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Viacom Q1 Earnings Soar, Issues Rosy Forecast

Viacom said its cable networks and Paramount Pictures delivered robust results for the first quarter, powering a 33% increase in net earnings.

Net earnings soared to $270 million, or 42 cents per diluted share, from $203 million (29 cents) a year ago. Viacom revenue grew a healthy 15% to $3.117 billion. Adjusted operating income rose 14% -- a barometer of core profitability because it excludes one-time restructuring charges. Earnings came in slightly higher than the already-rosy expectations of stock analysts.

Viacom also provided an earnings forecast of low-double-digit annual growth in adjusted diluted earnings per share from continuing operations for 2008-10, which comes from a base of $2.36 per share in 2007. Most other media companies only look out one year, not three.

The robust earnings indicated that the cable-TV-network and movie-studio conglomerate is not visibly suffering any ill effect from the weak economy and got its mojo back after the Internet siphoned off the youth audience from its MTV profit machine with unexpected speed.

The past travails at Viacom cable networks triggered a corporate executive shuffle in late 2006 and an aggressive expansion of cable programs to new-media platforms.

“Our ongoing investments in programming are paying off as we see our television rates [at MTV and other cable networks] continue to improve,” Viacom president and CEO Philippe Dauman said in the first-quarter earnings statement. “Audiences are also responding to our digital content, which is moving beyond our own branded sites through smart distribution deals with leading online and mobile partners.” Its Nickelodeon kids’ channel is preparing “to add approximately 1,600 new online games to its growing portfolio.”

In the cable-networks media segment, revenue rose 16% to $2.02 billion, carried by sales of music video game Rock Band. Media-segment operating income advanced 15% to $694 million. Besides the MTV Networks family and Nickelodeon, its cable-network business also includes BET Networks, Comedy Central and Spike TV.

Viacom executives said the company's cable networks are feasting on strong national advertising in the scatter market, which is in line with solid sales at national-cable-network competitors. The company added that the strong ad demand has continued into this quarter so far.

Filmed-entertainment-segment revenue climbed 12% to $1.15 billion, although that only enabled it to narrow its operating loss to $63 million (improved from red ink of $108 million a year ago). “Higher revenues were partially offset by a 7% increase in expenses, largely related to feature-film amortization,” Viacom said. Within filmed entertainment, home-video revenue soared 22%, which included a nonrecurring $29 million fee recognized in connection with a video exclusivity agreement.

Viacom executives also shed additional light on Paramount Pictures’ participation in a start-up premium pay movie channel joint venture with Metro-Goldwyn-Mayer and Lionsgate, as their output deals with Showtime lapse. Viacom/Paramount’s total investment in the venture will be under $100 million and it will be the lead partner, although its equity ownership will be less than one-half. A search is ongoing for an additional partner.

Dauman emphasized that the yet-to-be-named movie service will “reinvent” the premium pay window via cross-platform exploitation of films, unlike other premium pay movie deals that have restrictions at the behest of cable-channel buyers.

Also, Paramount’s investment in production of theatrical films is front-loaded in the first half of this year because movies are scheduled to wrap production prior to June 30. That’s when a Screen Actors Guild contract expires and Hollywood faces labor disruptions.

In the quarter, Viacom bought back $414 million in its stock and has $2 billion authorized for further purchases.