Slowing Ad Market Slams Sumner Redstone's Empire

CBS to Write Down $14 Billion; Viacom Sees Global Ad Revenue Decline

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NEW YORK (AdAge.com) -- A weakening ad market is taking its toll on both cable and broadcast TV. Former corporate siblings CBS and Viacom, both controlled by Chairman Sumner Redstone, warned investors they're dialing back ad-revenue projections for the third quarter. CBS investors get an additional surprise: an expected $14 billion write-down to reflect the falling value of its assets.
Sumner Redstone
Sumner Redstone Credit: AP

Shares in both companies were punished, even in a crashing market. CBS plummeted more than 22% in trading today, closing at $7.68, and Viacom fell nearly 19%, closing at $16.76 a share. Amid a market tailspin, CBS has lost two-thirds of its value over the past year, and Viacom more than 50%.

Redstone's sell-off
If it's any solace to investors, Mr. Redstone is also taking a bath. Mr. Redstone announced he's selling $400 million of non-voting shares today to pay down debt at his holding company, National Amusements.

Viacom, with its stable of ad-supported cable networks such as MTV, Nickelodeon and Comedy Central, said third-quarter profit would be hit by a 2% decline in global ad revenue, including a 3% decline in the U.S. and a 8% increase internationally from a year ago.

Affiliate and ancillary revenue, including fees paid by cable and satellite operators to carry Viacom's networks, are unaffected and are expected to grow at a double-digit percentage rate in the third quarter.

"Given the rapid softening of the economy and the uncertainty this creates in forecasting advertising growth, we are taking the prudent step of moderating our near-term targets," Viacom CEO Philippe Dauman said in a statement. "At the same time, we are moving quickly to adapt to the changing environment and will take appropriate steps to secure new efficiencies that will enhance our long-term earnings growth prospects."

The company is expecting earnings per share of 53 cents to 55 cents in the third quarter, compared to average analyst expectation of 60 cents as compiled by Thomson Reuters.

Moving targets
It's the third time this year that Mr. Dauman has warned mid-quarter of softness at Viacom's cable networks. The company reported 7% ad-revenue growth in the first quarter, but warned in the second quarter they wouldn't repeat that feat and that ad sales would be in the 3% to 4% range. Then, after a particularly weak June, he dropped his estimate to 2% growth.

CBS is expected to benefit from record-setting political spending, but much of that hits in the fourth quarter. CBS said third-quarter ad revenue would grow 3% from the same period in 2007, and that the "effects of the current financial crisis are likely to cause further declines in advertising spending."

The write-down reflects the declining book value of CBS's TV and radio stations, as well as other assets.
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