• by Paul Gough , October 23, 2003

A lot has happened in the two weeks since Viacom chief Mel Karmazin told a room full of investors that CBS was experiencing strong fourth quarter scatter sales (MediaDailyNews Oct. 1). Mostly bad.

On Thursday, while talking to another group of investors during Viacom's third quarter earnings call, Karmazin said the network's fourth quarter scatter market conditions had deteriorated to the point where CBS' inventory is fetching prices that are either flat or up only slightly over fourth quarter upfront ad rates. The admission comes after Karmazin told attendees at a Goldman Sachs conference that CBS was not experiencing the kinds of scatter market trouble that were plaguing its peers - especially NBC.

Nonetheless, Karmazin said he was confident that CBS would end the season with its scatter inventory averaging at double-digit increases over upfront ad rates.

Percentage Of Viacom Revenues From Advertising

                2003   2002    Change  
Third Quarter:   44%    43%  +1 point   
Nine Months:     45%    45%        NC  

Source: Viacom third quarter earnings report. NC = No change.

Karmazin noted that financial services companies were coming back into the scatter market and that the upcoming portability of cell phone numbers will boost wireless service advertising as well. There was also good news in scatter beyond primetime. Karmazin said daytime programming was seeing double- digit CPM increases in relation to the upfront pricing, while early morning was getting a mid-single-digit CPM increase compared to the upfront. Pharmaceutical and healthcare advertisers were driving early morning's increases, Karmazin said.

In late night, where Karmazin said CBS had written "two thirds of the scatter market we need to write," there was a slight premium to the upfront with the biggest driver being advertising from movie companies.

Wall Street analysts, who were present at the Goldman Sachs conference, questioned Karmazin about his rapidly changing story on the scatter market. Karmazin shrugged it off.

"The business is not a snapshot but it's [a] motion picture," he said. Karmazin added that he didn't like the idea of giving out pacing information because it changes every week. He said scatter had been flat and that this week the pricing was "slightly better than flat," without giving specifics.

Viacom's cable scatter market was similar, with Karmazin noting that scatter orders aren't coming in as fast as they normally do as advertisers hold back money thinking they'll get a better deal.

"The scatter activity is coming in later and later but the good news is the scatter business is coming," Karmazin said.

Scatter performance aside, Viacom is in an incredibly strong position as most of its advertising markets have rebounded considerably. Viacom, already the most advertising-dependent of the major media conglomerates, became even more so during the third quarter of 2003, as advertising revenues (+8%) outpaced its growth in total revenues (+5%).

Increases were led by Viacom's cable TV networks, which gained 18 percent to $1.4 billion compared to the third quarter last year. Advertising revenue rose 25 percent. The leaders were MTV Networks - including MTV, VH1, Nick at Nite and SpikeTV - which rose 26 percent at MTV Networks and 24 percent at BET.

Revenues in television, which includes CBS and UPN and owned and operated local stations, rose 5 percent to $1.8 billion. Even radio results, which caused Viacom to lower its guidance in late September, were up 2 percent to $551 million although they are still down 1 percent year-to-date.

Karmazin and Viacom Chairman Sumner Redstone were bullish on 2004. It's not only because of the presidential election advertising and Olympics that will benefit TV but also because of the Super Bowl, which will be broadcast live on CBS in January.

"We have over two-thirds of the inventory sold at prices that we are very, very happy with," Karmazin said.