Viacom Shares Nosedive as New Chairman Promises Turnaround

Updated on
  • ‘Naysayers’ are distorting facts, newly elected chairman says
  • Domestic ad sales drop 4%; affiliate fees little changed

Viacom Inc. shares plunged to a five-year low as a disappointing earnings report undermined a pledge by newly elected Chairman Philippe Dauman to prove the media giant’s critics wrong.

The stock dropped as much as 20 percent Tuesday, reaching its lowest price since September 2010. Shares of the owner of MTV, Comedy Central and Paramount Pictures were down 19 percent to $33.79 at 3:34 p.m. in New York.

Even before Tuesday’s fiscal first-quarter earnings report, the shares had already been down 53 percent since their peak in March 2014. Dauman said he will get the stock price back “to the much higher level I enjoyed under my leadership just a short time ago.

“Our outlook and the facts have been distorted and obscured by the naysayers, self-interested critics, and publicity seekers,” Dauman said on a conference call with investors Tuesday. “We will not be distracted or deterred as we build for the bright future ahead of us.”

Sales fell 6 percent in the first quarter from a year earlier to $3.15 billion, missing the $3.27 billion average of analysts’ projections, as ad revenue continued to decline. Adjusted profit dropped 9 percent from a year earlier to $1.18 a share, in line with estimates.

With its focus on younger audiences, New York-based Viacom is more vulnerable than other entertainment companies to competition from online media, like YouTube and Hulu. That’s pressuring Dauman to increase spending on new shows to draw in audiences. Dauman, 61, became Viacom’s chairman last week when Chairman Sumner Redstone, 92, stepped down. He has been chief executive officer since 2006.

The new chairman was elected last week in a 10-1 board vote, receiving backing from Redstone but not from the billionaire’s daughter, Shari Redstone, who has called for an independent leader for the position. Dauman is a member of the elder Redstone’s trust and has responsibility for his medical care, though the latter responsibility is being challenged in a court case by a former companion of the billionaire.

“My singular objective is to protect and build value for all of Viacom’s shareholders, and in doing so, for all the beneficiaries of Sumner’s trust -- not only including the descendants of his daughter but also those of her brother,” Dauman said Tuesday.

He said none of his various responsibilities are “inconsistent or incompatible.”

Nine Months

Dauman has about nine months to set Viacom on a different course, according to investor Mario Gabelli, whose Gabelli Funds is the second-largest owner of Viacom voting shares after the Redstone family. “Talking ratings improvements isn’t going to work,” he said in an interview last week.

The fiscal first-quarter results showed the challenges Dauman is facing:

  • Viacom’s domestic advertising revenue fell 4 percent.
  • Revenue at the Paramount Pictures film division fell 15 percent to $612 million.
  • Affiliate revenue from U.S. pay-TV systems that carry Viacom’s networks was little changed from a year earlier.

Prime-time viewership at MTV and Comedy Central has declined double digits this season, as the two of the company’s top channels struggle to find new hits. MTV is in a rebuilding mode, Dauman said, while Comedy Central is adapting to life without Jon Stewart and Stephen Colbert.

Paramount ranked last among the six largest film studios in 2015, with its U.S. market share under 6 percent and less than a third that of leader Universal Studios. In the fiscal first quarter, the company didn’t have hits to match the prior year’s blockbuster “Teenage Mutant Ninja Turtles.”

Foreign currency fluctuations also cut into adjusted profit by about 2 cents a share, hurting advertising and movie-studio revenue growth, Viacom said.

To reach younger viewers, Viacom is establishing new channels through Snapchat Inc.’s Discover feature and will begin selling ads on behalf of the disappearing-message service, the companies said Tuesday in a separate statement.

Dauman said Tuesday that an internal reorganization that included leadership changes at MTV and Comedy Central is beginning to lead to improvements. The company plans to triple its number of major sponsors as the ad market strengthens, he said. He also pointed to the company’s international business as an underappreciated source of growth.

“Once ratings at MTV and Comedy Central turn around -- and they’re well on their way -- the rebound will be more clear,” he said.

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