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Viacom Earnings Dip

10 May, 2007 By: Jessica Wolf

Viacom Inc's earnings took an expected dip in the first quarter, falling 36%, thanks to higher printing and advertising costs for theatrical films and restructuring expenses in the company's MTV Networks segment.

Net earnings stood at $209.9 million for the period ended March 31, down from $317.2 million in the same time period in 2006. Revenue was up 16% year-over-year to $2.75 billion. The MTV restructuring added a $56 million charge in the quarter and will add up to about $70 million for the full year, company executives said.

The filmed entertainment division, which includes Paramount Pictures and DreamWorks Pictures, as well as revenue from the distribution of DreamWorks Animation titles, was a strong provider in the quarter, clocking in an overall 27% increase to $1.05 billion.

That increase is attributed to a stronger theatrical slate in the early part of 2007, with such hits as Blades of Glory, Disturbia, Shooter and Norbit contributing to a 124% increase in theatrical revenue, which helped offset a 3% decline in home entertainment revenue.

“Clearly our acquisition of DreamWorks last year is more than delivering on its promise,” said Viacom CEO Philippe Dauman, noting upcoming highlights of Shrek the Third and Transformers on the summer theatrical slate. Viacom saw $101 million in incremental revenue from the DreamWorks catalog in the quarter.

Viacom is one of several studios participating in a two-city test with Comcast to provide video-on-demand movies simultaneously with DVD releases. While the company has seen no negative impact on DVD sales thus far, it's too early to tell how a strategy like this might impact the company's overall business, executives said.

In an earnings call with investors, Viacom executives did not speak about the company's $1 billion ongoing copyright infringement lawsuit against Google and its post-your-own-video site YouTube.

However, Dauman said Viacom is completely devoted to expanding and embracing the digital platform. The company is set to hit its rather ambitious previously stated goal of $500 million in digital revenue by year-end, mostly from advertising, he said.

“We produce the content of choice for the most desirable categories of consumers on a global basis,” Dauman said. “This deeply engaged audience and the entertainment experience our brands deliver translate into a premium value for our advertisers.”

Dauman singled out the company's “virtual worlds” for such shows as “Laguna Beach” and a swath of Nickelodeon content in the Nicktropolis virtual world as prime places to create both a stronger connection to viewers and open the door to unique and incremental advertising opportunities. Viacom will continue to broaden its “virtual world” strategy over 2007, he said.

Viacom Web sites clocked in 39 million unique visitors in the quarter according to ComScore research, Dauman said. That's an increase of more than 60% over last year.

The company will be debuting 11 new original programs on Comedy Central.com over the year, created especially for the Web, he said.

Dauman singled out the company's existing partnership with iTunes as a major contributor to its growing digital success as well as the upcoming launch of broadcast-quality broadband TV channel Joost.com and a new deal with Yahoo for exclusive web search and promotional support for the MTV Movie Awards show, which will include a user-generated content movie-spoof video competition.

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