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02-10-2004, 12:33 PM
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Viacom Swings to Loss On Blockbuster Charge
Entertainment Giant Confirms It Plans To Divest Stake in Video-Rental Chain
By MARTIN PEERS
NEW YORK -- Viacom Inc. posted a loss in the fourth quarter, hurt by a big write-down of its Blockbuster Inc. video-rental unit as it confirmed plans to divest its roughly 81% stake in the chain.
The quarter was also hurt by lower profits from its radio and broadcast TV businesses. The entertainment company reported a net loss of $385.4 million for the quarter, or 22 cents a share, compared with net income of $652.4 million, or 37 cents a share a year earlier. Revenue rose 11% to $7.5 billion.
Blockbuster recorded a charge of $1.3 billion in the quarter, mostly to reduce goodwill, its second such charge in two years. The video-rental business has shrunk in the past year and is expected to decline further this year, prompting Blockbuster to beef up its retailing businesses and diversify into areas such as buying back used videos and games for subsequent resale. The sizable investment planned by Blockbuster will likely hurt its profits this year, likely crystallizing for Viacom the need to shed its stake despite its long appreciation for the unit's steady cash flow.
Viacom said Tuesday it had concluded "that Blockbuster would be better positioned as a company completely independent of Viacom."
The goodwill charge also resulted in Blockbuster, which is publicly traded, reporting a $1.19 billion loss for the quarter, compared with a $30.7 million profit a year earlier. Blockbuster said its revenue rose 2.2% to $1.62 billion, although rental revenue at stores open more than a year fell 6%.
Viacom said it expects to shed the Blockbuster stake through a "tax-free split-off," in which Viacom shareholders will be given the chance to exchange their Viacom shares for Blockbuster shares at a ratio yet to be announced. In recent weeks, Viacom tried to sell the stake to private-equity firms but couldn't get the price it sought.
The company noted that it would "continue to consider other alternatives" to the split-off. Otherwise, it said it expects to complete the exchange offer by the middle of this year. While the split reduces the number of Viacom shares outstanding, it will likely depress Blockbuster's stock price because it brings a lot of shares onto the market. Blockbuster said it will consider paying a special dividend if Viacom proceeds with the split-off, in an apparent effort to make its stock more attractive.
Viacom's decision to shed Blockbuster was welcomed by investors. "The Street couldn't hold its breath much longer," said Tom Wolzien, an analyst with Sanford C. Bernstein & Co., which has an "outperform" rating on Viacom. But the entertainment concern still faces questions about some of its other businesses, particularly radio, which has been weak for the past year. Viacom President Mel Karmazin declared on a conference call with analysts Tuesday that "every one of our advertising businesses will be up in the first quarter of '04." Radio could "grow throughout the year," he added.
In the fourth quarter, the radio unit's operating income fell 10% to $252.2 million on 3% lower revenue of $551.1 million. Viacom said the downturn reflected "lower advertising revenues and higher expenses." Broadcast television, a unit that includes the CBS and UPN networks as well as TV stations, reported 23% lower operating income of $241 million on 1% lower revenue of $2.1 billion. CBS has been doing well in the ratings, helping to boost its advertising revenue, but the television unit's performance was hurt by "the absence of political advertising at the Stations group," Viacom said.
In contrast, Viacom's cable-networks division, which includes its MTV and Nickelodeon cable channels, delivered 19% higher operating income of $634.5 million. Cable networks long have been Viacom's most consistent division, reflecting a long-term shift of viewers and advertisers towards cable and away from broadcast TV. The latest quarterly results were also helped by the inclusion of full results from Comedy Central, of which Viacom owned only half until May. At that time, it bought the other half from Time Warner Inc.
Viacom Swings to Loss On Blockbuster Charge
Entertainment Giant Confirms It Plans To Divest Stake in Video-Rental Chain
By MARTIN PEERS
NEW YORK -- Viacom Inc. posted a loss in the fourth quarter, hurt by a big write-down of its Blockbuster Inc. video-rental unit as it confirmed plans to divest its roughly 81% stake in the chain.
The quarter was also hurt by lower profits from its radio and broadcast TV businesses. The entertainment company reported a net loss of $385.4 million for the quarter, or 22 cents a share, compared with net income of $652.4 million, or 37 cents a share a year earlier. Revenue rose 11% to $7.5 billion.
Blockbuster recorded a charge of $1.3 billion in the quarter, mostly to reduce goodwill, its second such charge in two years. The video-rental business has shrunk in the past year and is expected to decline further this year, prompting Blockbuster to beef up its retailing businesses and diversify into areas such as buying back used videos and games for subsequent resale. The sizable investment planned by Blockbuster will likely hurt its profits this year, likely crystallizing for Viacom the need to shed its stake despite its long appreciation for the unit's steady cash flow.
Viacom said Tuesday it had concluded "that Blockbuster would be better positioned as a company completely independent of Viacom."
The goodwill charge also resulted in Blockbuster, which is publicly traded, reporting a $1.19 billion loss for the quarter, compared with a $30.7 million profit a year earlier. Blockbuster said its revenue rose 2.2% to $1.62 billion, although rental revenue at stores open more than a year fell 6%.
Viacom said it expects to shed the Blockbuster stake through a "tax-free split-off," in which Viacom shareholders will be given the chance to exchange their Viacom shares for Blockbuster shares at a ratio yet to be announced. In recent weeks, Viacom tried to sell the stake to private-equity firms but couldn't get the price it sought.
The company noted that it would "continue to consider other alternatives" to the split-off. Otherwise, it said it expects to complete the exchange offer by the middle of this year. While the split reduces the number of Viacom shares outstanding, it will likely depress Blockbuster's stock price because it brings a lot of shares onto the market. Blockbuster said it will consider paying a special dividend if Viacom proceeds with the split-off, in an apparent effort to make its stock more attractive.
Viacom's decision to shed Blockbuster was welcomed by investors. "The Street couldn't hold its breath much longer," said Tom Wolzien, an analyst with Sanford C. Bernstein & Co., which has an "outperform" rating on Viacom. But the entertainment concern still faces questions about some of its other businesses, particularly radio, which has been weak for the past year. Viacom President Mel Karmazin declared on a conference call with analysts Tuesday that "every one of our advertising businesses will be up in the first quarter of '04." Radio could "grow throughout the year," he added.
In the fourth quarter, the radio unit's operating income fell 10% to $252.2 million on 3% lower revenue of $551.1 million. Viacom said the downturn reflected "lower advertising revenues and higher expenses." Broadcast television, a unit that includes the CBS and UPN networks as well as TV stations, reported 23% lower operating income of $241 million on 1% lower revenue of $2.1 billion. CBS has been doing well in the ratings, helping to boost its advertising revenue, but the television unit's performance was hurt by "the absence of political advertising at the Stations group," Viacom said.
In contrast, Viacom's cable-networks division, which includes its MTV and Nickelodeon cable channels, delivered 19% higher operating income of $634.5 million. Cable networks long have been Viacom's most consistent division, reflecting a long-term shift of viewers and advertisers towards cable and away from broadcast TV. The latest quarterly results were also helped by the inclusion of full results from Comedy Central, of which Viacom owned only half until May. At that time, it bought the other half from Time Warner Inc.