Viacom ( VIA) 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), 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 .

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.


Holding Pattern
Up and down at Viacom


But Karmazin said the war wasn't to blame for radio's poor performance in the quarter, as sales dropped 2% from year-ago figures. "There's no reason other than reasons related to our sales organization," he said. "The radio industry has done a horrible job in providing leadership in selling advertising," he added later. Karmazin said the first meeting he was having after the conference call was with executives at the company's New York radio stations. "So we're right on it," he said.

The trend across the rest of the industry has yet to manifest itself. Other radio operators such as Clear Channel ( CCU - Get Report), Emmis ( EMMS - Get Report) and Cox Radio have yet to report first-quarter results, though Radio One ( ROIAK) has reaffirmed that broadcast revenue will be up at least 8% and station operating income will rise at least 10%.

Slings and Arrows

Separately, Viacom said it reached an agreement to buy the half of Comedy Central it doesn't own, paying partner AOL Time Warner $1.23 billion. The transaction is expected to close by the end of June.

Karmazin said Viacom would be able to increase both revenue and cost savings by integrating Comedy Central into Viacom's operations. But he declined to provide specific forecasts for the channel's performance other than to predict "great growth in EBITDA" in its first year of operation under Viacom.

The company reiterated full-year 2003 guidance of mid-single digit revenue growth, double-digit EBITDA growth and operating income growth in the midteens.

While AOL Time Warner, like Viacom, is forecasting 2003 revenue growth in the mid-single digits, the beleaguered AOL Time Warner is forecasting flat EBITDA for the year, far below Viacom's double-digit growth prediction.

The companies' shares have told the story of their relative fortunes in the past year. Viacom is 18% below its 52-week high, while AOL is down 37%.