Viacom Call: Dauman: ‘Increasingly Challenging Economic Environment’; Ad Market Hard To Predict

image After standing above its peers for so long, Viacom (NYSE: VIA) has come back to earth in 2008, with its share now sitting close to its 52-week low. Kicking off the call, Chairman Sumner Redstone acknowledged the frustration of shareholders, stating that media was not immune to an economic downturn. But he noted he’s seen his share of economy cycles, and he hit on his core philosophy once again: “Companies that possess the very best content will ultimately emerge as the winners.” (read: content is king).

Following the introduction, CEO Philippe Dauman also hit on the “increasingly challenging economic environment” as a contributor to poor scatter market volume. Domestic ad revs fell 1 percent, he noted, though he trumpeted the strength in filmed entertainment for carrying the day.

What happened in the ad market?: “Mid way through the second quarter, ad volumes in the scatter market dropped off… low ratings at a few of our networks contributed to the softness.” The pullback was pronounced at the usual suspects: Auto, consumer retail, etc. Demographic shifts were also an issue in the quarter. The 50+ age crowd was strong, helped by pharma and finance advertisers. This helped networks like TVLand. But changing consumption patterns slammed younger demographics. MTV did not do well, in part due to demographics, and in part from a thin show lineup, though a new season of The Hills (can’t wait) is starting up again next month.

Rock Band: It’s the key driver of Media Networks growth, and Dauman predicted the franchise would start seriously contributing to the bottom line very soon. The game is still in the infancy of its lifecycle, he argued, noting the opportunity to expand geographically, and into new genres. So far, the title has sold 4.8 million copies, led to 18 million paid song downloads, and books another 1 million paid downloads every nine days. Right now, the hit game is still seen a drag on margins (a very welcome drag, of course), since the revenue comes in the form of low-margin hardware. But this is expected to change, and expected to double off of the single digits over the coming years, as revenue comes more from downloads.

New Media: Not much numerically, but Dauman talked excitedly about Flux and mobile (including the iPhone) and the companies hundreds of websites. Comments from Q&A after the jump.

Q&A:

Q3: Dauman: “Not going to make any predictions…(As I said) the softness in the scatter market continues.” Measures include finding new advertisers to replace old ones “Given the state of the economy, it’s become very hard to predict.”

Cost cutting: Cost cuts are an ongoing process, but don’t expect anything huge: “We do not anticipate taking any restructuring costs.” Dauman promises not to cut in areas that would affect content output.

New Pay TV Service: “We are having very productive meetings… we have nothing to announce at this time.”

Game Related Acquisitions: “We could look at other game opportunities that have that kind of linkage to some of our brands, but that’s not a major focus… we’re not looking to make any acquisitions in the gaming area”. There could be some really small acquisitions in the casual gaming area. “We are totally focused now to growing this great franchise (Rock Band)”