 billion, and EBITDA rose 29 percent to $429 million.

Companywide, EBITDA increased 23 percent during the second
quarter to $482 million. Operating income was up 42 percent to $282 million.

For the first half, EBITDA more than doubled to $957
million and operating income rose to $560 million from $48 million a year ago. Revenue
increased 9 percent to $6 billion for the period.

In a conference call with analysts shortly after releasing
the quarterly financials, Viacom chairman Sumner Redstone praised the performance of the
cable networks, particularly MTV.

"The performance of the cable networks continues to
exceed even my expectations," Redstone said. "Let's face it: No one knows
their audience better than MTV Networks, and the results prove it."

Those gains, as well as increases in its publishing and
entertainment division, helped Viacom to outpace last year's same-period net
operating loss of $267 million, or 40 cents per share, with an operating profit of $59
million (8 cents). Analysts had predicted a profit of 5 cents per share.

Blockbuster Inc., Viacom's video-store chain, also
reported improved results.

"Blockbuster is on a roll," Redstone said during
the conference call. "For the quarter, transactions were up, member activity was up
and the lockout rate was down. Customers are going home happier."

Blockbuster has also been expanding aggressively: It added
505 new stores during the quarter, and it now has 6,658 nationwide.

Viacom also priced Blockbuster's initial public
offering, slated for August, at between $16 and $18 per share. The offering will involve
31 million shares of Blockbuster common stock, or roughly 17.7 percent equity. It is
Viacom's intention to eventually divest the Blockbuster division completely.

While Viacom's programming penetration is growing, it
has mostly been in the direct-broadcast satellite arena. However, with the advent of
digital tiers, Viacom sees cable operators as a significant growth engine in the future.

Viacom deputy chairman and executive vice president
Philippe Dauman estimated that about two-thirds of Viacom's programming-revenue
growth was from DBS. But he said there were ample opportunities in cable, especially for
premium channel Showtime.

"As cable operators start rolling out more capacity,
that's a tremendous opportunity for Showtime," Dauman said during the conference

Senior vice president and chief financial officer George
Smith added that special events, such as October's planned Mike Tyson boxing match,
should also spur growth in the number of Showtime subscribers.

While subscriber numbers are expected to grow with special
events and digital multiplexing, Redstone added that Viacom was working hard to keep
programming costs low.

He estimated that 70 percent of the programming on
Viacom's cable networks was produced by its Paramount division or came from an
affiliated library.

Redstone added that the recent affiliation deal with
AT&T Broadband & Internet Services -- the MSO agreed to carry new Viacom networks
Noggin, Nickelodeon Games and Sports and six music channels on digital -- should make
those channels available to 13 million households by the beginning of the year.