Blockbuster profits
Vid rental chain sees 19 percent revenue uptick
Redstone acknowledged, however, that Blockbuster's profit growth would not be as spectacular because the vid giant was spending money to exploit its increased market share.
"It is true that we could have brought more to the bottom line in the third quarter than we have," Redstone told an investment conference in Gotham.
He gave no details of what Blockbuster's profit growth would be, however, and a Viacom spokeswoman later declined to elaborate on his remarks. Viacom stock fell 6¢ to $56.37 Wednesday in an extremely volatile day on Wall Street.
Last week several Wall Street analysts revised down their third-quarter projections for the entertainment conglom partly because Blockbuster is spending more on marketing than previously expected.
Cash flow expectations
Merrill Lynch analyst Jessica Reif Cohen, for example, now expects Blockbuster to increase cash flow (earnings before interest, taxes, depreciation and amortization) 18% to $170 million, compared with her earlier forecast of $210 million, on 17% higher revenue.
Blockbuster appears to be particularly strong in rental revenues, which rose 18% in the third quarter (adjusted for new store openings), compared with 13% growth in the second quarter and a 2% decline in last year's third quarter, Redstone said.
Redstone was clearly feeling vindicated in his speech to the conference, (which was made available to the press later), opening his remarks by declaring that Viacom was "delivering on the promise" of financial restructuring.
"Never have every one of our businesses been so vibrant and growing so strongly," Redstone added, noting how well Paramount, MTV and Showtime were all doing this year.
Blockbuster, which last year was a disaster, "is a huge success story" for Viacom, Redstone said. Revenue-sharing deals with Hollywood studios, which have allowed the vid chain to dramatically increase its inventory of popular titles, now accounts for 90% of Blockbuster's rental business, up from 25% in the first quarter.
Last week's earnings forecast revisions sent Viacom's stock down 10% in one day but Redstone said Blockbuster was "not about to give up a long-term strategic objective (of increasing market share) to add another $10 million or $20 million to the bottom line in a given quarter."
Redstone hinted that Viacom continues to plan the sale of a minority stake in Blockbuster early next year, to be followed later by a spinoff of the rest. He noted that Viacom had already cut its debt in half to $4 billion and "it is quite possible that we will halve it again -- a goal facilitated by a potential Blockbuster transaction."
"With interest costs diminished, by the year 2000 we would expect to be producing free cash flow of between $1 billion and $1.5 billion annually," Redstone added, compared with $200 million to $300 million in free cash flow in 1997.
Redstone also promised the investors that Viacom would "never again lever the company as we did for the acquisition of Paramount," when the company took on several billion dollars in extra debt.
