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Redstone family blasts Dauman after Viacom profit tumbles 27%

Redstone family blasts Dauman after Viacom profit tumbles 27%
Viacom's fiscal third-quarter earnings were marred by a weak performance of Paramount's summer movie "Teenage Mutant Ninja Turtles: Out of the Shadows." (Lula Carvalho / Paramount Pictures)

The anemic performance of Viacom Inc. drove another wedge Thursday between beleaguered Viacom Chief Executive Philippe Dauman and his boss, Sumner Redstone.

Viacom's profit tumbled 27% in its fiscal third quarter, and the Redstone family wasted little time blasting management for the poor results and calling for Dauman's ouster.

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"Viacom's overall performance continues to highlight the need for changes to leadership at the company," National Amusements, the investment vehicle for the Redstone family, said in a statement.  "In recent years, the company's senior management has overseen a steep erosion of revenue growth, earnings, operating performance, financial capacity and shareholder returns."

National Amusements, which holds nearly 80% of the voting shares in two media companies, Viacom and CBS Corp., cited an exodus in creative talent. It also noted that Viacom spent about $15 billion from 2011 through 2015 buying back stock at prices much higher than what shares now trade for.

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The results weren't as dismal as analysts had predicted, as the company showed strength in its European operations and a promising start from Paramount's television production arm.

Nonetheless, Viacom's lackluster performance continues to cast a shadow over Dauman, who is waging a contentious legal campaign against his company's controlling shareholders: the ailing 93-year-old Sumner Redstone and his daughter, Shari Redstone.

An analyst on Viacom's earnings call Thursday asked whether the boardroom battle, which is playing out in courts in Delaware and Massachusetts, was hampering Viacom's day-to-day operations.

"Obviously, it is somewhat of a distraction," Dauman acknowledged. "But we are not deterred from pursuing strategic initiatives," he said, alluding to his plans to sell a stake in Paramount Pictures. The company has been in talks to sell a 49% stake in Paramount to China's Dalian Wanda Group.

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But Sumner Redstone vehemently opposes the plan to unload any portion of his beloved movie studio, and that effort turned him against Dauman, his longtime lieutenant.

Viacom executives disclosed Thursday that its Los Angeles movie studio, Paramount Pictures, would lose money for the full fiscal year.  Paramount stumbled once again in the April-to-June quarter because of a wimpy showing from its big-budget summer film "Teenage Mutant Ninja Turtles: Out of the Shadows."

"There is no question the studio has had a rough go at the box office recently," Dauman said.

For the quarter that ended June 30, Paramount posted an operating loss of $26 million compared with a profit of $48 million in the year-earlier period. Studio revenue was up 30%, which was higher than Wall Street had expected, on gains in license fees and worldwide ticket sales. The studio's Paramount Television operation has been gaining traction. And during the current quarter, the film "Star Trek Beyond" has been a bright spot.

Dauman conceded that his effort to sell a 49% stake in the Melrose Avenue movie studio to an outside investor had "slowed down in recent weeks" because of the boardroom turmoil and various lawsuits.

"Probably the biggest impact has been on the ability to move forward rapidly on the Paramount transaction," Dauman told analysts. "That's certainly slowed down."

In a statement, a Viacom spokesman said the company's strategy is supported by a majority of its independent board. "It is unfortunate that one of our directors feels the need to try to damage the company in response to losses in the courtroom," he said.

Viacom's profit for its fiscal third quarter totaled $432 million, or $1.09 a share, compared with $591 million, or $1.47 a share, a year earlier.

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Revenue rose nearly 2% to $3.11 billion. Viacom had warned Wall Street in June that the fiscal third quarter would be weaker than initially forecast, so analysts were bracing for sluggish results.

Sales were down at Viacom's television networks, which include MTV, Comedy Central, Nickelodeon, VH1 and BET. The TV networks division generated $2.51 billion in revenue, a decline of 3%.

Domestic ad sales fell 4% because of weak ratings at some key networks, including MTV.  Domestic cable TV affiliate fees were down 10%. But international advertising revenue was up 13% because of growth in Europe.

Viacom's shares fell 43 cents, or 1%, to $43.56 on Thursday.  They have fallen more than 35% in the last two years.

Dauman sounded defensive on the call, outlining several initiatives that he has launched during his nearly 10-year tenure in the top job. In recent weeks, there have been negotiations for a settlement that would see Dauman and several other board members step down to resolve the dispute with the Redstones.

However, talks stalled late last week and Viacom received two encouraging court decisions from judges in Massachusetts and Delaware. The decisions to allow the lawsuits to proceed fueled Dauman's hopes that he may cling to power at Viacom.

Both sides have ample reason to settle the dispute, which has been a major distraction for Viacom. But there are differences of opinion over what it would take to resolve the matter, and some board members who are directly involved in one of the lawsuits appear to be more dug in than other board members, according to two people familiar with the matter who were not authorized to comment.

"Paramount will see better days ahead through improved film slate performance, television production and, we hope, a groundbreaking strategic alliance," Dauman said.

Sumner Redstone in May removed Dauman and another longtime associate, George Abrams, from a trust that will one day oversee the Redstone family's controlling shares in CBS and Viacom.

In June, the Redstone family, through National Amusements, demanded that five Viacom board members, including Dauman, be replaced. Those ousters were put on hold while a judge in Delaware determines whether the removals were valid.

"Litigation surrounding the company's board, with a potential messy exit by CEO Philippe Dauman and potentially other senior executives, is likely to cause further turmoil," Cowen & Co. analyst Doug Creutz concluded in a research report. as there is no guarantee new management will be any more successful facing the increasing challenges brought on by digital video distribution given the company's positioning in the changing TV market," Creutz said.

UPDATES:

4:00 p.m.: This post was updated.

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9:30 a.m.: This article was updated to include a statement issued by the Redstone family's investment vehicle, National Amusements Inc.

7:43 a.m.  This article was updated with additional commentary and information about stock performance.

This article was initially published at 7:25 a.m.

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