Viacom To Acquire U.K.'s Channel 5 Broadcasting; Earnings Grow 13% As Media Networks Continue To Shine
Viacom ( VIA ) recently reported its earnings for fiscal Q2 2014. In addition, the company has agreed to acquire Channel 5 broadcasting in the U.K. for £450 million and will fund the deal with its existing cash. Channel 5's past year revenues were around $600 million, generated largely from advertising. The network's margins are similar to Viacom's overall international business, as stated by Viacom management.
In terms of financial performance, media networks continued to see growth driven by higher ratings, especially at Nickelodeon. Viacom's movie arm Paramount benefited from the success of Noah and The Wolf Of Wall Street . However, the filmed entertainment division witnessed a 12% decline in revenues, principally reflecting the number and mix of March quarter releases.
Viacom's overall revenues increased by 1% to $3.17 billion while operating income grew 3% to $872 million. Adjusted diluted earnings per share grew 13% to $1.08. Going forward, we expect the media networks to continue to perform well as Viacom continues to add new programming and build on existing shows, especially at Nickelodeon and MTV. We continue to believe that Paramount will see meaningful growth in the coming quarters primarily due to its slate that includes Transformers: Age of Extinction and Teenage Mutant Ninja Turtles.
We currently have $86 price estimate for Viacom , which we will soon update based on the recent earnings announcement.
Media Networks Continue To Shine
According to our estimates, media networks contribute close to 90% to Viacom's value. The media networks division's revenues increased by 6% to $2.38 billion led by higher affiliate fees and advertising revenue. If we break up advertising, domestic revenues were up 2% and international revenues increased 14%, reflecting the benefits from new channels and continued European market improvements. Similarly, domestic and international affiliate revenue increased by 11% and 7%, respectively, primarily driven by an increase in subscribers, new channel launches as well as higher rates.
Viacom benefited from its decision to move MTV Brazil, Italy and Russia to its owned and operated models last year. This led to double-digit growth in international advertisement sales for the March quarter. MTV Brazil and MTV Italy have seen a surge in ratings in the recent months. Going forward, we expect continued growth at the media networks primarily on higher ratings, evident from the recent performance of the networks. Nickelodeon closed April as the top basic cable network in total day with kids in 2-11 demographic (up +4% versus a year ago) and total viewers. Nicktoons and TeenNick - scored their best ever April performances with their core demos and posted double and triple-digit year over year gains in April. Similarly, MTV's Faking It just debuted as the network's highest-rated new scripted premiere in two years. The ratings at CMT, Comedy Central, Spike, BET and CENTRIC have seen their ratings grow in the recent past as well.
The filmed entertainment