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A funny thing is happening on the way to the ballyhooed ad slowdown: The big media companies keep posting record ad revenues.

Boosted in part by its huge hit






(VIA) - Get Viacom Inc. Class A Report

, the world's third-biggest media company, Tuesday posted a 22% jump in cash flow. The company pushed past analysts' estimates by 4 cents amid strong ad sales at CBS,


and its radio stations.

Viacom, which completed its deal to acquire CBS earlier this year, said profits fell 65% on higher expenses from that deal.

Net income fell to $33.4 million, or 2 cents a share, from $96.7 million, or 16 cents a share, a year ago. Pro forma cash flow, a key financial measure for media companies, rose to $1.45 billion from $1.18 billion, also well ahead of analysts' projections. Pro forma revenue rose 7% to $5.97 billion from $5.58 billion.

Analysts surveyed by

First Call/Thomson Financial

projected a loss of 2 cents per share.

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"As you can see from our phenomenal results, the Viacom/CBS merger is working absolutely brilliantly," said Mel Karmazin, Viacom's chief operating officer, in a conference call with analysts and reporters.

Karmazin said Viacom should be able to sustain 20% growth rates into 2001, a strong sign of confidence amid

concerns on Wall Street that ad sales are decreasing as the economy slows. Those fears have dampened investor enthusiasm for media and advertising stocks; Viacom, one of the more ad-sales dependent media companies around, has seen its stock tumble nearly 25% since the beginning of August.

"The noise is in the stock market," Karmazin said, echoing a

theme struck by Gerald Levin,

Time Warner's


chief executive, in that company's earnings announcement last week. "This is a stock market phenomenon, not a company phenomenon. We are going to have a record fourth quarter."

Spending on advertising by dot-com companies has slowed appreciably from last year, when that spending played a big role in boosting profits at media companies.

Karmazin said Viacom has made up the decrease in dot-com spending by increasing market-share from other industries, including wireless, automotive and beverage advertisers. Fred Moran, analyst at

Jefferies & Co.

, estimates that less than 1% of Viacom's ad revenues come from dot-com companies.


Despite the apparent good news from Viacom, the stock continued dropping in late morning trading Wednesday, falling 88 cents to $55.63.

"I'm totally dumbfounded," Moran says. He blames lingering concerns among investors regarding a potential recession and an ad slowdown for the stock's Wednesday woes. In fact, he says he expected Viacom to hit $60 a share after this morning's announcement. He rates the stock a buy; his firm hasn't done any underwriting for Viacom.

Others remain skeptical. "As far as I'm concerned, Time Warner and Viacom can say all the positive things that they want, but they will still have tougher comparisons next year," says fund manager Hal Vogel.

Thus far, the big players like Viacom and Time Warner do appear to be benefiting from a so-called flight to quality by advertisers, while ad-dependent new media companies like







suffering from the first hints of a slowdown in ad-spending.