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Viacom Tops Profit Estimates, Plans to Sell Rock Band

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Nov. 11 (Bloomberg) -- Viacom Inc., the owner of MTV Networks and Comedy Central, reported profit that beat analysts’ estimates after higher viewership of television shows like “Jersey Shore” boosted advertising sales.

Viacom said today it will sell the unprofitable Harmonix unit, creator of the “Rock Band” music video game. Excluding the game business and tax benefits, profit was 75 cents, topping the 70-cent average of 26 analysts’ estimates compiled by Bloomberg.

A surging recovery in ratings at MTV, driven by the hit show “Jersey Shore,” as well as Nickelodeon, TV Land and Comedy Central helped Viacom sell more TV commercials at higher prices. U.S. ad sales rose 8 percent, compared with the 6 percent to 7 percent growth estimated by Evercore Partners analyst Alan Gould. Advertising gains helped offset lower box-office revenue.

“Our core cable networks are on a hot streak,” Viacom Chief Executive Officer Philippe Dauman said on a conference call.

Viacom, controlled by Chairman Sumner Redstone, rose $1.08, or 2.8 percent, to $39.18 at 4:03 p.m. in New York Stock Exchange composite trading, the highest price since May 2008. The shares have risen 32 percent this year.

Net income declined to $189 million, or 31 cents a share, in the quarter ended Sept. 30, from $463 million, or 76 cents, a year ago, the New York-based company said today in a statement. Revenue rose 5 percent to $3.33 billion, compared with the $3.28 billion average estimate.

The company is in talks with several potential buyers for Harmonix, Dauman said. Viacom expects to complete the sale within 12 months, according to a 10-K filing posted on the company’s website today.

Rock Band, Guitar Hero

“Our decision to exit this business reflects our strategy of focusing entirely on what we do best,” Dauman said. “The console games business requires expertise and scale we don’t have.”

Harmonix, based in Cambridge, Massachusetts, was acquired for $175 million in September 2006. The studio collects third-party royalties from Activision Blizzard Inc.’s “Guitar Hero,” which it also created. Viacom classified Harmonix as a discontinued operation.

Investors should view the sale “positively,” Andrew Kim, a New York-based analyst at Macquarie Capital, wrote in a note today. Harmonix lost about $65 million in the quarter, according to Chief Operating Officer Tom Dooley.

Viacom recorded a $230 million goodwill impairment charge for Harmonix, and wrote down “Rock Band” assets by $30 million, according to the 10-K report. The unit now includes $64 million of goodwill, down from $294 million at the end of 2009.

‘Last Airbender’

Operating profit for the film unit fell 29 percent to $52 million. The company’s Paramount Pictures film studio made $219.3 million in revenue from movie theaters in the period, including its top release “The Last Airbender,” according to researcher Box Office Mojo. In the year-ago quarter, Paramount took in $351.3 million with “Transformers: Revenge of the Fallen” and “G.I. Joe: The Rise of Cobra.”

Paramount has the second-highest box-office revenue this year. Last month, Walt Disney Co. agreed to pay Paramount at least $115 million for distribution rights to “Iron Man 3” and the “Avengers,” gaining full control of movies owned by its Marvel Entertainment unit. The payment is a minimum guarantee to Paramount, which had been hired to distribute Marvel films before the Disney acquisition.

Operating profit for the cable-TV networks, including VH1 and Spike, increased 8.7 percent to $873 million because of a boost in advertising and affiliate fees from pay-TV operators.

Epix + Netflix

Viacom’s 8 percent ad sales growth lagged some of its peers. Ad sales at News Corp.’s U.S. cable channels, including Fox News and FX, gained 16 percent in the most recent quarter. Discover Communications Inc. also saw 16 percent U.S. ad growth.

During the quarter, Viacom’s pay-TV channel Epix -- with rights to films from Paramount, Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer Inc. -- struck a deal to make itself profitable. Netflix Inc. agreed to pay $900 million over five years for online streaming rights to Epix’s more than 3,000 films.

As of Sept. 30, Viacom switched to a fiscal year that ends Sept. 30, instead of Dec. 31.

(The company started a conference call at 8:30 a.m. New York time, accessible on LIVE <GO>.)

To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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