November 23, 2009 - Viacom Inc. (VIAB-NYSE) operates as an entertainment content company principally in the United States and Europe. It has two segments: Media Networks and Filmed Entertainment.

The Filmed Entertainment segment produces, finances, and distributes motion pictures and other entertainment content. It produces and distributes motion pictures under the Paramount Pictures, Paramount Vantage, Paramount Classics, MTV Films, and Nickelodeon Movies brands. This segment also sells DVDs and other products relating to motion pictures and other programming. In addition, it acquires films for distribution and has presence in the games business. The company is headquartered in New York, New York.

Now that's entertainment. It's also profitable. Revenues have increased since 2006 but will most likely dip a little this year. They totalled $11.467 billion in '06, then went to $13.423 billion, followed by $14.625 billion. This year, consensus estimate from 22 analysts is for $13.730 billion, then an upturn to $14.03 billion next year.

Profitability has been partially sustained through cost cutting in the film divisions. Even entertainment suffers during economic difficulties, though often not as much, as people look to entertainment to take their minds off troubling reality. To counter lower box office, management at Paramount Pictures, in late 2008, cut film production to 20 releases, down from 25 per year. It also severed its film operations from Dreamworks (which it bought in January of 2006). The result: higher quality films that increased box office receipts. Costs were down by $173 million compared to the previous year. Operating profits for the division were $69 million vs. a loss of $19 million last year.

Another revenue source is improving: advertising on television networks. Both demand and pricing are up on the BET network which saw a 25% increase in ratings this year. Viewership was lower by 3% in the September quarter for the MTV networks, but management believes new programming with more original shows will bring viewers back.

More revenues are coming from cable operators as Viacom raises rates for programming. Three networks are expanding globally and gaining new viewers: MTV, Nickelodeon, and Comedy Central. As subscriber numbers increase, so do ad rates.

There's a new game in town: The Beatles: Rock Band and it's moving off the shelves. But there's also a new trend: renting DVD's instead of buying them. While this may bring in more revenues in the long run, the immediate impact is to lower sales. Total revenues will be softer in this division the rest of this year and most likely through 2010 as renters outnumber the buyers.

2010 looks like a blockbuster year for new films. Look for Iron Man 2 and Shrek Forever After in theatres near you next year. Others that seem interesting are Up In The Air with George Clooney and The Lovely Bones which was a best selling book.

Some numbers: Market cap is $18.17 billion. Price to book is 2.32. Book value is $13.22 a share. For the last 12 months, Operating margin was 20.15% while Profit margin was 7.92%. Total cash is $249 million. Current ratio is .97. Total debt is $6.85 billion or about 46% of capital. Beta is 1.27. The stock is up 156% in the last year. There are 607 million shares outstanding, split between 52.341 million Class A voting shares and 554.661 million Class B shares. This review refers to the Class B shares. There is no dividend.

Analysts think future earnings can grow by at least 8% a year, some guess 10%. That will depend on new programs, new films, and new video games, all of which are hard to develop. A blockbuster film or a hot new game or a popular tv show are always a challenge. But management has proven it can come up with what people want to watch, and it has the distribution channels to deliver. If you like entertainment, you may like VIAB.

- Company Website: www.viacom.com

- Ted Allrich