Viacom vigorous
Par, Blockbuster pump Q3 profits
The improvements at Paramount and Blockbuster, as well as higher profits from the MTV Networks group, underlined Viacom chairman Sumner Redstone's statement to Wall Street analysts that a turnaround begun at the entertainment conglom last year "is real, substantial and will be sustained."
Viacom's performance in the quarter ending Sept. 30 beat Wall Street analyst expectations, but profit-taking by investors sent Viacom's stock price down 75¢ by the close of trading Wednesday to $62.75. Nevertheless, Lehman Bros. analyst Larry Petrella said the quarter "blew everybody away in terms of the total number."
Analysts had underestimated the size of the growth at the entertainment groups Paramount and Spelling, where cash flow (earnings before interest, taxes, depreciation and amortization) increased 78% to $183.6 million.
Excluding Spelling, Paramount increased cash flow 44% to $148.6 million on 22% higher revenue of $992.7 million, as a result of profits on "Deep Impact," "The Truman Show" and homevideo on "Titanic," while "Saving Private Ryan" will show up in Viacom's fourth quarter, the company said.
Merrill Lynch analyst Jessica Reif Cohen said "Titanic" would likely inflate Paramount's earnings for the next two years as revenues from various distribution windows come in.
Viacom is near the end of a long program of asset sales, which Redstone said could reduce the company's debt to $2 billion over the next 12 months. Viacom was "on track for an initial public offering of Blockbuster" early in 1999, in which 10%-20% of the vid chain would be sold as a prelude to a complete sale in the fourth quarter.
Meanwhile, the $4.6 billion sale of Simon & Schuster is due to be completed in the fourth quarter and Redstone told reporters the only other remaining asset that was "disposable" was the company's 80% stake in Spelling Entertainment, which Viacom tried unsuccessfully to sell in 1995.
Spelling jumbled
Since then, Spelling has been radically restructured, with its Virgin Interactive division sold and its film business shuttered. While the company is doing better, reporting sharply narrowed losses Wednesday (story, page 4), Redstone said its businesses duplicated those of Paramount and "ultimately my guess is Spelling will be sold."
In a meeting with reporters, Entertainment Group CEO Jonathan Dolgen played down the impact of the tug-of- war now going on between studios and the networks over series development costs and demands by webs such as NBC for ownership or prenegotiated license fees.
Dolgen said the current negotiations were part of the usual "push and pull between supplier and customer ... at the end of the day we are going to end up in a position that will be comfortable for both that has to make some economic sense."
Also driving the strong quarterly result was Blockbuster, which in the past year has been coming out of a long slump under a new management team led by former Pizza Hut CEO John Antioco and a new strategy centered on revenue-sharing deals with the Hollywood studios.
In the quarter, Blockbuster Video's cash flow rose 22% to $138 million on 21% higher revenue of $984.6 million. As previously disclosed, video rental revenues adjusted for new store openings rose 18% in the quarter, Redstone said.
Cablers add to growth
Also strong was MTV Networks, including Viacom's basic cable networks such as Nickelodeon, which increased cash flow 18% to $207 million on 19% higher revenue of $478.3 million.
Redstone said MTV's improvement reflected a 20% increase in ad sales and 9% growth in affiliate fees. He noted that MTV was coming out of its ratings slump and that Nickelodeon was not feeling any effects from the increase in competition from cable outlets like Fox Family Channel.
Showtime, Viacom's premium movie channel, increased cash flow by 12% to $31.3 million on marginally higher revenue of $182 million. Showtime's subscriber base grew 1.2 million, coming mainly from satellite TV services.
The one business to suffer a slump was Paramount Stations Group, whose cash flow fell 7% to $31.5 million on fractionally lower revenue of $94.6 million. Most of the stations in the group are now affiliates of Viacom's half-owned UPN network, whose ratings are down sharply so far in the new season.
Redstone said the key to UPN's future was its programming, which is being revamped by the weblet's relatively new CEO, Dean Valentine. "The name of the game is improving the quality of the programming," Redstone noted, adding that Viacom had great confidence in Valentine.
"We certainly have issues left to resolve and we are going to work on them," said Dolgen.
Viacom's publishing operation, most of which is due to be sold to Pearson later in the year, saw cash flow fall 4% to $221.1 million on 3% higher revenue of $887 million.
The consumer publishing division increased revenues to $157 million, helped by "The Starr Report," the company said.
