Radio Fade-Out Vexes Viacom

Viacom (VIA Quote - Cramer on VIA - Stock Picks) President Mel Karmazin was characteristically upbeat about the advertising business Tuesday, but for one glaring exception: radio.

"It really is disappointing," said Karmazin, who said there was no evidence that the company's consolidation of numerous radio stations within various markets had done anything to increase revenue.

The comments, coming on a Tuesday morning conference call with analysts after the media conglomerate reported stronger-than-expected first-quarter earnings, hint at possible difficulties for other radio operators. Karmazin's remarks and Viacom's strong financial outlook also spotlight the company's continuing rivalry with struggling AOL Time Warner (AOL Quote - Cramer on AOL - Stock Picks), which is slated to report earnings Wednesday morning.

Earlier, the companies agreed to a deal that will give Viacom control of the Comedy Central channel and hand AOL some cash with which to pay down its massive debt overhang. At midday, Viacom's shares were up $1.46 to $42.30, while AOL was up 11 cents to $13.01.

Strong Numbers

Overall, Viacom's operations performed better than expected in the first quarter. The company reported revenue of $6.05 billion, just ahead of the Thomson Financial/First Call expectation of $6.03 billion and up 7% from the first-quarter figure for 2002.

Earnings before interest, taxes, depreciation and amortization -- a common bottom-line yardstick for media companies -- grew 12% to $1.23 billion, a few percentage points past most analysts' growth projections.

Net earnings before the cumulative effect of change in accounting principle amounted to 26 cents a share, ahead of the First Call consensus of 25 cents.

Within Viacom, operating income grew 21% at its cable networks, rose 13% at its broadcast TV operations, and increased 25% at its video operations, the majority-owned Blockbuster(BBI Quote - Cramer on BBI - Stock Picks).

Normalcy

Commenting to analysts about the state of the advertising market following the Iraqi war, Karmazin said, "Everything is principally back to normal." Advertising dollars are strong at both the local and national levels, he said, using the automotive and retailing industries as an example.

Among major national advertisers, Karmazin said he could think of one hotel chain and one airline -- neither of which he named -- that cited the war as a reason for canceling advertising with Viacom. "That's how few there are that really have canceled as compared to 'adjusted,'" he said. Viacom's cable networks lost perhaps $2 million in revenue because of the war, he said, but he was inclined to think that $2 million was spent subsequently.

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