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Viacom Buying Rest of Comedy Central

April 26, 2003

Viacom Inc., owner of MTV, Nickelodeon and Showtime, reinforced its powerful cable channel lineup with a deal to buy the rest of Comedy Central from AOL Time Warner Inc. for $1.23 billion. The media giant also reported a profit for the first quarter.

New York-based Viacom already owns 50 percent of Comedy Central, which reaches 82 million U.S. households and features programs such as "The Daily Show with Jon Stewart and the animated "South Park."

"Comedy Central is a perfect fit with our existing cable networks and strengthens and reinforces our already prominent role with younger demographics that are increasingly attractive to shareholders," said Mel Karmazin, president and chief operating officer of Viacom.

Media analyst James Goss of Barrington Research in Chicago said the deal makes sense for both Viacom and AOL.

"There was a general suspicion that this would be a logical transaction because AOL had expressed an interest in divesting certain divisions to raise cash to pay down its debt. Viacom is very strong financially and clearly interested in adding to its cable channel assets, which have been very profitable."

Viacom's cable networks division played a significant role in helping it post a net profit and record revenue in the first quarter.

For the January-March quarter, Viacom had net earnings of $443 million, or 25 cents a share, reversing last year's first-quarter net loss of $1.1 billion, or 63 cents a share.

Excluding an accounting adjustment, Viacom earned 26 cents a share, beating by a penny a share the consensus forecast of analysts surveyed by Thomson First Call.

The media conglomerate reported record revenue of $6.05 billion in the first quarter, up from $5.67 billion a year earlier, led by 14 percent sales growth in its Blockbuster video rental chain and 13 percent sales growth in its cable networks business.

"To have revenue up 7 percent in a company this size, that's a big number," said Karmazin, in a conference call.

Viacom's stock rose $2.53, or 6.2 percent, to close Tuesday at $43.40 on the New York Stock Exchange (news - web sites).

The acquisition of AOL's half stake in Comedy Central is expected to be completed this quarter. Karmazin would not detail how much he expects the all-comedy channel to add to revenue but said "it conforms to the growth that we look for in acquisitions."

Viacom also owns VH1, TV Land, TNN, CMT, BET and the broadcast networks CBS and UPN.

"Expanding our interest in cable networks, one of the fastest growing and most promising areas of the media industry, remains a priority for Viacom," said Sumner Redstone, the company's chairman and chief executive.

Richard Parsons, chairman-elect and chief executive of struggling AOL Time Warner, said in a statement that the sale "demonstrates our commitment to the company's previously announced debt reduction goals." AOL Time Warner shares were up 23 cents, or 1.8 percent, to $13.13 in afternoon trading on the NYSE.

Viacom's operating earnings hit a record $987 million, a 14 percent increase from the same quarter of 2002.

Cable network revenues jumped to $1.17 billion from $1.03 billion, propelled by a 17 percent increase in advertising revenues.

The only real disappointment was at Viacom's Infinity Broadcasting division, consisting of some 185 radio stations. Sales were down 2 percent to $444 million. Operating income moved modestly to $191 million from $190 million.

"There is no reason other than our sales organization" for the lower revenue, said Karmazin, adding "this is the single biggest issue for me that I am focusing on" and promising to immediately meet with the radio sales staff.

Media analyst Goss noted that Karmazin came from radio and doubts he'll allow the division to falter. "It was the company he was heading, and it's one that would have a special interest for him in terms of operating at peak levels."

Viacom saw revenue at its broadcast networks and 39 TV stations increase 4 percent to $1.92 billion, with operating income up 13 percent to $243 million. Ad revenue grew 6 percent.

CBS has won 21 out of 29 weeks in the current ratings season. "CSI: Crime Scene Investigation (news - Y! TV)" is the nation's top TV show, with "CSI: Miami" and "Without A Trace" ranking among the top new shows. CBS' "Survivor" franchise is also going strong this season.

Viacom's Blockbuster video rental chain had a 14 percent rise in revenues to $1.52 billion. Operating income soared 25 percent to $149 million.

The media conglomerate's entertainment division, which includes Paramount Pictures and book publishing giant Simon & Schuster, had revenues of $798 million, up 3 percent from the prior first quarter. The comedy film "How to Lose a Guy in 10 Days" and the book "The Laws of Money, The Lessons of Life" by financial whiz Suze Orman came out in the first quarter.

The company purchased about 3.4 million shares of its class B common stock for $142 million during the first quarter and still has $2.7 billion set aside under its current share buyback program.

Viacom reaffirmed its growth targets for full-year 2003. Analysts expect the New York-based company to post a yearly profit of $1.43 a share on revenue of $26.27 billion, according to Thomson First Call.