By Paul Thomasch
NEW YORK (Reuters) - Viacom Inc Chairman Sumner Redstone said on Thursday he is close to resolving debt problems that have pressured the media company's shares, providing a silver lining to disappointing quarterly results.
While the owner of MTV Networks and Paramount film studios reported weaker-than-expected quarterly earnings and warned that an advertising slump would only worsen, shares nonetheless rose 3 percent after Redstone's comments.
Redstone said his National Amusements Inc, the largest investor of Viacom, was near a deal with banks to restructure millions of dollars in loans that have forced the mogul to sell shares to meet his obligations.
The prospect of further sales has battered shares of Viacom and CBS Corp, which is also controlled by National Amusements. Viacom shares are down about 60 percent in the past year.
"Constructive dialogue is continuing and I must tell you there has been very substantial progress since I last spoke to you," Redstone said on a call to discuss Viacom's fourth quarter earnings. "Indeed, I've been advised that an agreement acceptable to all parties is now within reach."
At issue is $1.6 billion in debt held by National Amusements, the movie theater company that Redstone owns and uses as an investment vehicle for Viacom and CBS stakes. About $800 million of that debt was due last year. Unable to pay, National Amusements has been trying to restructure the loans.
Along the way, National Amusements sold about $230 million of CBS and Viacom shares to help meet debt payments.
Redstone promised that there would be no additional sales. "Since that sale, I can confirm that National has not sold and does not expect to be required by its lenders to sell any additional shares of CBS and Viacom," he said. "Not a share."
Redstone's comments took the sting out of an earnings report that showed how the advertising decline and slowdown in DVD sales are battering the media business.
Viacom, owner of MTV Networks and the Paramount movie studio, said net profit fell to $173 million, or 28 cents a share, from $560 million, or 86 cents a share, a year earlier.
Included in the results were a charge to account for severance, a write-down of its film inventory and other items. Viacom warned of the charge late last year, when it announced that it would cut around 7 percent of its workforce in an effort to counter a deteriorating ad sales market.
Adjusted earnings from continuing operations amounted to 76 cents a share, down from 84 cents a share in the year ago period and short of the 78 cents a share analysts polled by Reuters Estimates had expected.
Revenue at Viacom, which is also home to Nickelodeon, Comedy Central and the popular video game "Rock Band," was essentially flat at $4.24 billion in the quarter.
With about one-third of Viacom's revenue coming from advertising, the downturn in spending has badly hurt results and pushed the company to look for ways to drive down costs.
Late last year, it said it would seek to save $200 million to $250 million in 2009 from a series of cost-cutting moves. In addition to cutting jobs, Viacom also froze salary increases for senior management in 2009 and consolidated its leases.
Chief Executive Philippe Dauman said domestic advertising revenue fell 3 percent for the quarter -- and that the ad environment would get worse before it gets better.
The results show Viacom's cable networks "are continuing to face a sustained downturn in domestic ad spending, consistent with the impact reported by other companies across the media industry, although ratings trends appear to be improving," said Doug Creutz, analyst of Cowen and Co.
Meanwhile, Viacom's film division, which holds Paramount studios, has cut back the number of films it plans to release each year. Theatrical revenue grew 28 percent in the quarter, thanks to movies like "Madagascar 2: Escape to Africa" and "The Curious Case of Benjamin Button."
While it also brought out hits "Iron Man" and "Indiana Jones and the Kingdom of the Crystal Skull" on home video, sales in the DVD market have softened throughout the industry as consumers cut back spending. Viacom said revenue in its home entertainment business dropped 6 percent.
(Reporting by Paul Thomasch; Editing by Derek Caney)
