NBC Universal offers sneak peak at media earnings

* NBC Universal profit down 45 percent

* Cable helps offset weak network, film results

* Rally in media stocks could face resistance

By Paul Thomasch

NEW YORK, April 17 (Reuters) - NBC Universal on Friday set the stage for what is expected to be a rough round of quarterly results from media companies, whose earnings have come crashing down in the worst advertising slump in more than two decades.

NBC Universal's 45 percent drop in profit may put it smack in the middle of major media companies: Walt Disney Co (DIS.N), News Corp (NWSA.O) and Viacom Inc VIAb.N are all forecast to post 35 percent to 50 percent declines in profits.

"No doubt, the past several months have been hard, and we are going to continue to fight strong economic headwinds for a while," NBC Universal Chief Executive Jeff Zucker wrote in a staff memo. "There are clearly tougher times than any of us has experienced."

Like other media companies, NBC Universal is suffering from slumping DVD sales, a severely depressed local TV market and difficult network television ratings.

"I expected things to be pretty weak at NBC," said Morningstar analyst Daniel Holland, who follows General Electric Co (GE.N), 80 percent owner of NBC Universal; France's Vivendi (VIV.PA) owns the remainder. "Seeing the numbers come in with profits down 45 percent is pretty tough."

In his memo, Zucker said profit would have been down a more modest 15 percent if not for several one-time events, among them a writedown of its stake in local TV broadcaster ION Media, a smaller-than-usual number of theatrical and DVD releases, and the fees it paid to the National Football League for the broadcast of this year's Super Bowl.

Zucker also acknowledged that "a weaker advertising market and slower consumer demand" have hurt the business, which includes theme parks, a film studio and digital assets.

NBC is hardly alone, and it could be some time before a recovery takes hold in the broad industry, despite the recent rally in News Corp, Disney and Time Warner Inc (TWX.N) shares.

Bernstein analyst Michael Nathanson recently wrote that as earnings season heats up, "we think that the recent run-up in media stocks will face resistance as the market realizes that the recent trends are not likely to reverse any time soon."

CABLE TO THE RESCUE?

For all media, the chief issue is an ad slump that is shaping up to be worse than first thought. Not long ago, experts had predicted a 3 percent decline in U.S. ad spending this year. Now most place it around 8 percent to 10 percent.

NBC Universal's flagship TV network, NBC, could be whacked by such a sustained pullback, since it regularly trails its rivals -- CBS Corp (CBS.N), News Corp's Fox and Walt Disney's ABC -- in the prime-time audience ratings that help determine where advertisers spend their money.

NBC, which will unveil its 2009-10 prime-time TV schedule next month, is scrambling to find a fresh hit show to help turn around ratings. But it's also studying other ways to fix the network.

Cost-cutting is key, as evidenced by its decision to seek out savings by bringing late-night comedian Jay Leno to the network for a prime-time show five nights a week. That removes five hours of what can be lofty production costs for scripted dramas or comedies.

NBC is also banking on its cable networks to help offset lower spending by advertisers, as are other media companies with big cable businesses, including Viacom and Time Warner.

Cable, in fact, is the brightest spot for media these days due to hit shows, a lower cost structure and revenue that comes from both advertising and affiliate payments. CBS, whose cable presence is limited to Showtime, is expected to report the worst quarterly results of the bunch.

At NBC Universal, which has heavily emphasized its cable division, cable networks Bravo, USA, CNBC, MSNBC, and Oxygen all posted record quarterly results. Overall cable profit rose 19 percent, according to Zucker's memo.

Cable now makes up roughly 60 percent of NBC Universal's revenue and has become a favorite of Zucker, who on Friday cited the "incredible strength" of the business.

"Many of our divisions, especially cable television, continue to perform at tremendous record-setting levels," he said. "But it's also clear that we are operating in an incredibly challenging environment, which isn't news to anyone." (Additional reporting by Scott Malone and Nick Zieminski, editing by Gerald E. McCormick)