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Viacom Beats expectations on Upside from Paramount

Viacom Chairman Sumner Redstone is as confident as ever that "content remains and will always remain king." On the media giant's earnings call he and CEO Philippe Dauman optimistic about the value of content as well as the marketplace, and cautiously optimistic that advertising revenues would recover sequentially from throughout the year. The stock rose in early trading on signs that Viacom's doing a good job of managing costs, which compensated for declining revenues and helped profits.

Excluding one time items — favorable foreign exchange impact and lower interest expenses — Viacom earned $1.09 per share, handily beating analyst expectations. The media giant's earnings were up dramatically from last year's quarter when Viacom took significant restructuring charges. The company's revenue dropped 3.4 percent, which was primarily a factor of lower ad revenues, which dropped 3 percent world-wide and 4 percent domestically.

Though the majority of Viacom's business is its cable networks, its studio provided a healthy boost. Revenues in filmed entertainment fell one percent but its adjusted operating income exploded from $84 m in the year-ago quarter to $298 m this past quarter. Costcutting is working and surprise hits like "Paranormal Activity" had a phenomenal impact. Despite the fact that DVD sales have been struggling industrywide, Paramount's home entertainment division showed a 12 percent increase this past quarter, thanks to strong DVD and Blu-Ray sales of Paramount's blockbusters like "Transformers 2", "Star Trek" and "GI Joe" as well as higher TV fees.

MTV, which has struggled in recent quarters, is in the spotlight as hits like "Jersey Shore" helped bolster ratings. The question is whether MTV, which has dropped the 'music' from its tag line, can turn this kind of one-off hit into a new trend. The fact that ad revenues were down 4 percent both this past quarter and the prior one isn't particularly reassuring. But to give those stats a positive twist, Dauman said that MTV has been able to raise prices as the season progressed, and it's already looking better for this quarter. Rock Band continues to be a real drag on results: the music video game business is weak and is unlikely to get much healthier this year.

So what next?

Like all the other media CEOs we've heard from this past quarter, Dauman placed huge emphasis on digital distribution. While new business models and devices emerge, Viacom says it wants its content to be available on all platforms. As Apple readies to launch its iPad, that push to distribute on all platforms seems more relevant than ever.

We'll see how fast Viacom and its peers can leverage these new platforms to boost their bottom line.

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