DVD sales boost Viacom’s profit

Cost-cutting and robust holiday-season sales of “Transformers: Revenge of the Fallen” and “Star Trek” DVDs propelled Viacom Inc. to a fourfold increase in fourth-quarter profit.

Viacom reported Thursday that it earned $694 million, or $1.14 a share, compared with $172 million, or 28 cents, a year earlier. The jump in earnings was, in large part, because of a $454-million restructuring charge taken in the period in 2008. Revenue, however, fell 3% to $4.1 billion for the quarter, reflecting continued weakness in the TV advertising market. Viacom, controlled by billionaire Sumner Redstone, owns cable channels MTV, VH-1, Nickelodeon, Comedy Central and BET in addition to the Paramount Pictures movie studio.

“The softness in revenues in the fourth quarter reflects the ongoing impact of a muted economy,” Chief Executive Philippe Dauman said during a conference call Thursday with analysts.

Viacom had plenty to brag about from its Melrose Avenue studio after long urging investors to be patient while movie executives worked to get their financial house in order. Paramount generated operating income of $298 million for the quarter, compared with $84 million in the year-earlier period.

“This is the highest profitability the film studio has generated in seven years,” Chief Financial Officer Thomas Dooley said, referring to Paramount’s full-year operating income of $236 million.

Fourth-quarter film profit was driven by DVD sales of the studios’ summer box-office hits, strong ticket sales for “Paranormal Activity” and reduced overhead. Paramount revenue slipped 1% to $1.8 billion for the quarter.

“It is a business that is very much tied to fourth-quarter DVD sales,” said Michael Nathanson, media analyst with Bernstein Research. “It is always going to be hit-dependent. We just hope that they learned their lessons from the last couple of years and built a more financially disciplined studio.”

Dooley warned that Paramount would lose money in the current quarter because of costs related to the upcoming release of DreamWorks Animation’s “How to Train your Dragon” and because of “the absence of any major titles entering the home entertainment or pay-TV windows during the quarter.”

Earlier in the week, Dooley said, Viacom bought back control of the DreamWorks SKG film library, which has 59 films including “Saving Private Ryan” and “American Beauty,” from an investor group led by George Soros. In 2006, a few months after Viacom agreed to buy DreamWorks for $1.6 billion, it spun off the film library to Soros for $900 million. This week, Viacom paid $400 million to get the library back.

The bulk of Viacom’s profit comes from its television division, which generated an operating income of $921 million for the fourth quarter, an increase of 3% over the year-earlier period. However, revenue for the media networks was down 6% to $2.3 billion. Fourth-quarter domestic ad sales were 4% lower than in 2008.

“The quarter was also impacted by ratings issues at certain networks,” Dauman said.

Viacom’s “Rock Band” video-game franchise continued to hit sour notes. “It certainly was a challenging year in 2009,” Dauman said of the franchise’s performance.

The company’s movie channel start-up, Epix, has experienced some good news recently with two major cable operators, Cox and Charter Communications, agreeing to distribute the channel later this spring.

“As we ramp up the distribution, revenues will start coming in,” Dauman said. He said the channel, a joint venture with Lionsgate and Metro-Goldwyn-Mayer, should break even next year.

meg.james@latimes.com