Financial crisis III: Viacom, CBS cut forecasts; media stocks dives
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UPDATE: In a sign of just how deep the media companies are being hurt by the economic downturn, CBS also said it would take a $14-billion write down in the book value of its TV and radio stations.
Viacom Inc. and CBS Corp., each controlled by billionaire Sumner Redstone, separately revised downward their full-year quidance, saying the weakening ad market would depress earnings. The announcements immediately sent the stocks of the sister companies into a nosedive and helped to trigger a sell-off in other major media stocks such as Rupert Murdoch’s News Corp. and giant Time Warner Inc.
Viacom said it expected to report adjusted third-quarter earnings of $0.53 to $0.55 a share, dampened by a 2% decline in worldwide advertising revenues, inlcuding 3% in domestic advertising and 8% in international advertising. The biggest contributors to Viacom’s revenue and earnings comes from its cable TV networks, such as MTV, Comedy Central and Nickelodeon, among others.
Viacom and CBS made the statements after Redstone’s privately held National Amusements Inc., one of the largest operators of movie theaters in the country, said it was forced to sell $400 million of its shares in Viacom and CBS ‘to pay down debt to comply with its credit agreement covenants.’
A spokeswoman for National Amusements declined to discuss the company’s debt crunch.
Viacom shares were the first to fall -- plummeting by as much as 26% during the trading day -- before rallying a bit to close down 17% at $17.10. CBS released its guidance two hours after Viacom’s announcement, and its shares were immediately hammered, closing down 20% at $8.10. A year earlier, CBS was trading at $30 a share.
The Redstone companies weren’t the only ones to feel pain, although the others rallied along with the market just before the closing bell. Rupert Murdoch’s News Corp. ended the day down about 6% at $8.63 a share. Time Warner Inc. fell 8.4% to $9.24 a share, while Walt Disney Co. slipped 3% to $23.04.
One bright spot: General Electric, which owns NBC Universal, said profit at the movie studio and television network unit rose 10% to $645 million in the third quarter. But that’s past performance: Those gains were fueled in part to advertising associated with NBC’s coverage of the Bejing Olympics in August. The bigger question is how NBC will fare in the current quarter as the advertising economy weakens.
-- Meg James
