Analyst Lowers 2010 Estimates on Viacom

NEW YORK: This year may be a bit better than expected for media giant Viacom, but next year’s results won’t be as rosy as Pali Capital analyst Rich Greenfield previously surmised.

“Viacom’s cable network upfront saw a significantly reduced amount of inventory sold at mid-high single digit CPM declines,” he wrote in a research note. “Lower inventory sell-out was common throughout the cable network industry, with Viacom’s CPMs underperforming due to ratings troubles over the past year.”

Greenfield raised 2009 earnings per share estimates by 6 cents, from $2 to $2.06, based on “several below-the-line items.” For 2010, Greenfield expects Viacom’s ad revenues to fall 3 percent rather than the prior forecast of a 2 percent increase. He did not provide actual earnings estimates for 2010, but focused on the ad revenue trends.

“While Viacom’s domestic cable network ad revenues fell only 6 percent in Q209 compared to 9 percent in Q109, we are less confident in their ability to continue that improvement into the back half of 2009--projected to fall about 7 percent--and into 2010.”

Viacom nets are also suffering a rating slump, with the exception of BET, Greenfield noted.

If Viacom is able to turn its ratings positive over the next couple of quarters and the economic rebound begins to meaningfully impact cable network industry ad spending, Viacom could conceivably grow ad revenues in calendar 2010, as we had been forecasting. However, that feels aggressive. In turn, we are lowering our estimates to down 3 percent for domestic 2010 ad spend compared to 2009 domestic ad spend down about 7 percent.”

Greenfield said Pali remained cautions on Viacom’s film division, particularly the lack of exposure for Epix, the nascent movie channel formed by Viacom’s Paramount, Lionsgate and MGM, due to launch in October.

“We sense no desire from other major MSO/DBS providers to carry EPIX, which could negatively impact Paramount profitability in 2010 and beyond,” he said.