Pics revive Viacom revs

Paramount profits rise before conglom split

By JILL GOLDSMITH, STEVEN ZEITCHIK

Freston

Moonves

A revamped Par fired up Viacom as studio profits surged last quarter on a combo of higher theatrical, domestic homevideo and worldwide pay TV.

And, as media giants including Time Warner pursue belt-tightening, Viacom chief financial officer Mike Dolan said the company is finalizing an overhead study aimed at cost cutting across the board, at corporate and division by division.

Cuts were spurred in large part by the upcoming split, which will create two smaller companies instead of one $23 billion behemoth.

At Paramount, income surged to $110 million in the September quarter from a meager $5 million the year before. Revenue jumped 54% to $845 million. Company cited continuing theatrical contributions from "War of the Worlds" (co-produced with DreamWorks), "Four Brothers" and DVD sales of "The Longest Yard" and "Sahara."

Viacom's total revenue rose 10% to $5.9 billion. Net income jumped to $705 million from a loss of $488 million -- the year-earlier quarter was slammed by a $1.5 billion charge at Blockbuster, which Viacom has since spun off. Income from continuing operations rose 2% to $735 million.

Co-chief operating officer Tom Freston said the studio -- which was considered lackluster and cash-starved under the previous regime -- is "back on track" in its "reinvention" led by Brad Grey, a slew of new hires and a "multi-label" strategy. He touted upcoming pics "Mission: Impossible III" this spring, Oliver Stone's untitled World Trade Center project, CGI-animated "Barnyard," Dakota Fanning starrer "Charlotte's Web" and Jack Black's "Nacho Libre."

Ironically, Par's strong perf last quarter is due in large part to pics launched by the previous regime, led by Sherry Lansing and Donald De Line, who both exited earlier this year.

Freston acknowledged during a conference call that "turning around a studio takes a bit of time" and said the company is going about it slowly, releasing 12-14 movies over the next year. "We're hesitant to increase the size of the slate, to put out movies for the sake of it."

He also seemed to be preparing investors for a slow start to 2006, saying the slate would be "backloaded" to the last three quarters.

DVD continues to be huge for Paramount, contributing 60% of its revenue, up 29% year-to-date.

"We were really late to the party," Freston said, so Par's numbers are likely to keep soaring even as growth tapers off for some of its rivals. He said just under half of Par's film library and about 85% of its TV library have not been released. And the studio's spending a lot of time and money ahead of the new high-definition DVD format that many expect will breathe new life into the sector starting in '07.

Freston soon will be running the so-called new Viacom after the Sumner Redstone-owned conglom splits in half by year-end. His portfolio of film and cable networks has been dubbed the "growth" company.

Co-chief operating officer Leslie Moonves will take over an independent CBS Corp. with broadcast TV, radio and outdoor advertising.

The two parts have been operating separately since July as they await the formal transition into independent publicly traded companies, unraveling the 6-year-old Viacom-CBS merger.

"In a few months, we won't be partners, but we'll still be friends," Moonves said.

"These guys are ready to rock," Redstone cheered.

Redstone had hoped the split would energize Viacom's sagging stock, although it hasn't yet.

"We know the split is not the silver bullet that will ensure Viacom's success," Freston said. "We know we need to meet both our financial and strategic promises" to win Wall Street's confidence.

"I'm looking forward to seeing you on the road show in December," he added, referring to an upcoming series of meetings with investors to tout the new companies before they hit the market.

Cable networks led by MTV saw revenue up 15% to $1.7 billion on a 17% hike in ad sales. Affiliate fees rose 10%. German music net Viva contributed $11 million to revenue. Nets include Nickelodeon, Nick at Nite, VH1, TVLand, Spike TV, CMT, Comedy Central, Logo and BET.

Cable operating income rose 11% to $682 million.

At CBS, television revenue fell 2% to $2.2 billion as a 7% boost in ad sales at CBS and UPN was overshadowed by a hefty 25% drop in syndication revenue. Fewer titles were available for initial syndication vs. the prior year's third quarter, which included "CSI: Crime Scene Investigation" and "Girlfriends."

TV income fell 19% to $376 million.

Affiliate fees at Showtime Network, the one cable net that's remained on CBS' side of the aisle, rose 6%.

Moonves didn't discount speculation that CBS was interested in buying cabler College Sports Network. He called cable a great business, and said he'd look at any network that fits with CBS' other assets. But "I don't see us competing with the other side of the family, buying a music network or a kids network," he said.

"We are the value company, and that will continue to be a goal of ours. We are not looking for major investments," he added.

Freston's company likely will be the one doing the big deals. Paramount recently eyed an acquisition of DreamWorks, but had to drop out while Viacom completed the split.

Moonves called Sean McManus -- the CBS Sports head who was just given the additional title of CBS News chief -- "a fierce competitor who is never satisfied with being in third place. ... He has taken CBS Sports to the No. 1 spot in its field, which is exactly where we know CBS News can be."

In radio, Infinity Broadcasting revenue rose 2% to $542 million. Income nosed up 1% to $225 million. The station group is about to lose one of its biggest revenue generators when shock jock Howard Stern decamps to Sirius satellite radio in '06. Moonves acknowledged the loss of revenue, but said costs will be down, margins will be up "and that's the name of the game."

"When Howard Stern goes to pay radio, we'll wish him goodbye," he added.

Outdoor advertising revenue firmed 3% to $497 million. Income jumped 14% to $66 million.

Viacom said it took a financial hit of close to $60 million on costs from hurricanes Katrina and Rita, the sale of two TV stations and the upcoming split.