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Viacom Hit Hard by Economic Downturn

CNBC.com

It was a tough quarter for Viacom which struggled the economy, namely the weak ad market and lower video game sales of its "Rock Band" game.

Plus, Sumner Redstone's media giant had fewer movie releases and tough comps with last year.

It all added up to a 32 percent drop in profits and a 14 percent drop in revenue to $3.3 billion, disappointing analyst expectations.

The film entertainment division saw 22 percent decline in revenue, while home entertainment, suffering the industry-wide decline in DVD sales, fell 29 percent. The usually-strong cable division also suffered: the media networks advertising revenue declined 8 percent in the quarter, down 10 percent year to date.

Philippe Dauman and Sumner Redstone of course emphasized the positive: when the economy does turn around, Viacom will be well positioned to take advantage of the upside. One ray of hope: US advertising increased from the first to the second quarter of the year. MTV has been able to slowly increase ratings, but still has a ways to go in terms of growing viewership. I still wonder why MTV didn't create MySpace or iTunes . It missed the boat in two areas it was poised to succeed -- social networking and music sales -- and now is trying to hold onto that core teen, 20-something audience.

The good news at the studio is a bit more muddled. Viacom points to the fact that the studio only released 5 movies this quarter compared to eight in the year-ago quarter, as a reason for the division's earnings shortfall. But two of those films last year, Son of Rambow and The Foot Fist Way (ever heard of them?) were such small releases they wouldn't have had much of an impact on last year's numbers. Dauman and Redstone rightfully bragged that Transformers 2 and Star Trek were two of the top three performing films of the year. But Dauman admitted that "consumers appetite for DVDs is showing fatigue." Translation: the DVD business, the studios bread and butter, is dying a slow death. And while Dauman talked about the fact that over a billion videos were streamed in the US in the second quarter, that digital revenue can't yet compensate for the decline in DVD sales.

Sumner Redstone is certainly in the spotlight today; he's awaiting offers for National Amusements U.S. theaters today. He said on the earnings call that the theaters have attracted "substantial interest... We are extremely pleased with the progress we are making, and I must say, we are extremely pleased with our relationship with our banks." Whether or not Redstone is pleased, investors are waiting to hear some hard numbers. The question is whether the theater sales can generate the cash to allow Redstone to cover a $500 million debt call he faces in October. This is of course quite relevant to CBS and Viacom shareholders, because a shortfall could force Redstone to sell CBS and Viacom stock.

After the bell today DreamWorks Animation reports earnings and tomorrow morning Time Warner and IAC Interactive report. I"ll be reporting on, and blogging about what the reports say about the economic recovery and what they mean for the industry.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.