- Associated Press - Thursday, February 2, 2012

NEW YORK (AP) - Viacom Inc., the owner of Paramount Pictures, MTV and Comedy Central, on Thursday posted a 65 percent drop in net income for the latest quarter, as it took a charge related to the “Rock Band” series of video games.

Revenue was below analyst estimates, sending its stock down.

Viacom earned $212 million, or 38 cents per share, in the October-December quarter, down from $610 million, or $1 per share, a year ago.

The New York-based company took a charge of $379 million to cover an arbitration award won by the original shareholders of Harmonix Music Systems Inc., which created “Rock Band.”

The game let players take “Guitar Hero” one step further by connecting a drum-kit and a microphone to a game console, along with a guitar, and play and sing along to songs. It was hit when it came out in 2007, but its popularity faded quickly, along with that of “Guitar Hero.”

Viacom had acquired Harmonix in 2006, but sold it back to its founders in 2010. The founders then sued, claiming that they were owed extra payments for the performance of “Rock Band” during its spell of popularity. They won an arbitration award of $383 million in December. Viacom is contesting it, but has set aside the money to cover the award, reflected in the charge to earnings.

Excluding the “Rock Band” charge, earnings were $1.06 per share in its fiscal first quarter, a penny above the average analyst estimate as polled by FactSet.

Operating income fell 2 percent as expenses outpaced revenue, which rose 3 percent to $3.95 billion from $3.83 billion. Analysts expected $3.99 billion, mainly because they were expecting advertising to hold up better.

After falling as much as 4.4 percent in morning trading, Viacom’s Class B shares had mostly recovered by the afternoon, trading down 21cents at $46.76.

Paramount posted a small operating loss, reversing a small profit a year ago, mainly because it booked a one-time gain then from the sale of some movie distribution rights to Marvel Studios, part of The Walt Disney Co. Revenue rose slightly on strong box-office results from “Paranormal Activity 3” and “Mission Impossible _ Ghost Protocol.”

At the TV networks, Viacom’s larger and more profitable division, results were buoyed by an increase in fees from cable companies and online streaming services like Netflix. Advertising, the largest single source of revenue, declined 3 percent.

CEO Phillippe Dauman said ad sales would have grown except for a ratings dip at Nickelodeon, as measured by Nielsen Co. The apparent loss of viewers showed up in mid-September. Viacom said in November that it thought the dip was due to some sort of measurement error, and Dauman stuck to that explanation on Thursday.

For its part, Nielsen is sticking to its data, saying in a statement Thursday that it had found no problems with its methodology.

One explanation that has been floated by analysts is that the availability of older Nickelodeon shows on Netflix is digging into viewership. Dauman said he didn’t think that was the case. The company gets viewer data from Netflix and didn’t see a sudden spike in September, he told analysts on conference call after the release of the results.