Viacom Sees Strong Advertising Revenues

by Paul Gough, Jul 24, 2003, 12:00 AM

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Riding a wave of strength at CBS and its cable networks, Viacom's advertising revenues jumped 11% in the second quarter. It's the latest in a line of news that points toward a continued strong TV ad marketplace.

"We're on track for a spectacular year," said Viacom President Mel Karmazin. He painted a rosy picture of Viacom's TV business, led by ratings champ CBS and higher ratings at its cable networks. Cancellation options are running about 7% in primetime and scatter pricing in the second quarter was up 25%-40%. Third quarter scatter pricing is running 30%-40% over the upfront pricing. Early morning and news are virtually out of spots, Karmazin said.

"The fourth quarter looks very strong, based on the upfront," Karmazin said.

Viacom's quarterly revenues rose 10% to $6.42 billion, the highest ever recorded by the company that purchased CBS in 2000. Revenues rose 22% in Viacom's cable networks, 10% in broadcast television and video, and 9% in outdoor. Ad revenue is 48% of Viacom's total revenues, far outweighing any of Viacom's other single sources of income.

Ad revenues at the cable networks jumped 31% in the quarter, including a 33% growth at the MTV Networks and 15% higher ad revenues at BET. Television ad revenues - which include CBS, UPN, owned stations, production and syndication - rose 9% for the quarter. CBS and UPN's ad revenues rose 8%, led by the CBS network's coverage of NCAA basketball. Last year, NCAA basketball fell in the first quarter but this time due to the Iraq war it occurred in the second quarter. O&Os also increased ad revenues 8% and syndication revenues were higher due in part to the introduction of The Dr. Phil Show.

In a conference call Thursday morning with analysts, Viacom executives revised upward its projections for the rest of the year to revenue growth in the high single digits for the entire year.

"It's not just our financials that are looking good. It's also our ratings, our brands and our future. All are looking better than at any time in our future," Karmazin. Karmazin outlined Viacom's position in the marketplace to Wall Street, which the company has consistently felt has undervalued Viacom's stock.

Karmazin acknowledged that Viacom's expenses have gone up but said that it was either investments in programming and other things that would directly impact the bottom line or bonuses and raises tied to increased ad sales performance.

"You invest in better programming, you get higher ratings, you sell those higher ratings for a lot more money and you get a lot more profit. That's our business plan," Karmazin said.

One downside has been radio revenues, which dropped 3% to $551 million compared to the second quarter a year ago. Karmazin said there were bright spots, including the belief that the tide was turning. Local and national spot sales were up 3% and said overall ad sales went from down 1% in April to flat in May and up 8% in June compared to second quarter 2002. He said pacing in Los Angeles and Chicago in the third quarter are strong and there are other signs radio is turning around.

"July is already ahead of where we finished July last year, whereas the first month of the second quarter, we finished behind," Karmazin said. "We are feeling guardedly optimistic that radio is seriously heading back."

Viacom executives said its free cash flow was good and that it expected to grow through acquisitions, though none were announced Thursday.

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