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Transitioning into Digital is Viacom's 'No. 1 Priority'

9 Nov, 2006 By: Jessica Wolf

Digital is the watchword at Viacom Inc. That's what new CEO Philippe Dauman said during his first earnings call Nov. 9.

For the third quarter overall, operating income at Viacom decreased 12% to $655 million on a pro forma basis compared to 2005. Net earnings were down 14% to $356.3 million, compared to pro forma 2005. Overall revenue was up 7% year-over year to $2.66 billion, mostly due to a 10% increase in the company's cable network segment from increases in ad sales.

In the company's entertainment segment, which includes Paramount Pictures, Paramount Home Entertainment and DreamWorks, revenue increased 1% to $11.9 million. The slate for this year's third quarter couldn't compete with last year's War of the Worlds contributions in Q3, executives said. The $279.2 million in revenue that distribution of DreamWorks and DreamWorks animation titles brought in this third quarter was almost completely offset by last year's War of the Worlds success.

Dauman and his management team are looking to the future, and that future looks digital, he said.

“Managing the transition of our business from the traditional linear world to one that embraces the digital world is my No. 1 priority,” he said.

That includes looking at increased opportunities for feature film content from the entertainment segment, he said.

Whatever comes in that space, Dauman promised that Viacom will “manage price points to provide incremental revenue as well as satisfy delivery partners.”

Viacom already has a strong content presence on the Web, he said. “According to comScore Media Metrics, there were 37 million unique visitors in September across Viacom properties, and that number is growing at high double-digit rates.”

The company will step up its social networking initiatives such as Nickelodeon's Parent Connect site, Internet-based brand engagement opportunities such as MTV's Virtual Laguna Beach as well as looking at more casual gaming opportunities such as the company's recent acquisitions of Atom Entertainment, Quizilla and others, he said.

Digital ad revenue increased 73% in the quarter, and Viacom could be on track to hit $500 million in digital ad revenue by 2007, a year earlier than projected.

Being a pure-play content company that wholly owns a majority of its properties puts Viacom in a unique position to make use of all the emerging distribution technologies, he said.

In the next few months, the company will announce a “series of multiplatform — broadband, wireless, VOD — networks targeted at specific adult demographics, which will grow our presence with a new audience,” Dauman said.

Viacom has inked a deal with Martin Scorsese for the famed director to produce and direct content for theatrical, direct-to-video and digital releases, Dauman said.

And, look for TV production to once again become part of the Paramount production mix, he said.

“Our most important job is to effectively execute the [digital] transition and set the stage for the next level of growth and carry our existing brands and content through all forms of distribution and create new content and compelling new experiences for consumers,” Dauman said.

Meanwhile, as the management team focuses on the digital future, another executive will depart Viacom. Mike Dolan, company CFO will leave Viacom in January with Tom Dooley, chief administrative officer stepping into the position.

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