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Comcast And Viacom Looking Up

Posted on Thursday, May 6th 2010

Analysts project global ad spending to grow 2.2% during the current year, a significant improvement from the earlier projections of growth of a mere 0.9%. Growth is projected to continue at 4.1% in 2011 and 5.3% in 2012. Last year, the more developed regions of the world, that is, North America, Western Europe and Japan, witnessed a 12.1% decline in ad spending. Ad spending in these regions is expected to stabilize this year, with growth returning in 2011. In 2010, ad spending in North America is expected to fall by 1.5% to $155 billion and resume growth to $162 billion by 2012.

But media players are already seeing increases in ad revenues. America’s largest cable company, Comcast (NASDAQ:CMCSA), saw Q1 revenues grow 3.8% over the year to $9.2 billion driven by 23% growth in cable advertising revenues. The market was expecting revenues of $9.15 billion. EPS for the quarter stood at $0.31 compared with $0.27 earned a year ago and beat the market’s expectations of $0.30.

Overall cable revenues grew 3.5% to $8.7 billion, but Video revenues remained under pressure and fell 2% driven by a loss of 82,000 customers during the quarter. Internet and Phone revenues compensated for the loss on Video revenues. Internet revenues rose 9% and Phone revenues 13% during the period. Comcast ended the quarter with 47.7 million cable, Internet and phone customers, up 590,000 over the quarter. Comcast’s programming segment registered 6.7% revenue growth to $385 million, and the rest of the business grew 14.5% to $140 million.

During the quarter, Comcast repurchased 19.2 million shares of its common stock for $300 million.

Comcast still hasn’t managed to resolve the regulatory issues concerning the NBC Universal stake acquisition and expect to close the deal by the end of this year. Following the transaction, Comcast will have access to larger content and will no longer be involved in the multiple programming distribution agreements and disputes over retransmission consent fees for broadcasters such as NBC and ABC.

Over the past several years, cable players have seen significant growth buoyed by Internet bandwidth demand. In almost 60% of the United States, cable operators either have no competition or compete with phone companies, which offer the slower DSL technology. Of late, the turnover in video customers is outpaced by the addition of the faster speed Internet customers. Even Comcast has witnessed this trend.

Today, however, a risk to cable providers’ Internet strategy is the U.S. Federal Communications Commission (FCC), which is discussing the need to take a more aggressive approach in regulating the Web. The FCC is debating whether to reclassify the Internet as a telecommunication service instead of its present status as an information service. Such a move would enable the FCC to have more control over consumer privacy, fiber network deployment, and pricing of Internet services. Internet service providers (ISPs) aren’t looking forward to the reclassification. However, if that were to happen, it would help to implement the commission’s recently announced 10-year plan to bring high-speed Internet access to every American home. It remains to be seen what decision the FCC makes. ISPs believe that changing the regulatory status of the Internet will impose archaic common carrier rules similar to those imposed on telephone companies in the 1930s, killing any competition and incentive to expand capacity.

Comcast’s stock is currently trading at $19.74 with a market capitalization of $55.3 billion. It reached a 52-week high of $20.56 earlier this week.

Viacom (NYSE:VIA.B), however, failed to report growth in revenues despite higher ad revenues. The quarter’s revenues fell 4% to $2.8 billion due to lower Filmed Entertainment revenues, which declined 18% over the year. These lower revenues are a result of Viacom’s strategy of releasing fewer films and focusing instead on franchise and branded titles. Media Networks revenues grew 4% in the quarter. Viacom had ad spending growth worldwide; ad revenues in the United States grew 1% and global ad revenues grew 3%. EPS for the quarter grew significantly to $0.40 compared with $0.29 a year ago. Analysts had forecast profit of $0.38 on revenues of $2.92 billion.

Viacom’s improved content is helping it to increase audiences across all brands. The MTV audience grew 10% over the year and Nickelodeon’s audience was up 5%. Nickelodeon continued as the leader in the kids and tweens segment and is widening its lead over competitors. Viacom is also working to bring 3D content to its brands, initially by focusing on special events such as musical performances and sporting events. Its 3D movie catalogue continues to grow and attract strong viewership. During the quarter, Viacom released “How to Train Your Dragon” and will soon be releasing “Shrek Forever After” in 3D.

Viacom is also working on iPad applications for its brands. It already has a Dora the Explorer application available for the iPad launch and is working on launching 20 additional iPhone applications this year.

The company’s international business continued to expand with new international programming models for MTV and Nickelodeon, which will follow Viacom’s strategy to “scale around the world, while maintaining vital local connections.”

Viacom also closed a national distribution deal for the Epix pay TV channel with Dish. It recently announced an agreement with Dish Network that will make available the network and digital service to its customers across the United States. Through Dish, Epix will reach over 14 million satellite TV customers. Epix has also concluded agreements with other distributors and by the end of May will be available in more than 30 million households.

The stock is trading at $33.82 with a market capitalization to $20.54 billion. It reached a 52-week high of $41.79 earlier this month.

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