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Viacom and CBS Cut, Ad Worries Hurting Media

media downWhen conditions are stable and sentiment calm, it’s relatively simple to look backward on recent performance to make educated guesses on near term trends.   But when things start to change suddenly and systematically? Then the prediction game is altogether different.  What advertisers were spending three or six months ago, for example, offers little insight into what they’ll spend three months from now.   

In July, thirteen of the top twenty five Internet advisers by media value were classified as financial services companies (via TNS Media Intelligence).  Where we are today is a different place.  The old rules don’t apply.  Many of the big financial companies that were buying up internet ad real estate are gone; bought out, sold out or shut down.  Those that remain may or may not pick up spending to fill the void. One theory says they will – a rush to reassure the market and address consumer fears.  Another theory says they’ll hoard cash, control non-critical spending and remain cautious.

Around the entire advertising world, online and off, nobody is certain how much of a pullback there might be. With each position as supportable as the other, the prevailing and prudent view for those counting on ad dollars is cautionary; maintain discipline and adjust expectations. 

That was message sent Friday by Viacom CEO Philippe Dauman.   In pre-announcing cut 2008 outlook he said, “Given the rapid softening of the economy and the uncertainty this creates in forecasting advertising growth, we are taking the prudent stop of moderating our near-term targets.”

Viacom is fundamentally strong,” he continued, “with powerful brands and leadership positions in attractive and growing media segments around the world.  We have a strong balance sheet and we continue to generate significant cash flow, which are important attributes in this time of economic uncertainty.”

Moving forward, Viacom is now expecting earnings growth for the full year (adjusted EPS from continuing operations) will fall in a mid single to low double digits.  Third quarter results will be reported November 3rd, after the close of the market.  At this time, the company is now projecting diluted EPS at 53cents to 55cents a share compared to prior estimates of near 60 cents.

Not alone in the caution and downgrade, Viacom’s former sibling, CBS Corporation also lowered targets Friday. Lacking Viacom’s broader film, gaming and International diversification, CBS is particularly exposed to softness in the ad marketplace.  (CBS Asset list via Wikipedia)

The company expects to incur a non cash impairment charge of approximately $14b in the third quarter to reduce the carrying of goodwill, intangible assets related to FCC licenses and investments.   The company is expecting to report adjusted EPS of 42cents to 44 cents for the third quarter on October 30th.

Sumner Redstone, the chairman of both companies, can’t be happy.  He’s announced the intent to sell a combined $400m worth of non-voting stock in the two companies from his National Amusements Company.  The near 20% divestiture of his family holdings is expected to be equally split between Viacom and CBS.  The sell off was explained as necessary to comply with loan covenant.

At Friday’s close of market Viacom (Nasdaq: VIA-B) was trading down more than 17% on the day to $16.50.  CBS (NYSE: CBS) was off just over twenty percent to $8.10 during the regular trading session. For both companies, that’s the lowest trading price since their split up into separate entities in 2006.

Other media conglomerates are also taking a beating. Based on historical stock prices from Big Charts, News Corp (NWS) close of $8.46 was its lowest price in more than a decade. Disney (DIS) at $23.04, hit its lowest level since before 2005.

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