The media giant swung to a net loss of $190 million from a $33 million profit in the year-earlier period. Reported revenue eased 1.6% to $5.7 billion. However, without the impact of the Blockbuster charge, the net loss was only $9 million.
Wall Street wasn't surprised as the TV and radio markets were squeezed as a whole. Advertising, which makes up 50% of Viacom's total revenue, temporarily evaporated after the Sept. 11 attacks. Viacom president Mel Karmazin said most advertisers are back, although the company is proceeding with caution.
"There are copy changes all the time, more patriotic messages. Lots of advertisers are avoiding news programming and not spending any more money than they need to. They are also holding money for as long as they can and buying media at the last minute," Karmazin said during a conference call to discuss the numbers Wednesday.
Automakers are aggressively promoting zero down, zero financing offers, and studios are touting pictures and DVD releases, Karmazin said. Retailers will need to spend to draw consumers into stores as the holidays approach. He also thinks traditional media will grab market share from the $45 billion a year direct-mail biz, which has been ailing as Americans grow wary of unsolicited post in the wake of anthrax infections.
Advertisers continue to view cross-platform deals with diversified media companies as efficient one-stop shopping. Kraft Foods said Wednesday it had inked agreements worth "hundreds of millions of dollars" with both Viacom and AOL Time Warner. Karmazin said Viacom is developing a mini-version of its cross-promotion vehicle, Viacom Plus, on a local level, offering advertisers a mix of radio, outdoor and spot television advertising.
TV revenue for the quarter dipped 7% to $1.6 billion and cash flow was down 17% to $283 million mostly due to higher costs and fewer ads on CBS.
Karmazin said UPN ratings are on the rise with "Buffy the Vampire Slayer" and a new Star Trek series, "Enterprise." Syndication sales, from firstrun and "Everybody Loves Raymond," were a plus.
While media moguls may gush about the recession-resistant motion picture business, Viacom's entertainment revenue, led by Paramount, was about flat at $797 million and cash flow plunged 47% to $93 million.
Third-quarter releases ("The Score," "Rat Race," "Hardball" and "Zoolander") didn't set the box office on fire, Karmazin acknowledged. But he said the main problem was print and advertising costs, which were higher due to a greater number of releases this year.
The 2000 quarter also had international coin flowing in from "Mission: Impossible 2," noted chief financial officer Richard Bressler.
Blockbuster recorded a $356 million one-time noncash charge as it radically restructured stores to feature fewer VHS and more DVDs. Without the charge, video revenue rose 6% to $1.26 billion and cash flow grew 19% to $142 million.
Cable networks posted a 7% revenue boost to $1.1 billion with cash flow up 17% to $470 million. The unit includes the MTV-VH1-Nickelodeon juggernaut along with BET, newly reformatted TNN and CMT.
Revenue at Infinity, which houses the company's radio and outdoor advertising assets, fell 11% to $910 million. Cash flow was down 20% to $373 million.
Publishing revenues at Simon & Schuster rose 10% to $184 million while cash flow fell 19% to $22 million.
Viacom said corporate expenses fell 20% and capital spending was also lower in the quarter. That, combined with the free cash flow that Karmazin prizes, means the company is well positioned to pounce on appealing deals, execs said.
Karmazin admitted it was painful to pass on the Telemundo and Fox Family TV networks, but he believes that NBC and Walt Disney, respectively, dramatically overpaid for those assets.
"We kept our powder dry," he said, adding, "You can rest assured we're looking at everything."
Bressler, who used to be the chief financial officer at Time Warner, noted that Viacom recently hired his former AOL Time Warner colleague and finance executive Joan Nicolais as VP of strategy. The appointment hasn't yet been announced officially.
Also on Wednesday, Karmazin repeated his plea to regulators to ease rules governing media consolidation and relieve companies strapped by the high cost of news gathering. He'd particularly like the duopoly regulation loosened so that one company can own the top two TV stations in a market. He also criticized a ban on one company owning more than eight radio stations in the biggest markets.
Viacom shares fell 2.13% to $36.35 on Wednesday.