Viacom profit up despite ad slump

Cost cutting, coupled with stronger results from Paramount Pictures, paid off in the third quarter as Viacom Inc. posted a 15% jump in profit despite lower advertising and home video sales.

Credit “Transformers: Revenge of the Fallen” and “G.I. Joe: The Rise of Cobra” for helping to improve the company’s financial picture, along with pay-TV operators who shelled out more money to carry Viacom’s channels, including MTV, VH-1, Nickelodeon, BET and Comedy Central.

For the quarter ended Sept. 30, the New York-based media company controlled by Sumner Redstone reported net income of $463 million, compared with $401 million for the same period a year earlier. Revenue slipped 3% to $3.3 billion.

“Revenues in the quarter remained a bit soft, but the structural changes we have made to streamline certain operations and our ongoing vigilance on controlling costs boosted our profitability and helped us to expand margins,” Viacom Chief Executive Philippe Dauman told analysts in a conference call.

Excluding a one-time tax-related gain and a charge for restructuring debt, Viacom delivered earnings of 76 cents a share compared with 65 cents last year.

The better-than-expected results, however, were tempered by concerns over future growth and continued weakness in advertising markets.

“Investors are split because some are saying, ‘It’s encouraging because management has done a good job on making the business more efficient, rationalizing programming expenses and generally cutting costs,’ ” said Anthony DiClemente, media analyst with Barclays Capital. “But on the other hand, we haven’t seen a return to year-over-year growth in advertising.”

Dauman was particularly pleased with the results from Paramount Pictures, which swung to a profit in the quarter. In the year-earlier period, the studio lost $19 million.

Paramount benefited from lower marketing expenses in the quarter because it released only two films, including the hit “G.I. Joe.” Since the studio released “Transformers” at the end of June, Paramount was able to account for the advertising costs in the second quarter while booking the lion’s share of the movie’s revenue in the third quarter.

Dauman also trumpeted Paramount’s more tightfisted management strategy.

“The studio has also maintained much tighter controls over head count and, reflective of the current environment, they are taking a more disciplined approach to new deals with talent and production costs,” he said.

Paramount produced operating income of $69 million for the quarter. Revenue was $1.2 billion, down 6%.

Viacom’s juggernaut media networks division reported operating income of $773 million, a 2% increase over the third quarter of 2008. Revenue for media networks was flat at $2.1 billion.

So far, sales of the company’s the Beatles: Rock Band video game have exceeded some expectations on Wall Street, but Viacom acknowledged that the new video game wasn’t in the black yet. Executives are cautious about its profit prospects as the industry heads into an uncertain holiday retail season.

“We expect [Rock Band] to break even or be slightly profitable in the fourth quarter from a margin point of view,” Viacom Chief Financial Officer Tom Dooley said. “It really depends on how many units we sell in the holiday season . . . the next three to six weeks.”

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meg.james@latimes.com