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Movies Mar Viacom Quarter

A loss at the media giant's film business offsets strong TV gains.

Updated from 7:20 a.m. EST


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on Thursday became the latest media maven to report that a lull in its film business weighed down third-quarter profits.

The conglomerate, two months after booting its CEO, also continued to shake up its management.

The New York-based film and TV behemoth posted third-quarter earnings of $356.8 million, or 50 cents a share, down 16% from $423.3 million, or 56 cents a share, a year earlier. Analysts, on average, expected earnings of 48 cents a share, according to Thomson First Call.

Shares of Viacom recently were down $1, or 2.5%, to $38.67.

The company's operating income fell 12% to $655.5 million. At Viacom's cable networks division, which includes MTV, Comedy Central and CMT, profits jumped 14% to $477.7 million. That was partially offset by a $6.7 million loss in its entertainment unit.

Viacom's entertainment business, which lacked any blockbuster film releases in the quarter, faced tough comparisons to last year's profit of $108.2 million, when results were helped by hits like

War of the Worlds


The weakness in its film business echoed similar reports by other studio owners like

Time Warner



News Corp.

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"This is just a lull in between peak seasons for the film and entertainment business," says Andrew Baker, analyst with Cathay Financial.

Baker said the timing of certain releases affected comparisons, and he sees a strong turnaround in the fourth quarter from new releases like

Charlotte's Web




Viacom's profits also were hit by a $62 million charge for a severance payment to Tom Freston, its former CEO who was fired by Viacom Chairman Sumner Redstone in September. Freston was replaced by Redstone's longtime personal adviser, Philippe Dauman, while Thomas Dooley became the company's chief administrative officer.

Now, Viacom said, Dooley also will be taking on the duties of chief financial officer. Current financial chief Michael Dolan has decided to leave the company by the end of the year.

"I came to Viacom for the opportunity to help lead a newly minted public company out of the gate, and the challenge of setting it on a strong financial path," Dolan said in a press release. "I am proud that we have accomplished these goals and that Viacom is very well-positioned financially to prosper and succeed."

Baker says Dolan's departure is not unexpected.

"He was close to Freston, so he's probably following him out," says Baker.

The shakeup comes after Viacom split with


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last December. Its shares have lagged since the split, down about 3%, and Redstone expressed dissatisfaction with Freston when he failed to win the bidding for MySpace, the popular social-networking Web site that was acquired by News Corp. last summer.

For the quarter, Viacom's revenue rose 7.4% to $2.66 billion from $2.48 billion. That beat analysts' expectation of $2.63 billion. Revenue from the company's cable networks rose 10%, while its entertainment unit posted a 1% increase.

"Considering the short time that Philippe Dauman has been in place as CEO, I am truly impressed with our solid third-quarter results, particularly the performance of our well-known cable brands." said Redstone. "I am confident that you will see further operational success in the not too distant future. Viacom will continue to expand on its creative heritage and move rapidly to the forefront of emerging digital markets, keeping us on the path to outstanding long-term financial performance and free cash-flow generation."

For the year, Viacom said it expects to deliver double-digit revenue and operating income growth. In 2005, the company recorded revenue of $9.61 billion and operating income, excluding unusual charges, of $2.60 billion.

The company continues to expect 2006 earnings of $1.95 to $2 a share, excluding charges related to its management changes and the restructuring of its cable-network unit. Wall Street expects earnings of $1.98 a share.

On a conference call with analysts following the earnings release, Dauman touted prospects for Viacom's Internet initiatives.

"I believe that there's a good chance we could reach $500 million in annual digital sales as early as next year," he said.

Baker says Viacom's brands stand to do particularly well online.

"Viacom is continually finding ways to further monetize their brands," he says. "Some competitors have better network ratings growth, but they don't have the ability to take a brand like MTV and make a movie label out of it and build 20 different Web sites online with a different user experience that draws big audiences.

"The rate at which they're rolling out digital initiatives is exciting," he adds. "Some will work and some will not. Some won't make any money, but others will make a lot."