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FY-2015: Lower Filmed Entertainment numbers drag Viacom revenue down 3.7 percent

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BENGALURU: Viacom Inc (Viacom) reported 3.7 percent drop (reduced by $515 million) in revenue for the year ended September 30, 2015 (FY-2015, current year) at $13,268 million as compared to $13,783 million in FY-2014. Viacom says that the fall in revenue was due to due to lower revenues across the distribution windows. Of the two segments that the company has, Filmed Entertainment reported 22.6 percent (reduced by $842 million) lower revenue in FY-2015 at $2,883 million as compared to $3,725 million in the previous year.

Viacom says that excluding an unfavourable 2 percent impact of foreign exchange, revenues declined 2 percent, while excluding an unfavourable 2 percent and 4 percent impact of foreign exchange, Filmed Entertainment revenues declined 19 percent.

The company’s operating income fell 22.8 percent (reduced by $970 million) to $3,112 million from $4,082 reported for last year. Adjusted operating income decreased 5 percent ($205 million) to $3,920 million in FY-2015. Adjusted results exclude the impact of restructuring and programming charges totalling $784 million and a non-cash pension settlement loss of $24 million in 2015 and a non-cash impairment charge of $43 million in 2014. Including the impact of these items, operating income decreased $970 million, as mentioned above.

Filmed Entertainment segment’s adjusted operating income reduced 45.9 percent (reduced by $94 million) in the current year to $111 million as compared to $205 million in the company’s previous fiscal. The lower adjusted operating income for this segment reflects lower contribution from films in release across the distribution windows says Viacom. Last quarter (Q3-2015), also lower results from the Filmed Entertainment segment had pulled down the company’s revenues by 11 percent.

The company’s other segment, Media Networks reported 3.1 percent (increased by $319 million) increase in revenue in FY-2015 to $10,490 million from $10,171 million, driven primarily by higher affiliate fees and advertising revenues. Media Networks adjusted operating income reduced by 3 percent (reduced by $128 million) in the current year to $4,143 million from $4,271 million in FY-2014. Viacom says that higher revenues from the segment were more than offset by an increase in programming and marketing expenses.

Viacom Executive Chairman Sumner M Redstone said, “Viacom continues to create some of the most compelling and entertaining content in the world. I am confident that Viacom's leadership team will continue to lead through our industry's period of transition and succeed well into the future.”

Viacom President and Chief Executive Officer Philippe Dauman said, “Viacom's fourth quarter and year-end results are indicative of our progress in key areas, including recent ratings improvement and renewals of important distribution agreements. Our strategy of increasing and accelerating investment in original content and expanding our profitable international footprint are among the major factors driving this success, which we believe will continue in 2016 and beyond. We are making great progress in tackling industry-wide inefficiencies in audience measurement, while expanding our audience reach with landmark distribution agreements.

"Viacom's family of Media Networks are the most watched by highly coveted younger audiences, and we are building engagement on all platforms, leading to first-of-their-kind marketing opportunities with our advertising partners. Our investment in content continues to grow, supporting an unprecedented amount of quality original programming and a more robust slate of films. In addition, in fiscal 2015 we launched 21 channels overseas - including six in India - fuelling the fastest international growth in our history.”

Segment Performance

As mentioned above, two segments contribute to Viacom’s numbers-Media Networks, which has three components – Advertising, Affiliate Fees and Ancillary; and Filmed Entertainment which has four components-Theatrical, Home Entertainment, License Fees and Ancillary.

Media Networks

Excluding an unfavourable 2 percent impact of foreign exchange, worldwide revenues increased 5 percent. Domestic revenues were $8,635 million, an increase of $10 million. International revenues were $1,855 million, an increase of $309 million, or 20 percent, primarily due to the acquisition of Channel 5 Broadcasting Limited (Channel 5), partially offset by foreign exchange, which had a 10 percentage point unfavourable impact on international revenues says Viacom.

Advertising

Worldwide advertising revenues increased $54 million, or 1.1 percent, to $5,007 million in FY-2015 . Domestic advertising revenues decreased 7 percent. The company says that while pricing remained essentially flat, softer ratings caused lower audience delivery, reducing impressions and associated revenue. International advertising revenues increased 60 percent, reflecting growth in Europe driven by the acquisition of Channel 5, partially offset by the impact of foreign exchange, which had a 10 percentage point unfavourable impact on international advertising revenues.

Affiliate Fees

Worldwide affiliate fees increased $248 million, or 5.3 percent, to $4,908 million in FY-2015. Domestic affiliate revenues increased 8 percent, driven by rate increases as well as the benefit of distribution arrangements which are affected by the timing of available programming. Excluding the impact from the timing of product available under these distribution agreements, domestic affiliate revenues grew in the mid-single digits. International revenues decreased 7 percent, principally due to foreign exchange, which had an 11 percentage point unfavourable impact, partially offset by an increase in revenues driven by the launch of new channels and new distribution agreements.

Filmed Entertainment

Excluding an unfavourable 4 percent impact of foreign exchange, worldwide revenues declined 19 percent, due to lower revenues across the distribution windows reflecting the mix of films. Domestic revenues were $1,374 million, a decrease of $347 million, or 20 percent. International revenues were $1,509 million, a decrease of $495 million, or 25 percent, with foreign exchange having an 8- percentage point unfavourable impact on international revenues.

Theatrical revenues :in the current year reduced 30.4 percent (reduced by $368 million) to $841 million from $1209 million due to the mix of releases, partially offset by higher carryover revenues of $54 million from prior year releases, principally from Teenage Mutant Ninja Turtles. Domestic theatrical revenues decreased 26 percent and international revenues decreased 34 percent. Foreign exchange had a 10 percentage point unfavourable impact on international theatrical revenue

Home Entertainment: Worldwide home entertainment revenues decreased $293 million, or 25.2 percent, to $871 million FY-2015, reflecting a decline in revenues from third-party distribution titles, carryover revenues from prior year releases and Viacom’s current year releases due to the mix of titles. Significant titles in the current year included Teenage Mutant Ninja Turtles,Interstellar and The SpongeBob Movie: Sponge Out of Water, while the prior year includedTransformers : Age of ExtinctionThe Wolf of Wall StreetNoah and Jackass : Bad Grandpa. Domestic and international home entertainment revenues decreased 16 percent and 35 percent respectively. Foreign exchange had a 7-percentage point unfavourable impact on international home entertainment revenues.

License Fees :decreased $135 million, or 12.1 percent, to $980 million FY-2015, primarily driven by the mix of available titles.

Ancillary:Ancillary revenues decreased $46 million, or 19.4 percent, to $191 million in FY-2015, primarily driven by a benefit from the sale of certain distribution rights in the prior year.

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