Updated from 11:14 a.m. EDT

Viacom

(VIA) - Get Report

said Wednesday that its third-quarter profits declined because of higher taxes and expenses from its purchase of

CBS

. But the media and entertainment giant, spurred by growth in advertising sales, beat Wall Street estimates.

Viacom said net income fell 66% to $33 million, or 2 cents a share, from $97 million, or 14 cents a share, in the same period last year. Analysts had forecast a loss of 2 cents a share, according to

First Call/Thomson Financial

, a research firm.

Highlighting healthy advertising revenue, driven by ratings successes like the CBS television show

Survivor

, Viacom said its revenue climbed 79% in the latest quarter to $6 billion from $3.3 billion a year earlier. The reality-based program drew an estimated 51 million viewers for its final episode in August and was a hit among younger viewers, who are coveted by advertisers.

In spite of "double digit" advertising sales increases across the company's diverse media and entertainment properties, shares of Viacom dipped $2.25, or 4%, to close at $54.25 on Wednesday after rising gradually over the last two weeks.

The New York-based company said box-office gains from

Paramount Picture's

movie

Mission:Impossible 2

along with high ratings from

MTV's

Video Music Awards

contributed to Viacom's strong revenue in the latest quarter.

Viacom's web of companies include the cable network and the movie studio in addition to CBS, publisher

Simon & Schuster

and a number of CBS and

UPN

television stations across the country. It also has majority stakes in

Infinity Broadcasting

(INF) - Get Report

and

Blockbuster

(BBI) - Get Report

, the video rental chain.

Sumner Redstone, Viacom's chairman and chief executive, sought to allay any worries that signs of a slowing economy, along with a decline in dot-com spending, would have an adverse impact on the company's advertising revenue going forward.

"The economy continues to be strong," he said in a conference call with analysts Wednesday, "and as evidence you need look no further than Viacom."

If the economy moves at weaker pace, and companies in turn spend less to promote their products, Viacom would be particularly vulnerable, because approximately 70% of its overall revenue is derived from advertising, said Laura Martin, who follows the company for

CS First Boston

.

Walt Disney

(DIS) - Get Report

, the parent of ABC, relies on advertising for about a third of its revenue, while media conglomerate

Time Warner

(TWX)

garners around 40% of its total sales from ad dollars, Martin estimated.

But Time Warner's cable television unit and magazines depend on revenue from subscriptions, and business at Disney's theme parks, for example, is fueled by attendance, making the companies susceptible to unfavorable economic conditions as well.

Viacom said third-quarter earnings before interest, taxes, depreciation and amortization, or EBITDA, rose 22% to $1.4 billion on a pro-forma basis. The company, expecting an EBITDA increase of 20% in 2001, is optimistic about its earnings and revenue prospects.

Martin said the prognosis is justified. Viacom is extending its global reach faster than initially expected, elevating the worldwide subscriber base of

MTV Networks

, which has

MTV

,

VH1

,

Nickelodeon

,

TNN

and other cable channels in its fold, to 340 million, she added.

Mirroring the trend, advertising sales outside of the U.S. are mounting and could offset slower domestic growth, said Martin, whose firm rates Viacom a buy and has done underwriting for the company.

Pro forma revenue for the company, taking into account the acquisition of CBS earlier this year, increased 7% to $6 billion from $5.6 billion a year ago.

Pro forma revenue from Viacom's cable networks including MTV climbed 13% to $1 billion, while Infinity Broadcasting sales increased 12% to $1 billion. However, the entertainment division, which includes Paramount, had more modest gains, boosting its revenue 2% to $792 million.

The deal with CBS, billed as the largest media acquisition ever, forms a giant that rivals Time Warner, Walt Disney and Rupert Murdoch's

News Corp.

(NWS) - Get Report

, the owner of

Fox

, giving Viacom a number of cross-selling and cross-promoting opportunities.

Viacom, for instance, could now tout CBS television shows on MTV and Nickelodeon, and lure more dollars by offering advertisers access to a broader range of media outlets.

In spite of the uncertainty swirling around dot-coms, Viacom, as Redstone said in the conference call, hopes its mix of companies will make it a "must buy for advertisers and a must buy for investors."