Hanger-On
Registered: Jul. 02
 | Not that it will influence the show, just an FYI ....
quote:
It was supposed to be the one media empire to buck the downward trend, but Viacom looked pretty ugly yesterday as analysts raised questions about the future of its vast radio division, Infinity Broadcasting.
Jittery investors slammed the home of CBS, MTV, and Paramount Pictures, sending Viacom shares down $4.91, or 12%, to $35.79, following a report from J.P. Morgan analyst Spencer Wang. The stock is down 27% over the past year.
Wang points to a transaction with radio programming syndicator Westwood One that helped bump up Infinity's profits in the three months of this year. Infinity, which owns such New York stations as WCBS-AM and WNEW-FM, accounts for about a third of Viacom's operating profits.
The radio chain owns an 18% stake in Westwood One, and regularly receives a management and programming fee in the form of Westwood One warrants — a form of stock.
In the first quarter this year, Infinity netted $37.4 million by selling those warrants — more than double what it earned a year earlier. Without the Westwood One deal, Infinity's cash flow would have declined 22%, not the 15% decline it reported.
"This may suggest that a recovery in Viacom's radio business could take longer than Wall Street currently expects," Wang said.
Without the deal "their cash flow would have been lowered by as much as 2%," said one media investor.
Viacom disclosed the Westwood One compensation in its first quarter reports, though analysts didn't focus on it at the time. Company insiders said Viacom generally looks to sell the warrants when Westwood One reaches peak prices as it did during the first quarter.
Nonetheless, in recent weeks, analysts have been shaving their stock price targets for Viacom, while growing bearish on Infinity.
The radio chain built by hard-charging Viacom president Mel Karmazin has been hit hard by the ad downturn and is waging a fierce battle against aggressive rival Clear Channel Communications.
"I believe Clear Channel is gaining (market) share from Infinity," said Jordan Rohan, media analyst at Soundview Technology, who lowered his Viacom price target to $45 from $54 earlier this week.
Viacom's stock slump comes on the heels of bullish statements from Viacom boss Sumner Redstone, who has said the company is seeing an uptick in advertising.
With its strong balance sheet and impressive array of media assets, Viacom has stood in sharp contrast to troubled media empires like Vivendi Universal and AOL Time Warner.
"Viacom remains the cleanest and best-run company in the space," said SG Cowen media analyst Peter Mirsky.
Original Publication Date: 7/11/02
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