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

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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.

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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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The filmed entertainment
Notes:
  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 []