DIVIDED VIACOM AND CBS OFF TO SLOW START

Both Disappoint in First Outing Since Split

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NEW YORK (AdAge.com) -- CBS Corp. and Viacom, reporting separate results for the first time since Chairman Sumner Redstone split them into two companies, had disappointing news for investors.
Photos: Nancy Kaszerman/Adam Nemser
Les Moonves (left) and Tom Freston are both reporting their first results since the corporate split.

CBS Corp., which houses broadcast networks, a publishing house, theme-park unit, outdoor and radio businesses, reported a net loss of $9.14 billion for the quarter, compared with $18.4 billion in the year-earlier period. For the full year, net losses were $7 billion vs. $17.4 billion. The company also took a $9.5 billion write-down in the quarter, reflecting a lower value attributed to its TV and radio businesses.

The newly formed Viacom yesterday reported net earnings of $129.5 million for the quarter down, from $393 million for the period a year earlier, due to poor box-office results. For the full year, Viacom reported net earnings of $1.2 billion, flat with 2004’s performance.

CBS Corp. was created Jan. 1, after Viacom decided to split itself in two. CBS Corp., headed by Chairman-CEO Les Moonves, and its corporate sibling Viacom, which retained the holding-company name, began trading separately Jan. 3. Each entity reported its full year and fourth quarter this week as if they were separate entities.

Bright spot
Ad revenue was a bright spot for CBS. Both CBS and broadcast sibling UPN showed a 4% growth in advertising revenue for full-year 2005, according to the first set of results from the newly created CBS Corp. For the fourth quarter, ad revenue at the two networks was up 6% due to a strong prime-time schedule and sports programming.

CBS is the No. 1 network in households and ranks second behind ABC in 18- to 49-year-olds (4.2 vs. 3.9 rating) through week 21 of the current season, while last-place UPN is in the midst of a merger with Time Warner’s WB to create a new network, CW.

CBS Corp.’s TV unit, which includes the two networks plus the stations group, a TV production and syndication business and pay-TV company Showtime Networks, reported a 1% increase in revenue for the fourth quarter, and a drop of 1% for the year to $9.3 billion. A 2% gain in ad revenue was offset by lower TV license revenue.

The results show just how dependent CBS Corp. is on advertising revenue, which made up 70% of consolidated revenue in 2005. Corporate expenses were also up dramatically, at $42 million, up from $30 million the fourth quarter 2004.

Since splitting from Viacom’s cable and movie-studio operations, CBS has embarked on a number of new strategies, including a more aggressive push into the online and on-demand world. The company signed partnerships with Google to provide content and also with cable operator Comcast. CBS Corp. also acquired College Sports Network and is in the process of selling its theme-parks unit.

‘Don’t underestimate Ailes’
Speaking on an analysts’ call, Mr. Moonves responded to questions about the viability of CW, which now faces competition from News Corp.-backed My Network TV, saying: “We already have a base of 50% of the country between the Tribune stations and the CBS stations. ... Nobody should ever underestimate Roger Ailes [Fox Stations Group chairman], but it took UPN and the WB 12 years [to get established] and they are better off together.” The two rival networks are out wooing station groups, which will be left without a network affiliation once the merger of UPN and the WB is completed in fall.

Commenting on the possibility of a run at Hispanic media conglomerate Univision Communications, CBS Corp. said regulatory issues would make it difficult to acquire the company, but did not appear to rule it out.

Meanwhile, revenue at Viacom’s cable networks, which represent 70% of the unit’s revenue, grew 16% to $2 billion but revenue at Viacom’s film division, which includes Paramount, fell 5% to $788 million -- largely due to disappointing box-office receipts.

At the cable networks, advertising revenue was up 18% and affiliate fees were up 11%. Chairman-CEO Tom Freston said the Viacom’s cable networks capture a "disproportionate amount of cable ad spending.”

Mr. Freston said Viacom has focused on improving Paramount and “took tough action and made substantial changes throughout the organization to make us leaner, more flexible and more efficient.” Some of those actions were reflected in charges on the balance sheet -- $71 million in severance pay, with $48 million at MTV Networks and $23 million at Paramount. There was also $32 million in write-downs related to abandoned theatrical projects.

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