April 30, 2009 / 11:31 AM / 9 years ago

For Viacom, prospect of stable advertising a blessing

NEW YORK (Reuters) - Viacom Inc VIAb.N Chief Executive Philippe Dauman joined the list of media executives who see a bright side to their quarterly financials: Ad spending may be down, but at least it’s not getting worse.

As they say in media circles these days, flat is the new up, so indications from industry bigwigs that advertising has stabilized seems to be reason enough for investors to cheer.

Shares of Viacom rose as much as 5.5 percent on Thursday morning, even after the owner of MTV Networks and Paramount film studios reported declines of 34 percent in profit and 7 percent in revenue for its first quarter.

“There is a growing number of companies out there, even those in weakened market sectors, that are seizing the opportunity to grab market share, build equity in their brands and solidify their customer base,” Dauman said.

“Importantly, we are not seeing any further deterioration. While it is too soon to make a call, over the past several weeks, we have seen the advertising markets stabilize,” he added on a conference call with analysts and investors.

While not getting any worse, few executives are ready to say that the advertising market is strengthening after major cutbacks by companies hoping to save money wherever they can.

Indeed, experts caution that if advertising revenue has stabilized, it has done so at extremely depressed levels. At Viacom, which is also home to Nickelodeon and Comedy Central, advertising revenue fell 9 percent domestically and 11 percent worldwide.

But Dauman and others have said marketers appear to be growing more confident about the economic outlook, which is still threatened by everything from job losses and depressed housing prices to the swine flu.

“While these recessionary conditions persist, we have seen signs in the last several weeks that the economy may be stabilizing,” he said. “We are by no means out of the woods yet, but I am confident in our ability to manage through the times ahead.”

He added, “I think you see out there and recent statistics are bearing it out and the market is bearing it out that our customers are starting to feel more confident about a recovery emerging later in the year and going into next year.”

In earlier earnings reports, USA Today owner Gannett Co (GCI.N) and magazine publisher and TV station owner Meredith Corp (MDP.N) offered similar thoughts about the outlook.

Hopes of a somewhat healthier advertising market, in fact, have underpinned media stocks for weeks. CBS Corp (CBS.N), Time Warner (TWX.N) and News Corp (NWSA.O) have all seen substantial gains in the last month, outperforming the broader Standard & Poor’s 500 rise of 7 percent.

Still, the current advertising crash -- the worst since the early 1980s -- began later than the broader economic recession and most expected it to trail any recovery by about six months. And not every company has been as upbeat about the outlook at Viacom.

    Time Warner on Wednesday it reported stronger-than-expected quarterly profit and affirmed its 2009 outlook, but said it expected a mid-single-digits advertising revenue decline in the second quarter and warned that advertisers are increasingly canceling TV commercial purchases.

    Bernstein analyst Michael Nathanson wrote in a research note that Time Warner’s comments that advertisers have been canceling more commitments for commercial time in the late summer and early fall “puts at risk the thesis that the second quarter 2009 will mark the trough in advertising growth.”

    It suggests, he said, “that advertising growth could continue decelerating through the third quarter 2009. if all else remains equal.”

    At Viacom, advertising accounts for about 30 percent of annual revenue and executives have had the added burden of trying to turnaround poor ratings at some of its cable networks, specifically MTV.

    In the most recent quarter, it was also hurt by the stronger dollar, a drop in sales of its popular “Rock Band” video game and lower sales of DVDs, partly due to the lower number of titles released this year.

    Overall, Viacom’s first-quarter profit fell to $177 million, or 29 cents a share, from $270 million, or 42 cents a share, in the period a year earlier. Revenue fell to $2.91 billion.

    Analysts were looking for profit per share of 26 cents on revenue of $2.98 billion, according to Reuters Estimates.

    Reporting by Paul Thomasch; Editing by Tiffany Wu

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