Viacom Goes It Alone

The new Viacom (NYSE:VIA) reported earnings after the bell. Now that the old Viacom has split itself in two, do we have any evidence that synergy should be a thing of the past?

This earnings report is complicated, because it's the first one after the separation; there are all kinds of little goodies in here like historical earnings, pro forma earnings, discontinued operations, a special dividend paid to CBS (NYSE:CBS) -- you get the picture. Let me go over a few highlights.

For the fourth quarter, Viacom saw revenues rise 9% to $2.72 billion and operating income decline 34% to $412 million. Eliminating the adjustments associated with the spin-off, operating income increased 8% to $670 million. Because of a lack of space, I won't go into detail about the adjustments. Instead, let's see how the operating segments faired.

The cable segment (which includes the valuable MTV brands) did very well for the year, realizing an 18% gain in both overall revenues and advertising; the company also recorded an 11% gain in affiliate fees. Various investments, such as one related to the NeoPets phenomenon, helped drive a bountiful $99 million in incremental contributions. Ancillary sales jumped 29%, reflecting strong home video products derived from this segment, as well as robust syndication fees. Operating income increased 15%.

The entertainment division (which includes Paramount Pictures) saw a good 19% rise in revenues, but a bad 28% decline in operating income (excluding charges). Welcome to the movie business, where costs and participation arrangements can eat up profits in a hurry, dragging down the overall business. All studios see cyclicality in the value of their movie slates; with a few Paramount hits, operating income could turn around in a hurry in the coming year.

This is just the beginning of the split-up experiment, but I personally like Viacom's future prospects better than its CBS counterpart. I am a bigger believer in MTV and the cable networks than in the CBS broadcasting entity. The company produced approximately $1.5 billion of free cash flow for the year, which was flat compared to the previous period; this should allow it to continue finding growth opportunities. If you think the sort of synergy represented by Time Warner (NYSE:TWX) or Disney (NYSE:DIS) is indeed dead, you may want to give Viacom some attention.

Related Foolishness:

• So what is "pro forma" anyway?
• Have you ever heard of NeoPets?
• Do you think Time Warner might make a better investment?

Time Warner is a Motley Fool Stock Advisor recommendation.

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