Viacom's second quarter results beat Wall Street estimates-- coming in at 64 cents per share (for earnings from continuing operations) on revenue of $3.86 billion, compared to Thomson's projected earnings of 58 cents a share on $3.55 billion in revenue.
The strength was driven by a 35 percent year over year revenue increase at the company's movie studios, Paramount Pictures and DreamWorks SKG, bolstered by "Iron Man", "Indiana Jones and the Kingdom of the Crystal Skull," as well as distribution of DreamWorksAnimation's "Kung Fu Panda."
The company reconfirmed its expectations for net earnings from continuing operations to show low double digit percentage growth through 2010.
But net income was down to $407 from $434 million in the year-earlier period, and Viacom's advertising results raise a lot of concerns on Wall Street, not just about Viacom, but also about the whole media industry. The company reported that domestic ad growth was just 1 percent and the outlook is "difficult to predict."
This comes after in May Viacom cut its growth projection to 3 percent to four percent from its original forecast of 7 percent. This slowdown in cable TV advertising doesn't bode well for Viacom or the other media giants' cable networks. And Viacom's key networks, like MTV were hit hard as retail, car, and consumer good categories pulled back their TV commercial buys. CEO Philippe Dauman also mentioned that lower ratings contributed to the softness, while at the same time reassuring that ratings should get a boost from upcoming events and show relaunches.
What happened to cable's remarkable strength? Well it seems that the weakness that hit local advertising is now hitting national advertising, and hard. And while cable has benefited from an ongoing shift of viewers from network to cable broadcasts, Viacom may benefit less than other companies; its older viewers who are making that shift while many of Viacom's networks target young people. To that end, Viacom's going to try to expand its demographic reach to include an older audience with more targeted programming on TV Land and Spike TV.
Video game franchise Rock Band continues to be strong, and its launch in Europe and Asia overseas should help the company later this year. Does this success indicate Viacom would be interested in more video game acquisitions? Dauman says not now, that they have their hands full expanding the Rock Band brand. But he did point out that Viacom has the top U.S. marketshare in casual games, and could see making some small purchases in that space.
Bottom line, Viacom beat expectations, but the driver Wall Street was looking for- strong cable ad revenues- weren't particularly there. Now investors are bracing for ad numbers from the rest of the media companies.
