Viacom Shareholder Letter


Viacom Inc.
1515 Broadway
New York, NY 10036-5794
212 258 6000



April 15, 2002

Dear Fellow Stockholder,

We are extraordinarily pleased to report on the achievements of 2001, a year that tested us all and revealed the resilience and dedication of our superb managment team and employees, as well as the vibrancy of our world-class brands and assets. Despite the most difficult economy in a decade, Viacom was able to achieve record results -- taking market share and outperforming virtually every market in which we operate.

But what makes us even prouder is how Viacom and its employees responded to the tragic events of September 11 -- helping raise money for the victims and producing programming that sought to shed light and understanding in a time of great tragedy and confusion. Nickelodeon's Nick News special on the war in Afghanistan, the CBS Sunday Movie 9-11 by the French filmmakers Jules and Gedeon Naudet, and the VH1 Concert for New York City, which raise $38 million, are but a few examples. Every one of our divisions did its part. It is in times like these that we commit ourselves anew to the important role we play in society -- through the quality of the content we create, through support of worthy causes, through efforts to promote diversity, and through continued commitment to independence and excellence in news programming and serving local communities. If it is true that the best measure of a company is taken when times are tough, Viacom distinguished itself on all fronts in 2001.

On a reported basis, Viacom's full year 2001 revenues increased 16% to $23.22 billion and EBITDA (earnings before interest, taxes, depreciation, and amortization) jumped 28% to $4.55 billion. Free cash flow grew 80% to $3.0 billion. We believe free cash flow is one of the most important benchmarks because it is what creates true shareholder wealth. Viacom's significant free cash gives the Company tremendous flexibility to make cash flow accretive acquisitions, to pay down debt, and to buy back stock. In 2001, we added Black Entertainment Television to our stable of powerful cable brands, and we brought Infinity fully into the Viacom family by acquiring the shares we did not already own. We bought back over $1 billion worth of our stock. And we continued to unfold the promise of our merger with CBS, integrating a number of our operations, including the CBS and UPN networks. Viacom Plus, our integrated sales and marketing unit, signed Procter & Gamble to the biggest ever cross-platform advertising deal -- a landmark agreement that brought in hundreds of millions of dollars and highlighted the compelling mix of our assets. Every division of the Company had noteworthy accomplishments during 2001. [end page 1]

  • CBS ended the year as the No.1 network -- and won all three sweeps in 2001 -- powered by butsy scheduling decisions, great new series like The Guardian and The Amazing Race franchise, and the continued incursion of the Survivor-CSI combo on Thursday nights. When news became a focal point for our nation and the world, CBS News demonstrated why it is the most venerable news organization -- a reputation that won it multiple Peabody and Emmy Awards last year. At CBS Sports, N.F.L., U.S. Open Tennis, NCAA, and PGA Tour coverage continued a long-running tradition of bringing the best in sports programming to viewers everywhere.

  • UPN enjoyed dramatic ratings increases this season with programming investments such as Buffy the Vampire Slayer and Enterprise, the latest installment in the Star Trek franchise, which paid off in double-digit ratings growth across all key demographics on four of five nights.

  • The Viacom TV Stations Group created its seventh duopoly last year, expanding its reach in San Francisco, and in 2002 will add an eighth duopoly with its pending acquisition of KCAL in L.A. Currently, our 34 owned-and-operated stations are in 13 of the top 15 markets and our duopolies are in five of the top 10 markets. The group also invested in marquee programming, buying the broadcast rights to Who Wants To Be a Millionaire, Weakest Link, and select New York Yankees baseball games.

  • MTV Networks continued to excel, with MTV: Music Television ending 2001 as the No.1 cable network in the U.S. for 12- to 24-year-olds for 19 consecutive quarters. MTV also was singled out by Interbrand as the No.1 media brand on the planet for the second year running. Its theatrical film Save the Last Dance, a MTV-Paramount collaboration, was a big hit, grossing more than $115 million in ticket sales.

  • Nickelodeon remained No.1 in the U.S. in all of basic cable in households and in children 2-11 for its sixth straight year. It was Nick's most-watched year ever, with Spongebob Squarepants the latest phenomenon for both kids and adults. Its big-screen Jimmy Neutron: Boy Genius, co-produced with Paramount, has grossed almost $90 million and is soon to be a TV series.

  • VH1 furthered its reputation as an unrivaled music brand, particularly with 18-49s. Its first Hollywood motion picture, Zoolander, has achieved nearly $60 million in ticket sales to date.

  • TNN was the turnaround story of 2001, and made it into the top 10 in primetime in its target demo of 18- to 49-year-olds. Transformed from a rural southern network, the new TNN: The National Network boasts hit shows like WWF and Star Trek: The Next Generation, movies like The Godfather, and great original fare. It realized a stunning 18-year drop in its median age -- from 55 to 37 -- and has terrific growth potential.

  • CMT gained buzz and added 11 million subscribers to 57 million homes, and TV Land thrived creatively; its growth to 68 million subscribers allowed it to become an important revenue generator as well.

  • Our emerging networks, including MTV2, currently in 37 million households, and MTV Networks' Suite of digital music and kids services, which grew to 13 in February 2002, continue to blaze the digital trail and no doubt will be at the forefront of the industry's broadband future.

  • MTV Networks International continued its aggressive march, launching 23 channels, services, and Web sites in 2001. MTV is the world's largest television network by far -- reaching 382 million homes in 165 countries and territories for a potential reach with sister networks Nickelodeon and VH1 of 1 billion people. It expanded into Japan, Korea, and the Philippines, and, early this year, launched 24-hour services in Indonesia and Thailand. Nickelodeon, with a reach of 300 million homes, moved into China, Singapore, Cyprus, and Greece. VH1 made its Asian debut last year in Singapore. Overall, our international channels achieved record ratings, won numerous awards, and launched breakthrough convergent programming for cell phones, broadband PC, and other new formats.

  • BET had the best year in its twenty-year history with terrific new primetime shows and beefed-up news programming (produced in partnership with CBS News). BET increased CPM levels in 2001 and expanded its distribution to more than 71 million households -- a 12% increase over 2000. BET will launch a suite of digital networks in 2002.

  • Showtime continued to be powered by its lineup of compelling and diverse programming, such acclaimed original series as Soul Food, Queer as Folk, and Resurrection Blvd. The networks added nearly 3 million subscribers (both cable and DBS) for a total of 31.3 million homes, a 10% increase. Showtime also expanded its digital offerings with the launch of three multiplex channels: Showtime Next, Showtime Women, and Showtime FamilyZone. Showtime also launched Showtime Turkey, reaching over 65 million people.

  • The Paramount Television Group, CBS Productions, and King World Productions offered a combined total of more than 75 hours of original broadcast and cable television programming per week. Besides our unmatched production of primetime fare, with such shows as Becker, C.S.I., Frasier, and The Guardian, we were unrivaled in production of hit first-run and off-network syndication. In 2001, Viacom typically claimed three of the top five shows in first-run syndication and had 15 shows in their initial run in off-network syndication. Everybody Loves Raymond was the hottest U.S. sitcom to premiere in syndication in three years, and became the No.3 off-network sitcom. We're very excited about a new first-run offering this fall: Dr. Phil, hosted by popular psychologist Dr. Phil McGraw, an Oprah regular.

  • Infinity became a fully integrated division of Viacom in 2001, and tenaciously outperformed its competition despite the historic challenges of the radio marketplace. Infinity entered 2002 well positioned for a rebound with stations in the biggest and best markets. More than 90% of its 180+ stations are in the top 50 markets; its stations are ranked first or second in 29 markets. In 25 of the top 50 markets, Infinity has over 25% of market revenues.

  • The Viacom Outdoor Group made its debut in 2001, created from the merger of Infinity Outdoor and TDI. This combination produced an unparalleled outdoor powerhouse with significant properties in all of the top 50 markets in the U.S. and European operations in Great Britain, France, Italy, the Netherlands, Ireland, Spain, and Finland. Viacom Outdoor also has a presence in each of the top 45 metro markets in Mexico and 14 of the 15 largest in Canada.

  • Paramount Pictures had one of its best years ever in 2001, second only to the year it cashed in with Titanic. The studio scored with a solid slate of box-office successes, such as Save the Last Dance, Down to Earth, Along Came a Spider, The Score, Lara Croft: Tomb Raider, Vanilla Sky, and Jimmy Neutron: Boy Genius, and continued its reign as the most profitable studio in Hollywood. Paramount also continued to exploit its reign as the most profitable studio in Hollywood. Paramount also continued to exploit its rich library by releasing on DVD over 1 million units each of Forrest Gump and The Godfather Trilogy. The studio also formed a partnership called Movie Link to explore the potential of VOD. We're excited about Paramount's 2002 slate, which kicked off with Mel Gibson's We Were Soldiers, Britney Spears' Crossroads from MTV Films, and Nickelodeon Movies' action adventure Clockstoppers, which recently debuted with a global promotion across 13 Viacom cable networks, seven Web sites, and 180 Infinity radio stations. We're also looking forward to K19 with Harrison Ford, Star Trek: Nemesis, Tom Clancy's Sum of All Fears, and animated Nickelodeon films The Wild Thornberrys and Hey Arnold!

  • Blockbuster ended the year commanding almost 40% of the U.S. video rental market and is by far the leader in fast-growing DVD rentals. The high-margin DVD format now accounts for almost 20% of rental revenue, up from 7% in 2000, and we expect this trend to continue. Blockbuster is also benefiting from a resurgence in game rentals, as well as its efforts to exploit store traffic through sales of such products as DirecTV satellite dishes and consumer electronics devices such as DVD players. Blockbuster grew internationally, with Canada, Ireland, the U.K., and Mexico turning in near double-digit comp revenues last year. Blockbuster has nearly 8,000 stores worldwide.

  • Paramount Parks continued a strong and steady performance last year, with nearly 12 million visitors to its five regional theme parks and Star Trek: The Experience destination in Las Vegas.

  • Simon & Schuster added yet more hardware to its trophy case, including two National Book Awards, two Caldecott Honors, and 98 New York Times Bestsellers, 14 of which hit No.1.

The lesson of 2001 is clear: If Viacom can prosper in the most adverse of economies, what new heights can we achieve in an upturn? With our successful combination of day-to-day focus and long-term vision, along with the significant investments that we continue to make in new programming and platforms, Viacom is extremely well positioned to flourish as the economy, and the advertising market, rebound.

We're not alone in our enthusiasm. Goldman Sachs' guru Abby Joseph Cohen, in the year-end Barron's roundtable, put Viacom on her short list of six picks -- the only company in our industry she singled out. Money Magazine, too, named Viacom as one of eight top stocks for 2002 across all sectors. It cited our brands and programming, the diversity of our media properties, our cash flow generating ability, and our financial discipline -- all of which are hallmarks of a company that is managed with an intense focus on creating shareholder wealth. Viacom is managed by shareholders for shareholders. We take great pride in that, and you can rest assured that your interests are always top of mind.

We'd like to thank our incomparable management team and employees worldwide for making 2001 a record year -- in the toughest market in a decade. And we'd like to thank you for your continuing investment and support. We look forward to another record-setting performance in 2002, and beyond.

Sincerely,



Sumner M. Redstone
Chairman of the Board and
Chief Executive Officer

Mel Karmazin
President and
Chief Operating Officer



Back to VNN Main Page