Viacom Could Also Sell Spelling

By Eric R. Quinones
AP Business Writer
Wednesday, November 4, 1998; 6:03 p.m. EST

NEW YORK (AP) -- As Viacom Inc. marches ahead with plans to shed the revived Blockbuster Video chain, chairman Sumner Redstone said Wednesday that "Melrose Place" producer Spelling Entertainment Group could be next on the block.
     "Ultimately, my guess is that it will be sold," Redstone said.
     Redstone addressed reporters after Viacom announced third-quarter profits that beat Wall Street expectations. The results were buoyed by video sales of "Titanic," the continued turnaround at Blockbuster, and strength at Paramount Pictures and Viacom's cable networks.
     Redstone speculated that producer Aaron Spelling's company, which also produces "Beverly Hills 90210" and "7th Heaven," could be sold because it duplicates Paramount's TV production business. Paramount's shows include "Frasier" and "Entertainment Tonight."
     Other companies have been interested in Viacom's 80 percent stake in Spelling, but the price hasn't been right, Redstone said. Viacom publicly scrapped a plan to sell Spelling in 1996 after failing to receive an adequate offer, but rumors have persisted that a sale would occur.
     "A year from now Spelling will be worth more than it is today, so we're not in any rush," Redstone said.
     Redstone also said Viacom's long-expected plans to shed Blockbuster will likely commence in the first quarter of next year with a spinoff of 10 percent to 20 percent of the unit.
     A sale or spinoff of all of Blockbuster could occur by September 1999 -- five years after it was acquired for $8.5 billion.
     "There are several possible scenarios, but the spinoff is the first step to a valuation of any future step," said S.G. Cowen & Co. entertainment analyst Ed Hatch, who estimated that Viacom could gain $1 billion to $2 billion from the initial Blockbuster offering.
     Viacom believes Blockbuster's value is not reflected on Wall Street when viewed as part of the company's huge array of entertainment assets. Similar thinking led Viacom to sell most of the Simon & Schuster publishing business to British media group Pearson PLC, a $4.6 billion deal that is expected to close next month.
     Blockbuster struggled in its first years under Viacom, which has revived the chain by refocusing on its video business rather than broader retail sales. The Blockbuster Music chain was sold, and revenue-sharing agreements with movie studios have allowed Blockbuster to get videos at cheaper prices and offer bigger selections.
     But as the spinoff approaches, some analysts worry about how heavy promotional spending could effect Blockbuster's profits and also about growth prospects for the video industry.
     Redstone said he has no regrets about buying Blockbuster despite its earlier troubles because it generated cash that Viacom needed to purchase Paramount and break into Hollywood.
     In the third quarter. Viacom's net profits dropped 68 percent from the same period last year, when results were boosted by a large gain from selling its radio stations business. But its profits from continuing operations soared.
     Viacom earned $138.4 million, or 34 cents per diluted share, in the July-September quarter, down from $434.3 million, or $1.19 per share, last year. The 1997 results were inflated by a $416 million gain from selling its radio stations.
     Revenue jumped 14 percent to $4.02 billion from $3.51 billion.
     But profits from continuing operations rose more than fivefold to $157.1 million, or 39 cents per share, on the gains at Blockbuster, Paramount and cable networks such as MTV, Nickelodeon, VH1 and Showtime. Analysts had projected earnings of 30 cents per share, according to First Call Corp.
     Those results exclude radio stations, interactive video game operations and Blockbuster Music stores that have been sold.
     Viacom's Class B shares closed down 75 cents at $62.75 on late profit-taking after rising to $65 in earlier trading on the American Stock Exchange. Viacom shares had risen 6 percent Tuesday in advance of the earnings report.
     For the first nine months of the year, Viacom lost $140.9 million, or 52 cents per share, reversing a profit of $220.6 million, or 50 cents per share. Revenue jumped to $10.17 billion from $9.18 billion.

© Copyright 1998 The Associated Press