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Viacom Expects to Take $437-Million 2nd-Quarter Charge

<i> From Bloomberg News</i>

Viacom Inc. said Wednesday it expects to take a second-quarter charge of $437 million because of changes in the way it accounts for video rentals at its Blockbuster Entertainment Group unit, the world’s largest video store chain.

Viacom also said rental revenue at Blockbuster stores open at least a year rose 13.3% in the quarter, reflecting new revenue-sharing agreements with some of the major Hollywood studios that have enabled the 6,000-store video chain to stock its shelves with more tapes.

The revenue-sharing agreements allow Blockbuster to buy videotapes from studios for a fraction of the price it used to pay, a move that’s enabling its stores to offer more copies of popular movies and attract more customers.

The company will take a charge because it has to account for its tape inventory differently starting in the second quarter, the company said.

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Blockbuster previously bought tapes for a fixed price, which was amortized over six months to three years. Under the new revenue-sharing method, the upfront cost will be amortized on an accelerated basis over three months and the studios’ share of rental revenue will be taken as an expense as revenue is recognized, the company said.

Viacom said it will buy about 90% of its tapes in the second half of the year under the revenue-sharing agreements.

The New York-based company expects to report its second-quarter results July 29.

Shares of Viacom rose $1.88 to close at $67.63 on the American Stock Exchange. It disclosed the charge after the close of U.S. markets.

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