Viacom profit beats, but Nickelodeon worries loom

The parent of MTV and Comedy Channel benefited mainly from an increase in affiliate fee revenue paid by cable and satellite distributors. This helped offset relatively flat advertising revenue growth in a quarter that has been dominated by concerns of weak viewer ratings at the company's flagship children's network, Nickelodeon, and also at MTV.

Advertising revenue at TV networks typically rise or fall in step with the estimated number of viewers watching programs as reported by independent companies like Nielsen.

Ratings were improving at both networks, executives told analysts.

However, Nielsen ratings for Nickelodeon have fallen 30 percent this year. Viacom is disputing the measurements' methodology.

Viacom's Chief Operating Officer Thomas Dooley told analysts, "We are seeing the strengthening in the overall tone of the marketplace in terms of the (advertising) volume coming into the marketplace that has offset the impact of the ratings deficiencies that we've had primarily on one of our larger channels, and that would be Nickelodeon."

The ratings issue has not had a significant impact on Viacom's ability to attract or satisfy the advertising demand it has had at its big four networks, he said.

Viacom cautioned that affiliate fee revenue would fall in the current quarter from a year earlier due to the timing of deals, but said it would return to double-digit growth in the September quarter.

There has been strong speculation and some research claiming that Nickelodeon's ratings are being hurt by the availability of its children's programming on the online video service Netflix Inc.

Analysts at Bernstein Research published their proprietary set-top box findings last week, which showed children's programming in particular had taken "a clear and sizable hit" from Netflix.

But Viacom Chief Executive Philippe Dauman rejected the premise and pointed out that Netflix, with 23 million subscribers, is in fewer than a quarter of U.S. television households.

"Since we get the streaming data on our (Netflix) content, I can tell you that the time spent on Nickelodeon content on Netflix is approximately 2 percent of the time spent on our Nickelodeon channel," said Dauman.

"It would have a minimal impact here."

He was similarly supportive of Viacom's Netflix deal with its pay-TV channel Epix. Reuters reported last week that Epix is holding talks with Apple Inc for when the two-year exclusivity clause of the Netflix/Epix five-year deal expires in September.

Dauman said there is a lot of interest in new Epix distribution deals but they would remain in the partnership.

"We will continue to be on Netflix under any circumstance," said Dauman.

RISING PROFITS

Net income from continuing operations rose to $588 million, or $1.08 per share, in the second quarter ended on March 31 from $376 million, or 63 cents per share, a year earlier.

Excluding items, earnings from continuing operations were 98 cents a share. Analysts on average expected 89 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 2 percent to $3.33 billion.

Cable network revenue rose 5 percent, primarily because of an increase in money from fees from cable and satellite TV distributors.

Those fees rose 15 percent in the United States and 17 percent worldwide, also benefiting from digital distribution deals.

Advertising revenue rose by 1 percent in the United States and was flat internationally.

At Viacom's Paramount movie studio, revenue decreased by 5 percent to $1.17 billion due to a weak box office performance at the theaters.

Shares of Viacom were up 3.3 percent at $49 in afternoon trade.

(Reporting By Yinka Adegoke in New York; Editing by Gerald E. McCormick and Lisa Von Ahn)