Television

Viacom net earnings plummet on restructuring & programming charges

BENGALURU: Viacom Inc (Viacom) reported a steep decline of 60.1 percent in net earnings for the quarter ended 31 March 2017 (Q2-17, current quarter) as compared to the corresponding year ago quarter - year-on-year (y-o-y). Operating income decreased 43.3 percent y-o-y in the current quarter. The company in its earnings release says that reported operating income reflects restructuring and programming charges of $280 million resulting from the execution of new strategic initiatives, including the prioritization of six flagship brands: BET, Comedy Central, MTV, Nickelodeon, Nick Jr. and Paramount.

Net earnings attributable to Viacom for Q2-17 were $121 million as compared to $309 million in Q2-16. Operating income for Q2-17 was $332 million as compared to $586 million in the corresponding year ago quarter.

Viacom reported 8.5 percent y-o-y increase in revenue for Q2-17 at $3,256 million as compared to $3,001 million reported for the corresponding year ago quarter.

Viacom president and CEO Bob Bakish said, “In the second quarter, Viacom delivered continued top-line improvement, with growth in affiliate revenues, international media networks and across every business segment of Paramount Pictures. Additionally, we executed quickly on our strategic plan, making significant organizational changes to better focus and align Viacom’s brand portfolio and ensure strong leadership, including the appointment of Jim

Gianopulos to chart a new course at Paramount. We are working diligently to cement Viacom as a partner of choice in the industry, presenting new and reinvigorated brand strategies for our advertisers, producing creative and flexible new opportunities with our distributors and recommitting ourselves to be the home for the world’s best talent.”

“Viacom also took significant steps forward on our plan to strengthen our balance sheet, improve our leverage profile and enhance liquidity. Since the end of our first fiscal quarter, we completed a successful hybrid debt offering, redeemed outstanding debt and executed on the sale of non-core assets, including the pending sale of our stake in EPIX. There is a lot of work still to do, but we are making important changes at Viacom, taking substantial strides towards revitalizing our portfolio of brands and returning the company to consistent top-line growth,” Bakish added.

The company has two major segments – Media Networks and Filmed Entertainment.

Media Networks

Media Networks revenue for the current quarter increased y-o-y by a marginal 0.5 percent despite a 1.2 percent decline in advertising sales. The segment reported revenue of $2,394 million for Q2-17 as compared to $2,381 million in Q2-16. Adjusted operating income declined 7.2 percent to $747 million from $845 million in the year ago quarter.

Media Networks advertising revenue declined 1.2 percent y-o-y in Q2-17 to $1,109 million from $1,123 million. Worldwide advertising revenues increased 1 percent, excluding a 2-percentage point unfavourable impact from foreign exchange. Domestic advertising revenues decreased 4 percent, driven by higher pricing more than offset by lower impressions. International advertising revenues increased 11 percent. Excluding foreign exchange, which had an 11-percentage point unfavourable impact, international advertising revenues grew 22 percent. The gains in international advertising were driven by the acquisition of Telefe, which had a 17- percentage point favourable impact, and continued growth in Europe says Viacom.

Affiliate revenue in the current quarter increased 2.4 percent y-o-y to $1,156 million from $1,129 million. Domestic and international affiliate revenues increased 1 percent to $975 million and 10 percent to $181 million, respectively. The growth in domestic revenues principally reflects rate increases, partially offset by a modest decline in subscribers and a decline in revenues from SVOD and other OTT agreements. Excluding foreign exchange, which had a 4-percentage point unfavourable impact, international affiliate revenues increased 14 percent. The increase in international revenues reflected the impact of rate increases, subscriber growth and new channel launches, as well as higher revenues from SVOD and other OTT agreements. International affiliate growth included a 4-percentage point favourable impact from the acquisition of Telefe.

Ancillary revenue was flat y-o-y t $129 million. Domestic ancillary revenues decreased 8 percent to $70 million while international ancillary revenues increased 11 percent to $59 million.

Filmed Entertainment

Filmed Entertainment revenues grew 36.6 percent to $895 million in Q2-17 from $655 million, reflecting gains in theatrical, licensing, home entertainment and ancillary revenues. Domestic revenues increased 25 percent to $458 million in the quarter, while international revenues increased 51 percent to $437 million.

Filmed Entertainment segment’s adjusted operating loss narrowed to less than half $66 million from an operating loss of $136 million in Q2-16. The company says that the improvement principally reflected the various revenue increases, partially offset by higher operating expenses.

Theatrical revenues rose 10 percent to $238 million, with revenues from current quarter releases up 73 percent compared to releases from Q2-16. Domestic theatrical revenues decreased 45 percent, while international theatrical revenues grew 98 percent, reflecting the strong international performance of xXx: Return of Xander Cage. Foreign exchange had a 3-percentage point favourable impact on international theatrical revenues.

Licensing revenues increased 45 percent to $347 million in the quarter, primarily driven by Paramount Television production, as well as higher revenues from licensing arrangements with pay television and SVOD distributors. Domestic licensing revenues grew 85 percent, while international licensing revenues increased 24 percent.

Home entertainment revenues increased 29 percent to $198 million in the quarter, reflecting the number and mix of current quarter releases. Domestic and international home entertainment revenues increased 23 percent and 49 percent respectively. Foreign exchange had a 5-percentage point unfavourable impact on international home entertainment revenues.

Ancillary revenues increased 149 percent to $112 million, primarily driven by the sale of a partial copyright interest in certain current year releases related to a film slate financing arrangement. Domestic ancillary revenues increased 158 percent to $93 million while international ancillary revenues increased 111 percent to $19 million.

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