Viacom sinks as MTV owner sees more subscriber losses ahead

[LOS ANGELES] Viacom Inc said subscribers to its cable-TV networks will drop by about 3 per cent this quarter, another hurdle for the owner of MTV and Nickelodeon.

Shares dropped as much as 11 per cent, the most in 18 months, in New York as investors took little solace despite quarterly sales and profit that beat analysts' estimates. The potential exit of a movie-financing partner in China also weighed on the stock.

The subscriber losses add to the tasks facing Chief Executive Officer Bob Bakish as he attempts to turn around Viacom, the beleaguered media company just emerging from a fight for control and a period of executive turnover. TV networks MTV, Comedy Central and BET have been losing viewers, and the Paramount Pictures film division has been losing money.

"With both affiliate and advertising negative, and content costs increasing, that can only mean one direction for the earnings contribution from domestic networks (down)," Sanford C Bernstein & Co. analysts Todd Juenger and George Zhao said in a note to clients. They rate the stock underperform.

Viacom is already suffering declines in US advertising sales, and fighting with one of its biggest partners, Charter Communications Inc, over channels being relegated to less popular tiers.

While the rate of subscriber losses in the current period would be better than last quarter's 3.5 per cent decline, according to Viacom, the figures reflect the difficulties ahead for the company, which makes almost 80 per cent of its sales from its TV networks. Ratings have suffered as young viewers watch more and more video online.

Viacom posted its highest quarterly revenue in almost two years, boosted by the acquisition of an Argentine TV network and the improved performance of Paramount. A 2 per cent gain in global advertising sales and higher fees charged to cable and satellite providers also contributed to the growth.

Fiscal third-quarter sales jumped 8.3 per cent from a year earlier to US$3.36 billion, compared with the US$3.3 billion average of analysts' estimates. Paramount posted its first profit since the final quarter of 2015, and boosted sales thanks to Transformers: The Last Knight, the fifth film in the franchise.

Telefe, the Argentine television network Viacom agreed to acquire late last year, helped boost international revenue 13 per cent, leaving out currency fluctuations.

Thanks to audiences in China, The Last Knight was a win for the studio even though the movie was the lowest-grossing of any Transformers film, with US$570 million worldwide. But a financing deal with Huahua Media, a Chinese investor, has been delayed, Viacom said.

Third-quarter earnings rose to US$1.17 a share, compared with the US$1.05 average estimate of analysts. Net income was hurt by US$59 million in charges for Paramount, including severance for former Paramount chief Brad Grey, who died in May shortly after his exit from the company. A US$285 million boost from the sale of a stake in the Epix TV network to MGM Holdings Inc added to net income.

BLOOMBERG