Should Viacom sell Paramount? Anemic movie slate weighs down company

Viacom Inc. closed the books on a bruising fiscal year, reporting a 5% decline in fourth-quarter revenue due to lower cable TV advertising sales and a paltry film slate from Paramount Pictures.

The media company controlled by 92-year-old billionaire Sumner Redstone has been hard hit by fickle young viewers who are consuming more entertainment on digital platforms -- viewing that is difficult to accurately measure.

Paramount Pictures’ meager movie slate, meanwhile, has been an Achilles’ heel for the company. For the quarter ended Sept. 30, film revenue plummeted 24% to $1.03 billion, compared to $1.4 billion in the year-earlier period.

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Film operating income fell 43% to $122 million for the quarter.

“We simply did not have enough films in the pipeline this year,” Viacom Chief Executive Philippe Dauman acknowledged on a conference call Thursday morning with Wall Street analysts. “In fiscal 2016 we have committed to returning Paramount to a full 15-film slate and, in addition, Paramount Animation has some exciting projects on tap.”

Prominent media analyst Michael Nathanson noted that Paramount has been struggling for several years. Nathanson asked whether it would make sense to combine the Melrose Avenue studio with another film company. In other words, should Viacom sell its prized Paramount to a stronger media rival?

“What is the diagnosis for the ills of the last couple of years?” Nathanson asked.

Paramount’s problems should be remedied with a more robust pipeline, Viacom’s Dauman said. The hit-driven film business has long experienced up-and-down periods, he said.

“We just had too few movies to support the infrastructure that we have and, really, to generate revenue,” Dauman said.

“We think Paramount will turn around, that’s why we are investing in it,” Dauman said. “We have growth initiatives, and that will pay off.”

Viacom produces the bulk of its money from its cable TV channels, including MTV, Comedy Central, Nickelodeon, BET, Spike, VH1 and TV Land. The company has been laboring to reverse a prolonged slide in ratings at key networks.

To compensate, Viacom has been slashing expenses this year, laying off employees and taking write-downs for underperforming programming.

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Domestic advertising revenue declined 7% in the fiscal fourth quarter.

However, higher affiliate fees paid by pay-TV distributors and increased revenue from overseas channels helped boost the TV division results. Media networks generated $2.8 billion in revenue, a 5% increase over the year-earlier period. Operating income fell 6% to $1.02 billion.

On a more positive note, ad sales have picked up in recent months.

For the quarter ended Sept. 30, net income from continuing operations increased to $884 million, or $2.21 a share, compared to $732 million, or $1.72 a share, during the year-earlier period.

Overall, Viacom produced $3.79 billion in revenue during the July-September quarter, compared to nearly $4 billion in the year-earlier period.

That missed analyst estimates.

“The bar was low -- the results were lower,” Bernstein & Co. media analyst Todd Juenger concluded in a research report Thursday.

Nonetheless, Viacom stock rallied in Thursday morning trading, topping $50 a share. That marked the stock’s best performance in several months. Viacom shares are down about 34% this year.

Twitter: @MegJamesLAT