Viacom vigorous in quarter
10% rise in revs better than expected
That loss compared with a $14 million loss in the year-earlier quarter and was nearly $2 million smaller than analysts had been expecting as recently as last week, when Viacom announced a major write-off for its Blockbuster video-rental chain.
All-important cash flow -- or earnings before interest, taxes, depreciation and amortization -- jumped 23% to $393 million once the Blockbuster write-off and Viacom's slated-to-be-sold publishing units were excluded.
However, with the $437 million Blockbuster charge announced last week, Viacom's net loss from continuing operations for the quarter ended June 30 was $281 million, compared with a loss of $217 million in the year-earlier period.
Mark Todtfeld, entertainment analyst at NationsBanc Montgomery Securities, summed up the performance as "strong."
The analyst was particularly impressed with MTV Networks, which turned in a "remarkably solid" performance, capped by a 25% climb in revenues. Of MTV Networks' $416 million in revenues, $147 million was kept as cash flow, representing a 16% increase.
Elsewhere in Viacom's networks and broadcasting division, which grew revenues 15% to $721 million, Showtime Networks turned in a respectable performance, while Paramount Stations Group saw its cash flow fall 12% on fairly flat sales.
The stations group's mediocre performance was attributed to changes in the station mix to establish stronger UPN affiliates.
Meanwhile, Viacom's entertainment division, which includes Paramount Pictures and 80% of Spelling Entertainment, saw sales rise 7% to $922 million and cash flow increase 16% to $110 million.
The company attributed the entertainment gains to box office hits "Deep Impact" and "The Truman Show," both released during the quarter, and to continuing contributions from mega-hit "Titanic" and the TV production of "Frazier."
That the division's sales gain was only single digit reflects a year-earlier base figure pumped up by the stunning success of "Frazier."
Analyst Todtfeld noted that "Titanic" will buoy Viacom's entertainment figures yet again when it returns in September as a video.
Paramount shares the movie's domestic box office with News Corp.'s 20th Century Fox, although the video is coming out on the Paramount label. As such, its release is also expected to spur sales as a Blockbuster rental, allowing Viacom, a spokesman said, to "get it both ways."
Viacom CEO Sumner Redstone noted that, operational highlights aside, the company further benefited from the sale of the non-consumer publishing businesses of its Simon & Schuster unit.
The sale for $4.6 billion, Redstone said, "will enable us to dramatically reduce our overall debt, giving Viacom one of the strongest balance sheets in the media industry."
As for Viacom's video and music/parks division, which houses the remodeled Blockbuster, revenues gained 12% to $1.16 billion. And, excluding the charge of $437 million, Blockbuster's cash flow jumped 67% to $77 million.
As Viacom explained last week, the one-time charge didn't reflect a business downturn, but rather a revaluation of inventory.
Viacom's video-rental division used to purchase tapes for a fixed price and amortize them (or write them off) over a period of up to 36 months.
More recently, however, it has entered into revenue-sharing programs with the Hollywood studios, which require only nominal upfront payments for Blockbuster to secure its videos.
These payments are not only smaller than they were before, but amortized over three months instead of three years.
Viacom likes revenue-sharing so much it plans to purchase approximately 90% of its rental units in the second half of 1998 under such arrangements.
All but a fraction of the $437 million charge represents an adjustment to the carrying value of rental tapes due to this new method of accounting.
Redstone, in revisiting the one-time charge Wednesday, repeated for investors some reassuring measures of Blockbuster's underlying performance.
"The availability of more new-release tapes made possible by revenue-sharing agreements with Hollywood studios," he said, "led to a 13.3% increase in Blockbuster's worldwide same-store rental revenues, a 16% rise in domestic same-store rental transactions and a 12% increase in total revenues."
