Viacom's Next Stop: Splitsville

When Viacom (NYSE:VIA) reported earnings for its third quarter Tuesday, it further justified its case for splitting into one growth business and one cash-cow business.

To get a clearer picture of Viacom's performance, let's look at the results from continuing operations, as Blockbuster (NYSE:BBI) and Famous Player theaters no longer operate under the Viacom umbrella. Total revenues increased 10% to $5.9 billion, and total operating income appreciated 5% to $1.4 billion. Net earnings from continuing operations came in at $735 million ($0.47 per share) vs. $722 million ($0.42 per share) in the year-ago quarter. The nine-month numbers were pretty cool, too, with total revenues increasing 9% to $17.3 billion and total operating income jumping 5% to nearly $4 billion. Net income from continuing operations increased 9% to $1.30 per diluted share. Thus, Viacom, in its current state, continues to be a slow, steady grower.

Free cash flow, an important measure used to judge a company's health because it takes into account the actual cash a company captures as opposed to the charges reflected in the net earnings numbers, went up 62% to $878.7 million for the third quarter. The nine-month free cash figure was $2.6 billion, an increase of 9%.

As can be seen, the decision to end some dragging operations benefited Viacom's bottom line. And in that spirit, the company will be splitting to see if the concept of the synergized conglomerate truly is irrelevant in these corporate times. The theory here is that separation will eliminate bureaucracy and allow capital to flow more freely to higher-growth assets. In addition, slower-growth vehicles can be sold to Wall Street as long-term cash-flow/income plays. In fact, the company is so high on its prospects as two separate entities that it plans on consummating the deal sooner than expected, which would be by the end of this calendar year.

You can bet that everyone will be watching how the two separate companies fare after the split -- and by everyone I mean executives at media shops like Disney (NYSE:DIS), Sony (NYSE:SNE), and Time Warner (NYSE:TWX). You can also include shareholders of these conglomerates in that group of observers.

I've made my opinion known on which of the new shares I'd find more attractive: The company to be called Viacom will include MTV Networks and Paramount Pictures. The other progeny, CBS Corporation, will include the CBS television network, the Infinity radio business, Paramount Parks, and Simon & Schuster, among other assets. I want my MTV because I love the growth prospects of the cable business: Edgier programming is better equipped to capture the eyeballs of those in valuable demographics. A look through this quarter's earnings report continues to tell the tale. Operating income for the cable divisions was up by double digits for both the three-month and nine-month periods (11% and 15%, respectively), while the television broadcasting group was down by double digits (19% and 13%, respectively). The rest of the operating segments pretty much indicate the same thing: Those looking for growth might want to look at Viacom as opposed to CBS Corporation.

So, is synergy dead? I don't think so, but I'm going to follow what happens after Viacom as we know it ceases to exist. I always thought synergy was a useful and practical paradigm, but perhaps it just won't work in some cases. We'll see what happens.

For more Takes on Viacom:

• Viacom Counts Sheep
• Viacom's Moving Pictures
• Viacom: All About the Split
• Post any thoughts at the Viacom discussion board.

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Fool contributor Steven Mallas owns shares of Disney. The Fool has a disclosure policy .