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Viacom Reports Higher Net Despite Drop in Revenue

UPDATED: 3:00 p.m. ET

Lower ratings at networks including Nickelodeon and MTV put
a big dent in Viacom's fourth-quarter revenues, but lower selling and
administrative expenses and reduced tax, depreciation and amortization costs
led to a higher net profit in the quarter.

Earlier this week, Viacom's MTV named former CW programming chief Susanne
Daniels as president of entertainment. Over the summer the company shook up
programming leadership at Nickelodeon, where rating have been down by double
digits since last year's first quarter.

On a conference call with analysts, president & CEO
Philippe Dauman said that the company was investing in programming and adding
executive talent in order to boost ratings and reverse the decline in ad

In response to a question from an analyst about whether or not MTV was broken,
he replied, "it is not broke. It is highly successful," pointing to
the high ratings for the premiere of the new series Catfish. "I have no concern about MTV's vitality going

Dauman said Viacom has had its eye on Daniels for a long
time.  "We are very pleased that she has committed to coming with us," he
said, adding that she will bring with her -- and you'll see announcements in
the near future -- some additional talent who will bring to bear more development
in both the reality and scripted areas. So we've got a good pipeline now and
this will only turbo-charge it."

Though some analysts see the ad market turning soft, Dauman
insisted that as far as advertising was concerned, Viacom's networks did not
have a demand problem, but that it needed to increase the supply of ratings
points available to sell to advertisers.

Dauman said that in the current quarter, "we are seeing
pricing up in the mid-teens over the upfront and scatter versus scatter pricing
up in the mid-single-digits year-over-year. Advertiser demand for our content
is there and we are in a position to quickly monetize ratings improvement as it
takes hold."

But Dauman said he expected that in the current quarter, ad
revenues will be down less than in the fourth quarter, but still down year over

"We're still climbing back up. I don't expect that this
quarter we'll see us getting to positive territory, but we'll see improvement.
We are going to strive very hard to get back into positive territory as the
year progresses and continue to improve from there," he said.

As ad revenues have dropped some of Viacom's cable networks
increased their ad load. But Viacom COO Tom
Dooley said that those ad loads have been reduced. 

Dauman also assured analysts that Viacom will buy back the $2.5 billion in
stock it is scheduled to repurchase in 2013. He added that "I continue to not
see any large scale acquisition that makes sense for Viacom. We have a lot to
do in growing organically."

Net earnings rose 13% to $650 million, or $1.27 cents a
share in the fourth quarter, from $576 million or $1.01 a share a year ago.
Adjusted operating income was down 1% to $1.05 billion.

Revenue fell 17% to $3.36 billion in the quarter.

At MTV's Media Networks division, operating income fell 3% to $933 million.
Revenues were down slightly to $2.29 billion. Domestic ad revenue was down 6%
and worldwide ad revenues decreased 7%.

Domestic affiliate revenues increase 12% driven by rate increases and higher
digital revenues. Worldwide affiliate revenues were up 11%.

Viacom's fourth quarter results "were absolutely bad, but
relatively good (versus very low expectations)," said Bernstein Research senior
analyst Todd Juenger in a research note.

Looking ahead toward 2013, Juenger said that Wall Street
consensus expectations seem to include advertising growth. "That does not seem
like a realistic base case to us," he said.

"Any business turnaround requires management changes, and
some have been made," Juenger said. "But at Nickelodeon, changes have not been
made at the very top, and any hopes that Rich Ross may come to the rescue were
dashed when he signed on with News Corp. Mostly there was executive shuffling a
layer or two down, and only one identifiable executive brought in from the outside."

Referring to Daniels, Juenger added that "at MTV, the new
head of programming has a terrific resume for young audiences, albeit with
scripted programming, whereas most of MTV's success has been in unscripted."

"All things considered, while domestic ad declines of 6%
will be the weakest among peers, given ratings trends, we thought they could
have been worse," said John Janedis of UBS.
"While there have been signs of improvement, we think Viacom is carrying a fair
amount of make goods, and the combination of still weak ratings means the
domestic ad growth will trend below peers for the next couple of quarters, in
our view."