LIVE Viacom (VIA.b) 3Q: Conference Call

Key Points:

  • Revenue up 24% to $3.27 billion, well ahead of $3.0 billion consensus.  Strength driven by movies (+57%). 
  • Media/Cable revenue up 9%, driven by 14% growth in affiliate fees.  Worldwide ad revenue up 7%.
  • Adjusted operating income up 14%, driven entirely by Movies.  Despite Media revenue growth, Media operating income up only 2%.
  • “Adjusted” EPS of $0.65, up 27%, ahead of $0.59 consensus.  Includes $0.02 from a tax credit.

Despite this quarter’s strength in movies, Viacom isn’t really a movie company, it’s a giant cable TV network, with MTV and its other networks accounting for almost all of its operating income. And there the news is not encouraging: Cable revenues were up 9%, and operating income just 2%.

Viacom’s release blames higher programing and compensation expenses for the anemic earnings growth. Can’t imagine who’s been pulling down big raises, but maybe a writer’s strike really wouldn’t be the worst thing for the network. Release

Earnings Call:
Sumner: “More than pleased” with 3Q results. Viacom making “impressive” progress. If you are in to reading tea leaves, note that Sumner’s introduction is less energetic than his leadup to CBS call yesterday. Then again, if Sumner is calling from Beverly Hills, it’s 5:30 am. One of the “smartest moves” he and Viacom board (that is, Sumner) have ever made has been installing Philipe Dauman as CEO.

Philippe: Domestic ad sales up 5%, 4Q looks to be at same pace. Movies did great, obviously. (Thanks mainly to Dreamworks’ Transformers). Cable: Setting stage for growth. And international will be increasingly important: Significant investment in new programming, but also trying to cut costs in programming. Now a walkthrough of cable hits on MTV, VH1, Comedy Central. Ecstatic about success of MTV Music Awards (Britney, Britney, Britney).

Convergence: Selling across platforms. Pepsi working with MTV on show which is promoted on MTV networks, digital.

Digital: Organic traffic up 93% y/y. More than 185 new digital advertisers this year. Web will be even more fragmented then cable is, and we’re uniquely positioned for that. Insistent on value of verticals based on networks of shows (i.e. Daily Show website). Talking up virtual worlds, and casual gaming, where VIA making huge push. Ranks #2 worldwide in terms of uniques.

Movies: Next year’s slate full of potential blockbusters: JJ Abrams (Lost) unnamed movie, Indiana Jones 4, new Star Trek movie, etc.

Guidance (via CFO): Holding steady for 2008. Q4: As noted, domestic TV will be similar to Q3. Big video game sales, but those sales will be lower margin than TV business.

Q&A: How do digital ad sales compare to regular ad sales? Digital advertising experiencing “nice growth”. But packaging with on-air ads — so don’t expect to see us breaking these numbers out.

Programming spend: Where’s that going? In the past we’ve spent more on programming because we want to move away from buying syndicated shows, but that should ease going forward. We’re also trying to produce shows more efficiently, etc.

Ratings: Yesterday your counterpart Les Moonves said new ratings system favour broadcast nets over cable. True? Non-committal. But our programming lends itself to ad integration — note that Stephen Colbert’s presidential campaign announcement sponsored by Doritos. Trying other stuff as well ad pods, and coming soon ad “squeezes” where ads run along bottom portion of screen.

An update on Flux? Working on it. Will promote our own programming, and third-party stuff as well. Won’t just be promoting MTV etc w/in network, and will be open to others

Rhapsody/Urge update? Should be out “in the not too distant future”

Writer’s strike impact? We’re prepared. Plenty of movies produced or in production. TV trickier: Daily Show, Stephen Colbert will be tough to produce since we have to make new ones every day and can’t stockpile them (get ready for reruns).

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