Viacom And The “Orgy Of Pessimism” (VIA)


Following layoffs and recession, Viacom profits tanked in the fourth quarter, dropping 68% from the year ago period, largely on $454 million worth of restructuring costs.

Viacom CEO Philippe Dauman and chairman Sumner Redstone  hosted an 8:30 A.M. earnings call to explain it all.


  • Sumner Redstone’s holding company National Amusements will not need to sell anymore CBS or Viacom shares.
  • December restructuring cost $454 million, but will save $200 million this year — $180 million at the networks and about $20 million at Paramount.
  • Sales of video game Rock Band did not meet expectations. Viacom blames consumer spending during the recession.
  • Paramount’s upcoming tentpoles: Star Trek, Transformers and G.I. Joe.
  • Franchise films will continue to make up more and more of Paramount’s slate.
  • Viacom digital say 90 million unique visitors worldwide. But they didn’t generate enough revenues for the company to break them out on their own.
  • TV advertisers are sometimes cancelling their upfront buys and trying to get back in through the scatter market. CMOs who feel like their company has enough cash to be aggressive are advertising more to gain market share.
  • The long tail of the DVD market tanked. Viacom thinks this is due to the recession, not any kind of tectonic shift in consumer behavoir. (yet)

Notes from the call:

(Anything not in quotes is a paraphrase)

8:29, We’re on the call a bit early. No normal hold music here! A little bit of Beyoncé, the Daily Show theme, something about the happiest gay couple you’ll ever meet…

8:30, Ok the call is starting. Sumner, Philippe, CFO Tom Dooley and Jimmy Bars are on the line.

8:31, Sumner takes the line. “Viacom’s results, like nearly every company here and around the world reflect the harsh economic environment. We are clearly in one of the most pronounced economic dross in nearly a generation.” I may be the only one on the call who can recall a worse time.

8:33, Sumner updates us on National Amusements and its creditors. He reminds us that Nat. amuse is more than just a holding company. They have movie theatres, for example. “Unlike most of our competitors,” he says, “National theatres are built on land we own.”

8:34, National hasn’t sold any additional shares of CBS and Viacom since last fall. And it doesn’t expect to be forced to, says Sumner.

8:35, “I have been advised that an agreement acceptable between all parties has been reached.”

8:35, Philippe takes the line.

8:36, Philippe: “The economic downdraft hit hard at the end of the year and we were not excluded.”

8:37, Going to continue focusing on cash management.

8:37, People turn to entertainment during downturns and VIA will take advantage of this, delivering via cable and the iPhone even, where VIA has 14 new applications.

8:38, Philippe: “We don’t see macroeconomic improvement on the horizon just yet.”

8:39, He says there’s been an “orgy of pessimism as of late.” Gross.

8:40 Ad revenues are soft in Q4, but despite a dramatic decline, revenues held firm following the messy Q3, down just 3%.

8:40, 10% climb in y/y film revenues.

8:41, Restructuring in December cost $454 million, but will save $200 million this year.

8:41, Viacom eliminated merit increases in 2009 for execs.

8:42, We haven’t purchased any shares since December 2008 in share buyback program.

8:43, He’s going over new ways customers can access VIA content, including Sling Media.

8:44, VIA gets 20% of cable audience, but only 8% of fees. That’ll change says Philippe.

8:44, TV ad visibility is limited, options for Q2 are starting to trend higher. Ad comps are likely to get worse before they get better.

8:45, Nickalodean had its best year in 2008 ever. “Broad multi-platform campaigns that reach both parents and kids.” Also: get ready for 10th anniversary of Sponge Bob mania. “This will be a year to soak up all things Sponge Bob.”

8:47, Comedy Central had its most viewers ever. Says Daily Shows was a critical part of the conversation about the elections. Remember when it was weird to say you got your news from that show?

8:48, VH1 is building ratings momentum!

8:49, BET’s rating decline reversed. In January they were up 6% y/y. BET is scaling up its news coverage due to “momentus events.”

8:50, Soft retail weighed on selling goods. Effected video game Rock Band, too. It has a “high price point.”

8:51, On to Film: Paramount released 7 films that generated more than $100 million in the domestic box office.

8:52, Took steps to reduce costs. Expect more.

8:52, The home entertainment market “which is the most important revenue driver for the industry” was hit hard.

8:53, Download to home revenues more than doubled in Q4.

8:53, The tentpoles: Star Trek, Transformers and G.I. Joe.

8:53, Also, Martin Scorsesce and Leo are coming out with a movie.

8:54, Here’s Tom Dooley, Viacom’s CFO.

8:55 On an organice basis worldwide media networks grew 3%.

8:56, Worldwide ad revenues declined 3%. Domestic ad revenues declined 3% on softening and lowered ratings.

8:56, Reminder: He’s mostly just reading off the press release. Click here for the full release>

8:58, “Lower sales of Rock Band than we originally hoped”

8:58, If you exclude the losses for Rock Band, margins were flat for the full year. (Must’ve been some losses for Rock Band, then).

9:00, Decline in home entertainment due to people not buying DVDs like they used to (like when Shrek 3 was hot, for example)

9:01, $26 million in equity losses, including investment in Rhapsody.

9:04, Viacom is comfortable it can pay down any upcoming debts with its cash holdings.

9:05, We are in full production of the Beatles game.

9:06, Q1 film revenues will be lower y/y mainly because Monsters Inc was huge.

9:06, Capital expenditures: $100 million last year to move cable nets. Not this year.

9:08, Time for questions.

9:09, Studio revenue growth has been impressive, but it hasn’t translated into profitability. How will you fix that?

9:09, Philippe says the big issue was home entertainment sales. Going forward: We have taken several steps to reduce the cost structure. We incorporated Paramount Vantage into the main org. We revised the relationship with Stephen Speilberg in a way that reduces our costs. We’ve also rationalized our slate. We are goignt o be  put out fewer pictures and a great propotion of those pictures will be in the franchise category. As we look at the greenlighting process, we will take into account the shift in the landscape. We have to account for the possiblity that the home entertainment declines will continue. As we greenlight films we will take that into account. We hope for the economy to improve but we’re not relying on that.

9:09, Tell us about the margins for Rock Band hardware vs. software.

9:12, For the Hardware its mid to low single digits. We hope that when they get to the software side its 20% to 30% range. We hope it’ll make that transition this year.

9:13, Are upfront committments being cancelled by advertisers who try to come back in scatter for cheaper inventory?

9:13, Tom: Some of the people who are cancelling are taking a portion. The folks who come back in are taking half the amount. Some are coming back to buy a lower amount. I can’t image they’re getting better pricing. I think tehy’re looking at their own business model. THey’re saying look we just need a little help pulling some spending back in. Some of the more aggressive advertisers are going aggressively after market share in this environment. People with strong capitalizations will do smart things with it to build their business.

9:19, Programming writedown was worth about $80 million.

9:21, Philippe takes a question about the overall movie marketing environment. Is lousy. But we are positioning ourselves to contain the diminishment and take advantage of opportunities going forward. We continue to be a marketing partner of choice for many marketing categories.

9:23, Question on tax rate. On the $200 million benefit from savings, how should we allocate that?

9:23, Tom says on tax rate: our split will continue as its currently trending.

9:24, Tom on the $200 million savings. $180 million will benefit the media networks on an annualized basis. The balance will be in Paramount.

9:24, Question on Viacom Digital: You’re north of 46 million uniques. What’s your strategy across the digital platforms? Can you quantify your digital revenues for 08 and 09?

9:25, Philippe: We have a very strong branded digital presence. We’ve aligned our sites with our brands. As that business has evolved, we’ve been able to find some cost-saving opportunities by aligning on-air and online development. Costs in digital have come down as well. It’s a very important part of building our brands. Nick, music and Comedy Central have been able to engage viewers more.

9:27, Any quantification?

9:27, Tom: No. By the way we have 90 million uniques internationally. We have one of the best and motivated digital ad sales teams. We haven’t broken it out because it continues to be in many cases part of an overall negotiation with an advertiser.

9:28, What’s your Video on demand strategy going forward?

9:28, Philippe: We’re still evaluating tests with Comcast for example. In general there’s been a narrowing of time between releases, but probably more with lower box office titles. Even in the contraction in home entertainment, the big tent pole titles, like Iron Man still perform well. I think Tent Poles at all studios will be of more importance in this environment.

9:29, There are concerns about DVD sales weakness. Is it secular or cyclical?

9:30, Philippe: It’s clear that the impact that we as industry experience over the last several months of 2008 was driven by the economy. To the extent that there are secular trends that you might attribute to the flattening that was taking place before then — that was not nearly as significant that happened in a very short period of time that can be attributed to the economy. On a going forward basis I dont’ think there’s enough data to evaluate what secular trends will be.