Viacom Inc (VIAB.O), the owner of MTV, Comedy Central and Nickelodeon, reported second-quarter profit that beat estimates on Thursday, but worry that it will lose revenue from a big cable distributor weighed on its stock.
News that Charter Communications (CHTR.O) had re-tiered five of Viacom's flagship networks to its most expensive programming tier, a move that will likely result in lower affiliate revenue for the media company, prompted a steep selloff.
Viacom's stock dropped as much as 10 percent but had recovered somewhat by midday and was 4.7-percent lower at $37.43.
Viacom, along with its peers, is under pressure as more viewers cancel cable subscriptions to watch content online and advertisers increasingly shift ad dollars to the web.
The pay-TV industry just reported its worst-ever first quarter subscriber loss, at an estimated 726,000 subscribers, over five times last year's loss of 141,000, according to a research note by MoffettNathanson.
A Deutsche Bank note Thursday morning outlined the Charter re-tiering, which means that fans of Viacom's MTV, VH1, Spike, BET and Comedy Central will have to pay more for these networks.
Viacom CEO Bob Bakish said that Charter's re-tiering only affects new subscribers and is an issue of contention between Viacom and Charter. "We have a very strong point of view in our conversations about it," Bakish said on the company's earnings call. "And I believe this will get resolved."
A Charter spokesman did not return a request for comment.
Viacom reported Thursday that affiliate revenue — the fees that Viacom collects from cable TV operators as well as Internet distributors — rose 2 percent to $1.16 billion in the quarter, reflecting higher rates.
Deutsche Bank estimated the re-tiering will reduce affiliate and advertising revenue by about 5 percent, mostly over a 3-year period.
Meanwhile, the New York-based media company reported a 4-percent drop in domestic ad sales, in line with analysts' expectations, according to financial data and analytics firm FactSet.
Revenue from Viacom's filmed entertainment business, which houses the Paramount film studio, jumped 37 percent to $895 million in the company's second quarter ended March 31, breezing past analysts' average estimate of $676.5 million, according to FactSet.
The company in February said it would focus on six of its brands as part of a turnaround plan orchestrated by Bakish, who took the helm in December. The brands are: Paramount, BET, Comedy Central, MTV, Nickelodeon and Nick Jr.
In January, Paramount announced a deal with two Chinese film companies, Shanghai Film Group and Huahua Media, to invest $1 billion in Paramount, giving the studio much-needed cash and support as it attempts to grow.
Viacom CFO Wade Davis said Thursday the financing deal was moving forward despite speculation otherwise, and that it expects to receive its first payment this quarter as scheduled.
Net profit attributable to Viacom plunged 60 percent to $121 million, or 30 cents per share in the second quarter, partly reflecting a $174 million charge related to restructuring.
Excluding one-time items, Viacom earned 79 cents per share. Analysts on average had expected 59 cents per share, according to Thomson Reuters I/B/E/S.
Viacom's revenue rose 8.5 percent to $3.26 billion, beating analysts' expectations of $3.02 billion.
(Reporting by Jessica Toonkel in New York, Reporting by Rishika Sadam in Bengaluru; Additional reporting by Anya George Tharakan and Anjali Athavaley; Editing by Sai Sachin Ravikumar and Nick Zieminski)