• by Joe Mandese  @mp_joemandese, July 22, 2004

Viacom, the most ad-dependant of the major media conglomerates Thursday reported a surge in second revenues and income thanks largely to stronger than expected advertising sales. Advertising sales rose 11 percent to $3.4 billion during the quarter, outpacing the company's overall revenue growth of 7 percent. As a result, advertising increased its share of Viacom's overall revenue mix and now accounts for nearly half of Viacom's business - 49 percent during the second quarter of 2004 vs. 48 percent during the second quarter of 2003. Through the first half of 2004, advertising was also 49 percent of total company revenues vs. only 46 percent during the first half of 2003.

The development is another indicator of the residual effects of the U.S. ad recovery. Because of its exposure to advertising sales, Viacom was one of the most severely hurt of the major media companies during the ad recession that began at the tail-end of 2000, but the company has demonstrated one of the strongest rebounds and is especially well positioned for the balance of 2004 and for early 2005 given the strong upfront advertising sales of its broadcast and cable network TV divisions.

The company said it is tracking to deliver full year 2004 revenue growth of "5 percent to 7 percent, operating income growth of 12 percent to 14 percent and earnings per share growth of 13 percent to 15 percent." Not surprisingly, much of that expectation is dependant on a sustained advertising expansion.

Advertising sales are primarily generated from the Viacom's MTV Networks, CBS and UPN network and TV station groups, as well as Infinity radio and outdoor advertising businesses. TV has proven the most dependable of the major traditional media in terms of advertising demand, though analysts expect outdoor and radio to take off soon.

"Once again our results were led by exceptional performances in our cable networks and television segments which account for over 70% of the Company's operating income," stated Viacom Chairman-CEO, Sumner Redstone, who added, "We also experienced strong increases in the television upfront advertising process, locking in higher rates and increased dollars, a performance which should benefit Viacom through at least the third quarter of 2005."

Viacom Revenue* Sources

-------Q 2-------       ---First Half--- 
                      2004      2003        2004        2003 
Advertising sales      49%       48%         49%         46% 
Rental/retail sales
20%       21%         21%         23% 
Affiliate fees         10%        9%         10%         10% 
Feature film            6%        7%          7%          7% 
TV license fees         4%
5%          5%          5% 
Other                  11%       10%          8%          9% 
Total             $6,841.8  $6,418.3    $13,614.2  $12,469.1 

Source: Company report. *In billions.