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Viacom's Earnings: Spotlight Is On Cable

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CNBC.com

Viacom reports earnings after the bell, and Wall Street analysts are expecting profits of 58 cents per share on revenue of $3.52 billion.

The real spotlight is on the performance of the company's cable networks, including MTV, Nickelodeon, VH1, and Comedy Central.

The big question: in this economic environment can cable ad sales hold up? Pressure is on: In May, Viacom CEO Philippe Dauman lowered the company's second quarter cable ad growth forecast to between three and four percent from its previous projection of seven percent. Cutting its ad forecast in half is a fairly dramatic move, a testament to the fact that the weakness in local advertising has now spilled over into the national advertising market.

But we're sure to hear plenty of optimism about the cable networks on the post-earnings conference call this afternoon. For one thing, its cable networks including MTV and Comedy Central have decided to start airing political advertising for the first time ever. We won't see a boost this quarter, but it is promising for the rest of the year. Viacom is also putting a big push behind its Nickelodeon brand, revamping the 29-year-old network to appeal more to its original viewers, many of whom have kids of their own. The channel is also launching more original programming. Just this week Nickelodeon bought a new animated series produced by Michael Eisner, which it'll debut next year.

What about the strength of Viacom's Paramount Pictures? Paramount has had a stellar year between "Indiana Jones and the Kingdom of the Crystal Skull," which brought in $744 million at the worldwide box office and Marvel's "Iron Man," which it distributed. Paramount may have the top studio marketshare so far this year, with 19 percent of the box office. But that's not going to help the studio's parent company this quarter. Because these blockbusters require such a significant upfront investment in marketing, the real profits won't start flowing in for another quarter at least.

And then there are all the problems Paramount faces. For one thing, it could lose creative powerhouse Steven Spielberg when his contract with Paramount's DreamWorks studio expires later this year. And then there are all the challenges the movie industry faces, from piracy, to transitioning to a model of digital distribution. That said, the studio is holding up relatively well. Lehman Brothers analyst Anthony DiClemente has raised a lot of these concerns, so we'll see what kind of questions he and the other Wall Street analysts pose on the conference call.

And then there's Rock Band, Viacom's successful video game franchise. The game is going to launch in Asia and Europe later this year, so you can bet Dauman and others will point to it as a source of strength. We can expect Viacom to invest more in this space, and try to generate synergies with its MTV properties. I'll be listening hard for talk of more digital strategies, always a hot topic among media giants these days.

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