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Viacom's Earnings: CEO Dauman on Cable Channel Growth

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CNBC.com

Strong performance at Viacom's cable networks and a 13 percent drop in operating costs helped the media giant beat Wall Street expectations.

Earnings grew 38 percent, rising to 40 cents a share up from 29 cents a year earlier. Revenue disappointed, dropping over 4 percent to $2.79 billion.

Viacom can thank "Jersey Shore" and the other hit shows on its cable networks for driving the company's growth. The networks division which includes Viacom's cable portfolio (MTV, Nickelodeon, BET, Spike) posted a 3.9 percent increase in revenue. This is partly due to a turnaround in the ad market -- global ad revenues were up 3 percent, domestic ad revenues grew 1 percent. CEO Philippe Dauman told me in an interview after the company's earnings call that the ad market is "getting stronger by the day," and the company expects better pricing at the Upfronts next month, and expects that ad sales period to wrap up faster than last year.

Cable's other revenue stream -- subscription fees -- has been growing fast. Worldwide affiliate revenues grew 9 percent in the quarter, largely due to higher rates. Higher ratings at MTV, which had foundered for years, should help in negotiating higher rates. Dauman tells me the company expects to see high single digit to low double-digit growth of affiliate fees in the next few years. Dauman didn't say whether he'd be willing to engage in the kind of stand-offs we've seen recently between content and distribution companies. But higher ratings certainly provide Viacom with more leverage in negotiations.

Paramount dragged on results -- the filmed entertainment division reported an 18 percent drop in revenues, thanks largely to a 34 percent decline in home entertainment revenues. Declining DVD sales has been a problem across the movie industry, but Viacom's challenges were compacted by some tough comparisons to a big quarter a year ago. Dauman defended lower revenue at the movie studio, saying it's a reflection of a strategy to have fewer releases, and it's all part of the plan.

Dauman says the board is working to figure out how to best return money to shareholders. He wouldn't say whether the company's going to do a share repurchase plan or issue a dividend, but we should get an answer in the second half of the year, when the company issues the bulk of its free cash flow.

Watch here my full interview with CEO Daumanimmediately following Viacom's conference call.

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