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Viacom and CBS beat expectations in tough TV ad market

By Jennifer Saba and Liana B. Baker

(Reuters) - Sumner Redstone had a good day on Wednesday as his two companies Viacom Inc and CBS Corp reported quarterly results that beat Wall Street estimates on the back of unexpectedly strong TV advertising revenue.

Viacom reversed a long ad revenue slide, surprising analysts by posting growth in the first quarter. CBS reported a profit that easily beat the most optimistic of Wall Street estimates, as special events helped its broadcast network increase ad revenue by 8 percent.

Viacom shares touched a new multiyear high before closing up 2.6 percent on the Nasdaq, while CBS shares rose 1 percent in after-hours trading.

"Viacom had ratings pressure for a long time, so it's significant that they have turned the corner in terms of ad growth, which is now positive instead of negative," said Brett Harriss, an analyst with Gabelli & Co.

Redstone is executive chairman of the two companies, which used to be a single entity. Over the last four years, CBS shares have risen more than 1,100 percent, while Viacom shares are up around 280 percent, both exceeding peers.

Their results come against the backdrop of a relatively weak advertising market in the first quarter. Unlike last year, there are no national elections or Olympics this year, putting a bit of a damper on the business.

At Time Warner Inc, weakness at CNN dragged on results, while Comcast was hurt by the struggles of its broadcast network, NBC. Both companies beat Wall Street's earnings expectations, however, though that was driven by strength in other segments of the media business.

While ad spending is growing globally, expectations have fallen recently. Zenith Optimedia recently cut its 2013 spending growth forecast to 3.9 percent from 4.1 percent. Within that forecast, North America is one of the laggards, growing much more slowly than Asia, Latin America and the Middle East.

VIACOM, CBS SHINE

CBS reported its highest-ever revenue and operating income, as advertising revenue rose 8 percent in the period. The company benefited from a number of special events during the quarter, including the Super Bowl.

The network has also dominated broadcast ratings this season, with five of the top-10 prime time shows in the most recent week, according to Nielsen ratings.

Viacom reported a 6 percent drop in revenue because of a weak slate of movies from its studio, Paramount Pictures, but advertising sales turned positive during the quarter.

At its cable network properties, including MTV and Nickelodeon, advertising revenue rose 2 percent in the United States. On a call with analysts, Viacom CEO Philippe Dauman said the improvement in ad sales correlated to rising ratings, with Nickelodeon posting its strongest growth in two years.

"The importance of original programming driving ratings and ultimately driving ad sales is pretty clear," said Tim Nollen, an analyst at Macquarie.

Viacom has been struggling with a decline in ratings, which are the currency for commercials. The children's network Nickelodeon in particular was a drag.

TIME WARNER AND COMCAST

For Time Warner, first-quarter ad revenue at cable properties including TNT and news channel CNN fell 1 percent.

UBS analyst John Janedis said in a note to clients he thinks it had to do with weak ad rates and what he characterized as "slow demand."

But ratings also fell, with Evercore Partners estimating a decline of 4 percent for Time Warner's cable networks in the quarter.

The company said second-quarter ad revenue at its networks will be up in the high single digits in percentage terms.

Time Warner shares ended regular trading on Wednesday down 0.5 percent at $59.48, recouping some earlier losses.

Comcast, which unlike the other three companies combines media properties with a cable television system, benefited more from cable than from its media unit.

The company lost more video customers than expected but gained more Internet subscribers than estimated. On the other hand, operating cash flow at NBC Universal was a negative $35 million, much worse than a year earlier.

Revenue at NBC also fell because the network did not have the lucrative Super Bowl this year, TV's premiere advertising event.

Shares of Comcast rose 1.4 percent to $41.86, giving back some of their earlier gains.

(Reporting by Jennifer Saba and Liana B. Baker in New York and Lisa Richwine in Los Angeles; Writing by Ben Berkowitz; Editing by Jeffrey Benkoe and Steve Orlosky)

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