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Viacom's Big Bath

In a final farewell to former President Mel Karmazin, Viacom took an $18 billion write-off on the value of Infinity Broadcasting Corp., the radio and billboard company he had founded and ultimately sold to the media giant.

Viacom blamed the huge charge against earnings in the fourth quarter to the weak market, acknowledging that they were carried on the its books as worth far more than today's market value.

Viacom was not alone. Clear Channel Communications took a similar $4.9 billion charge against its radio assets. The charges are bookkeeping entries against “goodwill,” or the difference between an asset's purchase price and its book value. Accountants record this as a “write-off.” Revenues and operating cash flow are not affected.

The giant write-offs reflect how unhealthy certain media sectors—notably, radio and billboards—have become over the past three years, and last week's round of earnings reports don't offer many signs of hope.

At Viacom, growth has virtually halted at Infinity's radio stations, and most other divisions are growing by single-digit percentages. The big exception is the cable networks, where revenues jumped 15% during the fourth quarter to $1.9 billion while operating cash flow increased 11% to $761 million. However, cash-flow growth could slow because Viacom has decided to invest in basic cable more heavily.

On the broadcast side, CBS network, station and production revenues increased just 5% to $2.2 billion, but cash flow jumped 19% to $334 million. That's in large part because of unexpectedly strong political-ad sales in the fall.

Viacom Chairman Sumner Redstone, ever the optimist, told investors in a statement: “The vast majority of our content, the network assets, are firing on all cylinders.”


Cable companies posted slightly more upbeat news. When Cablevision Systems posted its earnings for the quarter, the company revealed plans to cut a deal to split up its regional-sports partnership with Fox. The deal gives Cablevision all of the venture's assets in New York, the market where all of the company's cable systems are located. Cablevision gets Madison Square Garden and its accompanying network, Fox Sports New York, and the New York Knicks and Rangers. The cable operator also gets 100% of Fox Sports Chicago and a bigger chunk of Fox Sports New England.

Fox Sports gets 100% of the national Fox Sports Net service, plus regional channels in Ohio and Florida. Fox Sports hopes to accelerate the national channel, possibly by bidding for TV rights to National Football League games that are currently held by ESPN. Analysts say Cablevision is cleaning itself up to be sold given the acrimony between Chairman Chuck Dolan and his son, President Jim Dolan.

For all the corporate mayhem at the company, Cablevision's operating performance was solid during the quarter. Cable-system revenues increased a strong 13.5% to $820 million while cash flow jumped 19% to $325 million. Much of the growth is coming from the successful rollout of telephone service to all of Cablevision's properties over the past 18 months.


At Insight Communications, financial results were strong, but the company did post another drop in basic subscribers. The cable operator's revenues rose 11% to $262.5 million while operating income jumped 14% to $119 million.

Insight is recovering from a brutal 2003 and difficult first half of 2004, so its financial results look good by comparison. The company lost another 12,000 subscribers to DBS rivals, dropping to 1.27 million. That's partly offset by new revenues from high-speed Internet and digital-cable customers, and the company is planning a heavy promotion of new telephone services this year.