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If Viacom's (NYSE: VIA) first-quarter earnings were a sweeps program, it probably wouldn't achieve a high rating. That's because the plot of the press release's narrative centered on one depressing theme: decline.
Let's begin at the top. Sales decreased 8% (you're about to switch the channel already, I know). Operating income was down by 22%. And adjusted income decreased 34%. Income at the media division was down 9%, and the loss in the film department nearly doubled!
But, hey, profits beat estimates, at least. According to Bloomberg, Viacom was only supposed to do around 25 cents per share. In fact, shares of Viacom rallied over 5% in the after-hours session Thursday on the news.
Media companies like Disney (NYSE: DIS), Time Warner (NYSE: TWX), News Corp. (NASDAQ: NWS), General Electric's (NYSE: GE) NBC Universal, and CBS (NYSE: CBS) are all having problems with the advertising recession.
We know the story. We also know that it costs a lot to make content. Too much, in my opinion. For Viacom to make best-of-breed entertainment products, it has to pay up.
I think it's time shareholders in media companies demand better accountability when it comes to costs associated with content. If Viacom is going to, say, pay J.J. Abrams and Michael Bay a ton of money for the new Star Trek and Transformer films, respectively, well, they better make sure they're getting what they pay for. And shareholders need to know exactly what the deal structures are.
Keep in mind that DVD sales have been slowing, and that the home-video market is a big source of revenue for film studios. It's something they count on to amortize the costs of pricey pictures. Without a vibrant DVD trade, lofty compensation packages for talent doesn't make sense.
And let's not forget the MTV Networks. MTV needs to ramp up its cool factor. Nickelodeon needs to find its own High School Musical. All the cable properties are obligated to step up their game. And, again, I don't want to hear that a lot of money is necessary to succeed. Find some good concepts, guys, and everything will fall into place. And executive chairman Sumner Redstone had better hope the minions under him stumble upon a winning formula -- patience might be wearing thin for this gentleman.
As for the stock, I'm not too keen on it right now. It may have rallied in after-hours trading, but I won't be buying anytime soon. Heck, I have my own problems with Disney.
Disclosure: I own Disney, GE; positions can change without notice.
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