Coverage: Viacom takes $785 million restructuring charge

Viacom is taking a more-than-expected charge in order to restructure the company. The $785 million cost is expected to save $350 million. Those are big numbers for a well-known and respected brand.

David Lieberman had these details about Viacom’s charges in his story for Deadline:

The $785 million hit is the short-term pain for what CEO Philippe Dauman says will be a long term gain: $350 million a year in cost savings, with $175 million in the fiscal year that ends in September. The new figure is up from last month when he told investors to expect net savings of $250 million a year.

About $355 million of the charge covers the widespread recent layoffs at MTV Networks which realigned to three operating units from four.  (Viacom isn’t saying how many people were let go.) Most of the remaining $430 million covers “underperformming programming, including the abandonment of select acquired titles” as well as “a change in the Company’s ultimate revenue projections for certain original programming genres that have been impacted by changing media consumption habits.” Shows that fell short of execs’ hopes included CSI, Entourage, and Community.

The Wall Street Journal story by Keach Hagey said more than half of the charge would be to lower the value of underperforming shows:

About $430 million of the write-down is to account for underperforming programming, including abandoning some acquired shows, according to a regulatory filing on Monday. The charge underscores the difficulty that many big media companies are facing with reruns as they cope with cord-cutting, Netflix’s popularity and rapid changes in what viewers find popular.

The restructuring formalizes the reorganization of Viacom’s television networks into two groups from three. That move was signaled when longtime Viacom executive Van Toffler, who led the group that included MTV, VH1 and CMT, said in February he would leave the company in April and his division’s channels would be absorbed by two newly reorganized groups.

The company said the new structure “realigns sales, marketing, creative and support functions, increases efficiencies in program and product development, enhances opportunities to share expertise, and promotes greater cross-marketing and cross channel programming activity.”

The company also said that the savings would let it reallocate resources to expand in new areas like “data analysis, technology development and consumer insights.”

Bloomberg’s Anousha Sakoui reported that Viacom’s moves came because viewers were changing their habits:

The restructuring was a reaction to “shifting consumer behavior and evolving measurement practices,” according to the statement. Resources are being reallocated to areas such as data analysis and technology development.

“We will transition rapidly into the future, generate substantial cost savings and continue to increase our investment in original programming,” Dauman said.

In February, Viacom merged its three domestic cable-network groups into two, Viacom Music & Entertainment Group and a Viacom Kids & Family Group.

The shift away from linear TV has lessened the value of acquired re-runs that air on cable networks owned by Viacom. Ratings for its kids’ channels, such as Nickelodeon, have been falling as consumers turn to Netflix Inc. and other online outlets.

While the charge is a larger than expected, the savings could be accretive to earnings in Viacom’s next fiscal year, Tuna Amobi, equity analyst at S&P Capital IQ said in an interview.

The Reuters story by Lehar Maan said that Viacom was also discontinuing its stock buybacks:

Viacom also halted its $20 billion share buyback program due to the restructuring and the spending on acquisitions anticipated in the current fiscal year.

The company’s shares fell 1.6 percent after the bell on Monday.

Viacom said the new structure would realign sales, marketing, creative and support functions and increase efficiencies in program and product development.

The company in January reported lower-than-expected first-quarter revenue due to weak advertising spending in the United States.

Analysts on average were expecting the company to post a profit of $428.3 million on revenue of $3.26 billion in the second quarter, according to Thomson Reuters I/B/E/S.

Billboard’s Alex Ben Black quoted Viacom CEO Phillpee Dauman’s statement saying the reorganization was almost done and would allow the company to focus going forward:

The impact of the strategic shifts have resulted in layoffs at MTV, Paramount, TV Land and other divisions.

“This strategic realignment,” said Viacom president/CEO Philippe Dauman in a statement, “which is largely completed, will allow us to sharpen our focus on driving long-term growth in a rapidly changing industry. We will transition rapidly into the future, generate substantial cost savings and continue to increase our investment in original programming to bring our audiences great content in new and groundbreaking ways.”

Viacom has some of the strongest brands in the business. It’s telling if it can’t make money without cutting some of its programming. Viewers are shifting how they watch TV, shedding cable and turning to online services. What remains to be seen is if the charges and reorganization are enough to satisfy investors.