Viacom's magic media mix

(Fortune) -- Does Viacom's mix of media businesses make the company recession-resistant?

Some Wall Street analysts believe so. Even as film production costs inch higher at the conglomerate's Dreamworks and Paramount movie studios, robust ratings at cable networks MTV, Nickelodeon and VH1 are expected to draw increased ad revenues.

The company's first quarter earnings report - due out Friday - should offer the best indication of just how insulated Viacom (VIA) is from the looming economic downturn. A consensus of Wall Street analysts expect the company to report quarterly earnings of 41 cents per share and revenue of $2.97 billion. Viacom shares, trading around $39 Thursday, have dipped 4.4 percent over the last year, compared with the S&P 500's 6.2 percent drop over the same period.

As 2007 ended, the media conglomerate was firing on all cylinders, posting gains in almost all of its most important metrics. In Viacom's movie unit, revenues rose 19% while operating profit jumped nearly 40%. The company's cable networks division saw an 18% increase in revenue and as operating income rose 15 percent. Thanks in part to the writer's strike, which sent viewers channel surfing for fresh fare, Viacom's cable networks have garnered healthy ratings over the past two quarters.

In the first quarter, according to Nielsen Research, collective viewership on Viacom's networks rose 5 percent compared to the same period last year. As a result of original programming on MTV and VH1, those trends should continue through the first half of 2008, say analysts. Cable channels such as Comedy Central, MTV, Nickelodeon, TV Land, and VH1 are Viacom's bread and butter as they generate the majority of the company's profit.

Morgan Stanley research analyst Benjamin Swinburne maintains an "overweight" rating on Viacom shares and projects a year-end target price of $47. A large part of Swinburne's growth thesis is predicated on advertisers continuing to shift the investments away from broadcast television and into cable channels during 2008. Alan Gould, an analyst with Natixis Bleichroeder, believes Viacom can maintain its momentum - even in an advertising downturn. He notes that Viacom drew about 37 percent of its 2007 $13.4 billion in revenue from advertising, compared to competitors such as News Corp (NWS, Fortune 500). and CBS (CBS, Fortune 500), which rely on ads to bring in 45 percent and 72 percent of revenues respectively.

"I like the dual income stream of the basic cable network business," says Gould "As a place for ads, it's still stickier than a car dealer advertising on a local network or in a newspaper."