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Viacom execs eye strong upfront even as domestic ad sales continue to retreat

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Viacom execs eye strong upfront even as domestic ad sales continue to retreat

Despitecontinued decline in domestic advertising sales, executives at believe the combination ofreduced ad loads at several networks, strength with Nickelodeon (US), and the use of data-driven productswill lead the programmer to upfront sales gains.

ViacomExecutive Chairman, President and CEO Philippe Dauman, speaking during the company'ssecond-quarter fiscal 2016 call with analysts on April 28, said that "whileit is early in the [third fiscal] quarter, we hope to improve the rate of changein ad sales revenue even as we reduced unit load at several of our networks, whichbodes well for brand health and future financial performance. This year we expecta strong upfront, a tripling of ViacomVantage clients and additional interest in kids [programming] were Viacomhas some of its greatest strength."

Daumanreiterated remarks from earlier calls that the company anticipates a trebling ofadvertisers to 33 doing business under the Viacom Vantage program.  He said that three-quarters of Viacom's ad dollarscome from its top 100 advertisers and that Viacom Vantage is concentrated withinits top-50 advertisers.

Viacomalso thinks the theatrical-targeted version of the program will yield benefits.

"Themovie studios are coming to us … with an increased number of kids and family-orientedtheatrical releases, and as a dominant kids' network this is very positive for Nickelodeon,"said Dauman. "In addition, we have recently launched Viacom Vantage studioedition, the first data-driven ad products specifically for the studio category,[where] we see significant opportunities for overall growth.

The optimismcomes despite a 5% decline in U.S. ad sales in the quarter, ended March 31, as pricingincreases were more than offset by continued ratings softness at key networks likeMTV (US) and . While thescatter market is strong, Viacom was unable to capitalize fully as inventory hadto be devoted to audience deficiency units.

CFO WadeDavis said that Viacom, given growth at the other networks, would see a positiveadvertising position if ratings at MTV and Comedy Central were down in the low teensor high-single-digits.

"Wehope to be able to move into that type of situation as we have indicated as we moveinto 2017," Davis said on the call. "The adjustment of our unit loadsthat we're putting into place this year will position us well to be able to do that.[And] we believe the programming that Comedy and MTV are putting on will positionus to do that as we roll into next year."

Daumantalked up MTV's move toward music and music-inspired programming under new networkleadership and that its reimaginedupfront last week was "very warmly received by the ad community."

Relativeto its recent distribution renewal deal with DISH Network, Dauman said "nothing could be furtherfrom the truth" in response to a comment that Viacom had given up economicswith streaming service Sling TV  in order to secure a traditional pact with theDBS provider.

"Iam proud to say that we were able to renew it on good terms without our networksbeing taken away from consumers, unlike about 20 situations involving other programmersat that distributor of the last few years," he said.

As toViacom's Sling TV offerings, Dauman said he would leave it to the platform to announcethe lineup to consumers, but did inform analysts that "we chose to withholdthe Nickelodeon network for now" and the parties will assess that move goingforward.

Daumansaid the just announced $3.8 billionacquisition of DreamWorksAnimation SKG Inc. by ComcastCorp.'s NBCUniversal MediaLLC unit shows the value of the studio business, and speaks well tothe interest expressed by over 40 companies in taking a stake in Viacom's ParamountPictures unit. He said Viacom was in the "final stages of whittling that downto a handful of strong players. They will be receiving some management presentationsfrom this period from mid-May, after which we will get into detailed negotiations,discussions, diligence," with an eye toward entering into an agreement by theend of June.

Daumannoted that the "sizing of today's announcement is a validation of the valueof the highest form of content, which is motion pictures."

Viacom'sfiscal second-quarter revenues declined 3% to $3.00 billion from $3.08 billion inthe prior-year period. Absent an unfavorable 1% impact of foreign exchange, quarterlyrevenues decreased 2%.

Medianetworks revenues declined 3% to $2.38 billion from $2.45 billion. As mentioned,domestic advertising revenues declined 5%, while international advertising revenueswere off 1%, hampered by a 7% adverse effect of foreign exchange. Absent the impactof foreign exchange, international advertising revenues would have increased ata 6% clip, led primarily by growth in Europe.

Domesticaffiliate revenues decreased 2%, reflecting a modest decline in subscribers anda previously disclosed rate adjustment with AT&TInc.'s DIRECTV unit, partially offset by rate increases across the remainingsubscriber base. International affiliate revenues increased 4%, aided by new channellaunches, more subscribers, and rate gains. Excluding a 7% adverse impact of foreignexchange, international affiliate revenues improved 11%.

Filmedentertainment revenues dipped 1% to $655 million, as increases in license fees andtheatrical revenues were countered by declines in home entertainment and ancillaryrevenues. Excluding foreign exchange, which had a 2% unfavorable impact, worldwiderevenues were ahead 1%.

Worldwidetheatrical revenues improved 6% to $217 million in the quarter, reflecting revenuesfrom "Daddy's Home" and "The Big Short," both of which werereleased late in the first fiscal quarter. License fees advanced 17% to $240 millionin the quarter, driven by the licensing of certain titles for subscription video-on-demandservices. Worldwide home entertainment revenues decreased $41 million in the quarter,primarily reflecting lower revenues associated with catalog and third-party distributiontitles.

Quarterlyadjusted operating income declined 29% to $586 million. At the media networks, adjustedoperating income decreased 11% to $805 million, reflective of revenue declines,as well as increased programming expenses. Filmed entertainment posted an adjustedoperating loss of $136 million, reflective of the performance of certain films releasedin the quarter.

Operatingincome totaled $586 million in the quarter, compared with $38 million in the prior-yearperiod, when results were impacted by $784 million in restructuring and programmingcharges.

Net incomeattributable to Viacom was $303 million, or 76 cents per share, versus a loss of$53 million, or 13 cents per share, a year earlier.

The S&PGlobal Market Intelligence second-fiscal quarter consensus EPS estimate was 72 centsper share on both a normalized and GAAP basis.

For thehalf, Viacom revenues declined 4% to $6.16 billion from $6.42 billion. Net incomeattributable to Viacom was $752 million, or $1.89 per share, compared with $447million, or $1.09 per share, in the same period a year earlier.