Viacom's (NYSE:VIA) first-quarter earnings report, released earlier this week, reported a rise in revenues and a decrease in net income from continuing operations. Free cash flow was a problem, but a recent analysis suggests that patience in this area may pay off. Viacom might not be so patient, however: It is considering the option of forgoing synergy hopes by splitting the company. If we take a look at the performance of the various operating segments this past period, we can see why the conglomerate is interested in pursuing this path.

First, the earnings report. Overall revenues increased 5%, coming in at $5.6 billion. Net income from continuing operations on a GAAP perspective decreased on a dollar basis year over year, as the company earned $585 million this quarter vs. $618 million in the comparable quarter. On a per-share basis, the figures actually look better, since the weighted average number of shares outstanding decreased: $0.36 per diluted share this quarter against $0.35 per diluted share last quarter. Backing out a tax benefit for 2004's first quarter yields numbers that look much better: $585 million ($0.36 per diluted share) against $508 million ($0.29 per share).

Free cash flow is the way to go when determining a company's true health level, and it's here that we see trouble. Viacom's free cash for the first quarter decreased 2% to $828 million, in part because of higher capital expenditures and tax obligations. Before rushing to judgment, we should check W.D. Crotty's analysis of Viacom's last earnings issuance, which covered the previous full year. Since free cash flow rose 17% for 2004, we can perhaps be patient that the rest of 2005 will follow this trend. (The big writedown that W.D. highlights in that article should be duly noted, even though it is non-cash in nature.)

But as noted earlier, Viacom may not want to wait. Here's why it's considering a split.

Viacom's most notable area of operations is Cable Networks, which is made up of MTV, Nickelodeon, TV Land, Nickelodeon consumer products, and the like. These companies collectively increased revenues by 19% and operating income by 20%, outshining every other segment save for Outdoor Advertising, which also grew operating income by 20% (the revenue growth was a much smaller 6%). Other areas grew more slowly or decreased, so Sumner Redstone and his minions are figuring that spinning off parts of the company might unlock better market-cap values for shareholders.

As I stated in a previous article, I still like the concept of synergy, but it is becoming more difficult to remain a believer. The writing may already be on the wall in terms of how business perceives the paradigm. Conglomerates such as Disney (NYSE:DIS), Sony (NYSE:SNE), and Time Warner (NYSE:TWX) will probably be taking a hard look at their assets to see what kind of an effect a breakup scheme would yield -- simply put, it's the world we live in these days.

I like Viacom's assets and believe they possess value, and I am particularly partial to the cable networks because of their relative consistency, which is due in part to the dual-income stream of carriage fees and advertising models. Buying Viacom wouldn't be a bad decision, in my opinion, because I believe there is long-term value for an investor willing to hold steady for many years -- even with a breakup scenario.

However, since none of us knows yet how a breakup would unfold or whether it will even occur, the situation has become more speculative. For those not willing to speculate even lightly, I'd avoid entering Viacom right now. According to the release, we should know more about a potential breakup by the conclusion of the next quarter.

Finally, I'll say this: If Mr. Redstone does indeed make MTV and its brethren a separately traded vehicle, I would definitely be hip to checking that out -- and let me tell you, it's been a while since I've been hip.

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Viacom competitor Time Warner is a Motley Fool Stock Advisor recommendation.

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