Continued Growth At Media Networks And Lower Expenses Boost Viacom’s Q1 Earnings

Viacom (NASDAQ:VIA) recently reported its earnings for the fiscal Q1 2014. Media Networks continued to see growth driven by higher ratings, especially at Nickelodeon. The filmed entertainment division witnessed a 30% decline in revenues due to fewer releases and lower carryover revenues as compared to the prior year December quarter. This led to 3% decline in Viacom’s overall revenues to $3.19 billion. However, the company managed to post 20% jump in operating income on lower expenses. Better ratings at Media Networks translated into advertising growth of 4% for the quarter. The earnings per share were 30% higher at $1.20. ^[1] We expect the Media Networks to continue to perform well as Viacom continues to add new programming and build on existing shows, especially at Nickelodeon and MTV.

We currently have $80 price estimate for Viacom, which we will soon update based on the December quarter earnings announcement.

See our complete analysis for Viacom

Media Networks Continue To Grow

According to our estimates, Media Networks contribute close to 85% to Viacom’s value. The revenues for Media Networks division increased by 6% to $2.5 billion led by higher affiliate fees and advertising revenue. Domestic advertising revenues increased by 3% driven by higher ratings while the international advertising revenues increased 16% reflecting new channels and European market improvements. Similarly, domestic and international affiliate revenue increased by 10% and 8% respectively primarily driven by rate increases. ^[1]

Viacom’s media networks (SPIKE, VH1 and CMT) delivered strong double-digit year-over-year ratings growth in the December quarter, reflecting the company’s increased investment in original programming. ^[2]. MTV’s European Music Awards (EMA) 2013 witnessed a growth of +137% year-over-year among its core 12-24 demographic. ^[3] However, the ratings at MTV were tampered due to a softer marketplace in the month of November. The company expects sequential improvement in the domestic ad sales growth in the current quarter. ^[2].

A Muted Performance At Paramount Pictures

While the company’s filmed entertainment division witnessed 30% decline in revenues during the December quarter, it generated an adjusted operating loss of $74 million, representing a $65 million improvement over the prior year quarter. ^[1] This reflects lower print and advertising costs related to the number and mix of theatrical releases during the period. Paramount Pictures launched a number of successful releases during the quarter including Anchorman 2, Wolf of Wall Street and Jackass Presents: Bad Grandpa. The studio released five titles during the quarter compared to eight titles in the prior December quarter. In the U.S., Viacom ranked seventh with total box-office grossing of close to $1 billion, representing 9% market share. ^[4] This was similar to 2012 when the company ranked seventh with 8.5% market share in the U.S. ^[5] However, we believe that Viacom’s filmed entertainment division will see a fantastic run in 2014, primarily due to the popular titles such as Transformers: Age of Extinction, Hercules and Teenage Mutant Ninja Turtles that are scheduled to be released in the coming months. The previous Transformers movie grossed $1.12 billion at the box-office globally. ^[6]

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1. Viacom’s SEC Filings [↩] [↩] [↩]
2. Viacom Management Discusses Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, Jan 30, 2014 [↩] [↩]
3. THE “2013 MTV EMA” DELIVERS HUGE TV RATINGS IN KEY MARKETS, UP +137% AMONG P12-24, MTV EMA Press Release, Nov 13, 2013 [↩]
4. Studio Market Share – 2013, Box Office Mojo [↩]
5. Studio Market Share – 2012, Box Office Mojo [↩]
6. Transformers:Dark of the Moon, Box Office Mojo [↩]