Viacom Will Take Charge for Video Unit

Viacom Inc. on Tuesday announced a $300-million charge for Blockbuster Video--clearing the decks for Blockbuster’s new chief executive, analysts said.

But the video rental unit still has rough seas to navigate, the analysts said.

“No question, the company is looking to provide a clean slate for the new management to go forth and conquer,” said Chris Dixon, an analyst at PaineWebber.

Viacom last month named John Antioco, a former head of PepsiCo Inc.’s Taco Bell unit, as head of Blockbuster.

Despite the new leadership and financial cleansing, some analysts are unconvinced that Blockbuster is a proper corporate fit for Viacom, which also owns MTV Networks, Paramount Pictures, Showtime Networks and publisher Simon & Schuster, among other media entities.

Viacom said Tuesday that Blockbuster’s second-quarter results will be below Wall Street estimates, and it will take a $300-million charge to reduce inventory and close under-performing stores outside the United States.

One big thorn in Blockbuster’s side is distribution, analysts said. It is switching from an outside contractor to doing its own distribution and is in the midst of completing a new distribution center in Dallas.

“It’s taking longer and costing more than anticipated,” Dixon said of the distribution transition.

“Clearly, there are problems in the interim, and it’s hurting them,” said David Doft at Furman Selz.

However, in the long run the new distribution system could be a boon, analysts said. “By bringing distribution inside, they can get better controls and perhaps get some incremental margin improvements,” Dixon said.

Analysts said Blockbuster’s move of its headquarters to Dallas from Fort Lauderdale, Fla., in March also hurt results.

Trading of Viacom shares on the American Stock Exchange was halted for almost two hours. Class A shares rose 19 cents to close at $29.625.