AOL sells Comedy Central stake to partner Viacom

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Viacom Profits, Buys Comedy Central Stake
Tuesday April 22, 9:34 am ET
By Reshma Kapadia
NEW YORK (Reuters) - Viacom Inc. (NYSE:VIAb - News) said on Tuesday it swung to a first-quarter profit as strength in its MTV cable group and Blockbuster movie-rental business offset war-related costs and weakness at its Infinity radio division.
The New York-based media company said it agreed to buy AOL Time Warner Inc.'s (NYSE:AOL - News) 50 percent stake in Comedy Central, whose hit shows include "South Park" and "The Man Show," for $1.23 billion in cash, giving Viacom full control of the network.
Viacom, which is also home to CBS, Paramount Pictures and shows like children's favorite "SpongeBob SquarePants," said it is on track to deliver mid-single-digit percentage growth in revenue and a mid-teen increase in earnings per share in 2003.
For the first quarter, Viacom reported net income of $443 million, or 25 cents a share, compared with a year-earlier loss of $1.11 billion, or 63 cents a share. Revenue rose 7 percent to $6.05 billion.
"It looks pretty solid," said Peter Mirsky, analyst at Fahnestock who has a buy rating on the stock but does not own it. "Radio was a bit weaker than we expected, but they made it up elsewhere with cable and Blockbuster, which was stronger than expected."
Before the effect of changes in accounting rules, Viacom earned $462 million, or 26 cents a share, compared with $367 million, or 21 cents a share, in first quarter 2002. Analysts' estimates averaged 25 cents a share, according to research firm Thomson First Call (News - Websites).
Viacom, which has been one of the strongest performers in the media sector in the last year, said earnings before interest, taxes, depreciation and amortization, a key measure of cash flow known as EBITDA, rose 12 percent to $1.23 billion.
Both revenue and EBITDA beat average Wall Street estimates. Analysts polled by Reuters Research, on average, expected EBITDA of $1.21 billion on revenue of $6.03 billion.
The cable networks group posted 13 percent revenue growth and 21 percent operating income growth amid an increase in advertising and rating gains at MTV from a year earlier.
Meanwhile, growth in Viacom's TV division -- home to CBS and UPN -- was boosted by increases in prime-time ratings but offset slightly by the timing of the NCAA men's basketball tournament and war-related preemptions.
Blockbuster's revenue grew 14 percent and operating income rose 25 percent, while Viacom's radio division saw a 2 percent decline in revenue and nearly flat operating income.
"Initially, it doesn't look like the perceived changes in the ad market (due to the war and economy) had influence on their operating numbers," said Jeff Logsdon, analyst at Gerard Klauer Mattison who does not own Viacom shares. "I think it's positive that both their operating trends and cost controls are going to allow them to achieve healthy growth in 2003 amid a turbulent economy."
Shares of Viacom closed on Monday at $40.84, up a fraction for the year as the stock has retraced most of the losses incurred earlier this year.
The stock rebounded after Chief Operating Officer Mel Karmazin and Chief Executive Sumner Redstone put aside their differences for the moment and settled on a new contract for Karmazin, Viacom's No. 2., allowing the company to aggressively go after some acquisitions with its strong balance sheet.
COMEDY CENTRAL BUY
Viacom executives had made no secret of their desire to buy more cable networks, and analysts welcomed the purchase of the stake in Comedy Central, which they see as a top-rated network, noting that could be run even more efficiently now.
"It makes a lot of sense for Viacom to be 100 percent owner of the asset. And the price is at the lowest end of what cable assets have traded hands for recently," Logsdon said.
AOL Time Warner's sale of the 50 percent stake comes at a time its top executives are under pressure to cut its mountain of debt to avoid jeopardizing the company's credit rating.
The company has been looking to sell several non-core assets, including three Atlanta sports teams, parts of its music business and its books division. The pressure to get a sale done has intensified amid the likelihood AOL Time Warner will not be able to spin off its cable division -- one of the key ways to pare debt quickly -- until at least the fall.
The Comedy Central deal, which Viacom said will add to earnings, is expected to close in the second quarter. The network will be integrated into the MTV Networks group, which includes VH1, Nickelodeon and BET.

 

[JDuncan]

That's just great. The Comedy Central I knew and loved, which had such unique and intersting shows as MST3K, Dr. Katz, Viva Variety, Upright Citizens Brigade and Strangers With Candy, is now truly dead.

 

[czyznyck99]

I wouldn't say dead. More like "New home of Jackass." On the flip side, this could actually work out, if they move all of Viacom's comedy from MTV, etc. Then MTV can re-focus on music. Who am I kidding, though?
This version of Comedy Central lost its steam a while ago. Only way it could get worse was if it began showing old CBS comedies...uh oh.

Later.

 

[MDawg]

Well say goodbye to Conan repaets once their contract expires


Hopefully they don't screw with it too much like they did with the "New" TNN. That would only kill the channel, and no thank you to old CBS comedies, they have never been any good ones to start with, and please don't give us any of the UPN dreck either. I don't think I culd stomach a "Shasta McNasty" or "Homeboys in space" marathon

 

[Outlander00]

Everyones worrying over nothing... Lets see what they do with it first before jumping to conclusions. Who know, maybe they'll keep it as is...

then again, the movies they play are not as varied as I'd like

 

[Pilmedium]

It will take some responsibility away from AOL/Time Warner and give them money, which they need, but I do not like this. Viacom is becoming too big, and they should probably concentrate more on improving their radio division than expanding.

 

[Mynd Hed]

That's just great. The Comedy Central I knew and loved, which had such unique and intersting shows as MST3K, Dr. Katz, Viva Variety, Upright Citizens Brigade and Strangers With Candy, is now truly dead.

Well, we can wait and hope that Viacom will stick to watching the profits from this already-very-successful channel pour in as opposed to taking an active role in determining programming. However, if they DO decide to put their dirty fingers into Comedy Central, I'll be inclined to agree with you. Viacom has a bad habit lately of destroying everything they touch-- look at the way MTV and Nickelodeon have gone downhill in the last ten or fifteen years.