* Q3 adjusted EPS $0.55 vs estimates of $0.54
* Redstone says no more sales of Viacom shares
* Redstone voices support for Dauman
* Shares little changed after hours (Adds executive comments, byline)
By Paul Thomasch
NEW YORK, Nov 3 (Reuters) - Viacom Inc VIAb.N, owner of MTV Networks and Paramount movie studio, reported a 37 percent drop in third-quarter earnings, further evidence major media companies are suffering from an intensifying advertising slump.
Viacom Chief Executive Philippe Dauman cautioned that the advertising market remained under pressure in the early weeks of the fourth quarter, backing up comments by other media executives who have pointed to a downturn in spending from automotive, financial services and retail companies.
“During the third quarter and beyond, Viacom, like every company, had to adjust to the realities of a serious economic downturn,” he said. “There was a general pullback in spending by marketers as they responded to lower consumer spending.”
Viacom’s advertising troubles were compounded by poor ratings for two of its key cable networks, MTV and VH1, which executives said they planned to jump-start with new series and more viewer-friendly features, such as games and comment windows.
Its film division, which holds Paramount studios, also suffered without smash-hit “tent pole” movies in the third quarter, such as last year’s “Transformers.”
Viacom’s troubles were largely expected, however, since it warned last month that its earnings would fall well-short of forecasts for the quarter and full year. Its actual third- quarter results on Monday were in line with revised forecasts.
In addition to the advertising slump, Viacom is also facing tough questions about its controlling shareholder and executive chairman, Sumner Redstone, who has run into a debt issue at his privately held National Amusements.
In recent weeks, Redstone has been forced to sell about $230 million of his stock in Viacom and CBS Corp (CBS.N), the other key component of his media empire, to fund debt related to National Amusements.
Since those sales, Redstone has pledged he will not divest any more shares of Viacom or CBS -- although that leaves unanswered how National Amusements plans to pay about $800 million in debt coming due next month.
Redstone repeated that pledge on Monday, calling Viacom “the love of my life,” and saying he was optimistic that National Amusements would reach a new agreement on its debt with its banks.
Redstone, who has sometimes been known to have a short fuse with top executives of his companies, also voiced his support for Dauman during the call with investors.
“I assure you there is no management team in the media business that has done a better job of positioning their company to weather the storm and more important in a way to seize the inevitable opportunities that will emerge as the economy recovers,” Redstone said.
The company’s shares closed 1.1 percent down at $19.99 on the New York Stock Exchange on Monday and were little changed after hours. The shares have declined over 50 percent so far this year.
Viacom’s results for the quarter showed net profit fell to $401 million, or 65 cents a share, from $641 million, or 96 cents a share, a year earlier.
Adjusted earnings from continuing operations were 55 cents per share. Before the warning, Wall Street expected Viacom to earn 61 cents a share, but since then, analysts have lowered expectations to 54 cents, according to Reuters Estimates.
Viacom, which also owns Nickelodeon and Comedy Central, said revenues rose 4 percent to $3.4 billion as some of its troubles were offset by stronger affiliate revenue, the DVD release of “Iron Man” and sales of its hit Rock Band video game.
In a boost to its video game efforts, Viacom announced a deal last week that will let is use songs by The Beatles in a custom video game similar to "Rock Band." (Visit blogs.reuters.com/mediafile/ for more coverage at the Reuters MediaFile blog) (Reporting by Paul Thomasch; editing by Jeffrey Benkoe and Andre Grenon)