Philippe Dauman Says Legal Woes Won't Deter Viacom

U.S. Ad Revenue Declines 4% in Third Quarter

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Viacom CEO Philippe Dauman kept up a tone of confidence on the company's earnings call with Wall Street on Thursday morning, saying the company is not deterred by the very public legal battle with Sumner Redstone.

At the top of the call, Mr. Dauman said the decision last week by Massachusetts and Delaware courts to proceed with the case was a positive step in reaching a resolution.

Mr. Redstone, who controls Viacom through his holding company National Amusements, attempted to oust five of the company's board members, including Mr. Dauman, in June. In turn, Mr. Dauman is questioning Mr. Redstone's mental capacity, claiming he is being influenced by his daughter Shari Redstone, vice chair of Viacom.

"Well, obviously, it's somewhat of a distraction," Mr. Dauman admitted when asked to what extent the public nature of the dispute has had on the day-to-day running of the business and negotiations with partners. But we are "not deterred" from pursuing strategic initiatives, he added.

The biggest impact has been on Viacom's ability to move forward on its sale of Paramount, Mr. Dauman said. The company originally intended to have an agreement in place by about a month ago, he said.

"So that's certainly been slowed down," Mr. Dauman said.

Mr. Redstone and Shari Redstone have opposed a sale of Paramount.

Mr. Dauman went on to list all of the ways the legal battle has not deterred the company, including signing affiliate agreements, producing new programming, closing upfront negotiations, creating new marketing products, entering into new partnerships with Roku, Snapchat and comScore, and finding new ways to distribute content.

"So yes it's a distraction, but in the scope of time it will be viewed as temporary, and our strategic initiatives continue unabated," Mr. Dauman said.

But the pending legal woes are just a part of Viacom's troubles as the company's TV networks continue to experience ratings weakness.

This, along with a lackluster showing at the box office, contributed to a 27% decline in profits in the third quarter. Viacom reported third-quarter profit of $432 million, or $1.09 a share, compared with $591 million, or $1.47 a share in the year-ago period. Revenue rose 2% to $3.12 billion.

Revenue at its TV networks fell 3% as U.S. ad revenue declined 4%.

The company views 2017 as an important year to get advertising back on track, Chief Operating Officer Tom Dooley said during the call.

While ad spending is expected to be tempered during the current quarter in part due to the Olympics, Mr. Dooley expects to see a "favorable trend" in ad sales moving forward.

Viacom secured mid-to-high single digit increases in total dollars committed in the upfronts and in the cost to reach 1,000 viewers, an industry standard known as CPMs.

It did 35 to 40 deals with its Vantage data product, with more than half of those utilizing comScore metrics versus Nielsen, which Mr. Dauman said signals "a welcome market shift to alternative currencies."

Viacom continues to grapple with ratings erosion. The company is especially vulnerable because networks like Nickelodeon and MTV attract younger audiences who are more likely to eschew cable subscriptions and watch content on non-traditional platforms where viewership is not completely measured.

Mr. Dauman said the company began to stabilize its ratings for several of its networks during the June quarter. He highlighted VH1 and Nick Jr. as two of the biggest ratings gainers, while Nickelodeon has experienced growth due to the success of new programming like "Henry Danger" and "The Loud House."

Comedy Central has also seen ratings improvement and is up year-over-year in the fourth quarter so far, Mr. Dauman said.

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