Viacom Earnings Call: Digital Revenues Still Nominal, Advertising Will Get Worse
This story was written by Rory Maher.
Chairman Sumner Redstone and CEO Phillippe Dauman talked about the challenges Viacom (NYSE: VIA) faces, saying first quarter this year will likely be grimmer than the fourth quarter of 2008, and that the ad environment "will get worse before it gets better." Specifically:
Digital revenues are growing, but remain incremental to those of other units. Dauman said that while traffic on Viacom's sites remains strong (46 million unique visitors in the U.S. and 90 million worldwide) the company isn't ready to separate out those results because digital ads are primarily sold as an add-on to traditional ads rather than separately. In addition, Dauman said that the company will "align" its traditional network programming with its digital programming. Translation: the economy is too weak to support original programming online; web programming will consist primarily of network programming extended online. Dauman said the company was successfully selling digital advertising across multiple platforms like mobile and IPTV, but he didn't offer specifics.
Rock Band 2 sales were solid, but weaker than expected. Following a September 2008 launch, Rock Band 2 sold an impressive 2 million units, but this was less than the company has predicted; the X-factor was a sudden drop in retail consumer spending during the last two months of the year, the company said. Viacom expects Rock Band 2 to be one of the few bright spots in what is shaping up to be a very weak 2009.
Ad revenue in the first quarter will be worse than in the fourth quarter, with no end in sight. CFO Tom Dooley declined to provide details about how ad revenue is trending, but did say that across the company, ad revenue would be worse than the fourth quarter of 2008. Echoing previous reports from competitors, Dooley noted that the company is unable to predict when results could turn around because advertisers have been making their buys at the last minute.
DVD sales were swept up in overall retail weakness during the fourth quarter. Dauman suggested that DVD sales held up fairly well before falling off a cliff in November and December. The company said the number of people who see Viacom films at the box office then buy DVDs of those movies has fallen, but Dauman did not specify whether he thought this was due to changing consumer behavior or a sudden drop in retail spending during the year. Regardless, DVD revenue is expected to remain weak in 2009.
VIA shares are flat following the release so, as we said in our earlier story, investors were likely unsurprised by the results.
By Rory Maher