Viacom Swings to Profit on Ad Sales

Media giant Viacom Inc. reported Thursday a steep improvement in net income for its third quarter, fueled by broad advertising increases at its TV and radio stations and broadcast and cable networks.

Viacom’s net income was $640.3 million in the quarter, or 36 cents a share, contrasted with a loss of $190.4 million, or 11 cents, in the same period last year.

Analysts said the company had relatively easy comparisons to beat because of last year’s anemic third quarter, when advertisers pulled back on spending after the Sept. 11 terrorist attacks.

Viacom’s results also were helped by changes in accounting rules this year that lowered its amortization expenses and by a $355-million charge in last year’s third quarter against operating income. Excluding these items, net income increased 17% in the third quarter.

The company derives about half of its revenue from advertising, making it more reliant on Madison Avenue than any other entertainment conglomerate. And questions about Viacom’s ability to sustain advertising growth amid the current economic uncertainty and the potential for war with Iraq contributed to a cool reception on Wall Street. Viacom Class B shares fell $2.88, or 6%, to $44.30 on the New York Stock Exchange.

The New York-based company owns the CBS and UPN networks; cable channels MTV, Nickelodeon, VH1, BET and Showtime; radio powerhouse Infinity; Paramount Pictures; publishing house Simon & Schuster; and Blockbuster. In the last year, Viacom has become the world’s most valuable entertainment company in stock market value, surpassing rival AOL Time Warner Inc.

Viacom President Mel Karmazin said during a conference call with analysts Thursday that advertising would continue to rebound in 2003, when Viacom expects its revenue growth percentage to be in the mid-single digits.

“Our growth is very sustainable,” Karmazin said. “In 2002, we are rocking big time. We’ll be able to make some ... acquisitions.”

The company would not elaborate on its acquisition plans, but Chief Financial Officer Rich Bressler noted that, with cash flow of $1.6 billion at the end of the third quarter, “we’ll be taking advantage of our balance sheet and other people’s woes.”

Cable networks are one of Viacom Chairman Sumner Redstone’s favorite businesses, and operating income at the cable group rose 21% to $510.8 million in the third quarter.

Karmazin said advertising was up across all the company’s operations. He also singled out the growth potential in the TV station group. Karmazin said profit margins at its station group, historically the worst-performing among the large network owners, jumped to 33% this quarter, up from 21% last year.

He said CBS’ strong ratings and the stunning success of the crime drama “CSI: Crime Scene Investigation” would continue to drive up its advertising rates.

For the first nine months, Viacom’s net income was $73.3 million, contrasted with a loss of $181 million for the corresponding period last year. Revenue increased slightly to $17.8 billion for the nine months from $17.2 billion a year earlier.