Viacom Takes $18 Billion Write-Down, One of Biggest Ever
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Viacom, the entertainment colossus located on Broadway, was forced to take an $18 billion write-down yesterday as the value of its Infinity radio and outdoor advertising businesses plummeted in the fourth quarter. The charge – the fifth largest in American corporate history – was noncash, meaning it did not affect the actual cash position of the company. This amounted to a loss of $10.99 per share. The stock dropped $0.89 to $35.28 on the news. Its 52-week low is $32.56. Since the beginning of last year, the stock is down about 20%.
Putting aside the eye-popping losses, there were some bright spots for the company, which had an increase in profit from continuing operations of $714 million, up 22% from the same period last year. The company’s cable networks, led by MTV and Comedy Central, increased revenue 15%,and television revenue from CBS was up 5%.
But it was prospects for Infinity, once run by former Viacom President Mel Karmazin before he quit last June, that caught the eyes and imaginations of analysts and reporters on the conference call hosted by Viacom’s chairman, Sumner Redstone. He acknowledged that the outlook for Infinity, which the company purchased to great fanfare for $16.9 billion, is cloudy. The company had recorded growth rates of near 30% annually as recently as 1999.
Given the weak advertising climate for radio – and the looming departure of cash-flow-generating on-air personality Howard Stern for Sirius Satellite Radio – Mr. Redstone was forced to admit that the company had not invested as much as it should in radio, but that internal analysis indicated “radio is beginning to turn the corner.” He said the company would be selling stations outside the top 25 markets and would be seeking to swap or sell other stations. Analysts expect radio revenue to drop by about 5% this year, with operating cash flow dropping by about 8% to 9%. One analyst, Merrill Lynch’s Jessica Reif Cohen, speculated that the company would sell up to 75 of its 185 stations and convert still others to Spanish-language formats. The consensus of analysts following the stock is that $6.3 billion in cash flow will be generated from $23.6 billion in revenue this year.
