* Q3 adjusted EPS $0.75 vs. Wall St. view $0.70
* To sell Rock Band music video game developer
* U.S. advertising revenue up 8 percent
* Pace of ad growth expected to continue
* Shares up 4 pct in late morning trading (Adds analyst comment, more detail)
By Jennifer Saba
NEW YORK, Nov 11 Viacom VIAb.N plans to rid itself of Harmonix, the video game developer behind the Rock Band franchise, ending a failed foray into the gaming business.
Shares of Viacom rose 4 percent in midday trading on Thursday as the company reported quarterly results that topped Wall Street expectations.
Analysts had long questioned the value of Rock Band for a company known more for its cable networks MTV, Comedy Central and Nickelodeon as well as film studio Paramount Pictures.
"The decision to sell Rock Band is welcome news," said Christopher Marangi, an analyst at Gabelli & Co. "The franchise has been a disappointment and a drag on earnings."
Viacom Chief Executive Philippe Dauman said on a conference call with analysts that it decided to put Harmonix up for sale because it didn't have the expertise in console gaming.
Viacom's better-than-expected earnings were helped by a rise in advertising revenue due to the popularity of its hit MTV show "Jersey Shore."
U.S. advertising revenue rose 8 percent at its cable networks. A strong market for purchasing last minute commercial spots from financial firms, movies, toys and games helped push ad revenue up for the third consecutive quarter.
Dauman expects the current pace of advertising growth to continue. "From our vantage point the economy is improving," said Dauman. "This gives me confidence for another quarter of sequential improvement in ad sales."
Evercore analyst Alan Gould wrote in a note that Viacom's third-quarter domestic advertising revenue beat its forecast of 6.5 percent.
"I think overall Viacom once again proves its one of the most stable, solid stories in the media business," said Benchmark Co analyst Frederick Moran. "It is clearly benefiting from the advertising recovery."
NO EVIDENCE OF CORD CUTTING
The Epix pay television channel, which is owned by Viacom's Paramount Pictures, Metro-Goldwyn-Mayer Studios and Lions Gate Entertainment Corp (LGF.N), is on the path to profitability this quarter, executives said on the call.
In August, Epix struck an exclusive $1 billion deal with Netflix Inc (NFLX.O) giving the movie rental company online rights that allow its members to watch films like "Iron Man" and "Saw".
But Dauman said that while he's happy with the Netflix deal, he does not see any evidence that people are dropping pricey pay-TV subscriptions in favor of such online services, a practice known as cord cutting.
"We don't see cord cutting affecting our business," Dauman said. "It's much ado about very little."
Last week, Time Warner Inc (TWX.N) and News Corp (NWSA.O) executives reassured investors they saw no signs of cord cutting among consumers.[ID:nN03133284]
But early signs that people were seeking to cut discretionary spending in a weak economy or were simply fed up with ever increasing pay-TV bills are beginning to emerge.
Time Warner said is will lose 1.5 million HBO customers this year, blaming it on a lack of promotions and possibly the economy. HBO generates close to 30 percent of Time Warner's annual profit.
BESTS STREET EXPECTATIONS
Viacom's total revenue rose 5 percent to $3.33 billion beating analysts' average forecast of $3.30 billion according to Thomson Reuters I/B/E/S.
Revenue at its media networks division rose 8 percent to $2.1 billion. Global affiliate revenue - fees paid by cable, satellite and phone companies - for the cable networks advanced 10 percent to almost $800 million.
Revenue for film entertainment, which includes Paramount Pictures, rose 1 percent to $1.2 billion thanks to a boost in TV license fees and despite the release of the popular movie "Transformers" in the year-ago quarter. Worldwide DVD sales fell 13 percent.
Net income for the third quarter was $189 million, or 31 cents per share, compared with $463 million, or 76 cents per share, a year earlier.
Excluding $27 million in one-time tax-related gains, the company's earnings from continuing operations totaled 75 cents a share, beating analysts average estimate of 70 cents per share.
Its shares rose $1.56 to $39.66 in late morning trading. (Reporting by Jennifer Saba; Editing by Derek Caney)