Hollywood Media Exits Viacom Ad, Equity Deal

Hollywood Media will return about $49 million in unused advertising time on Viacom television, cable, radio and outdoor properties.

In return, the Boca Raton, Fla.-based firm, which operates entertainment information and ticketing sites Hollywood.com and Broadway.com, will receive Viacom’s entire share in the company, plus $2 million in cash.

Under the pair’s original arrangement, Viacom, the largest shareholder in Hollywood Media, holds warrants and shares comprising about 30.8 percent of the firm’s stock, which it received in exchange for $100 million in promised advertising inventory through 2006. At press time, Viacom’s share would be worth about $11 million.

After the exchange, Hollywood Media said it would still have about $5 million left in advertising and promotional credit across Viacom’s CBS properties, good for use through 2003.

MovieTickets.com, in which both Hollywood Media and Viacom are investors, is not affected by the unraveling of the two companies’ agreement.

For Hollywood Media, the deal is a boon: the company will no longer have to pay $17 million in annual amortization expenses, which it said would hasten profitability. Hollywood Media Chief Executive Mitchell Rubenstein said the company now expects to reach breakeven next year.

The agreement also decreases shares outstanding — from 29 million to about 20.4 million — while increasing the share of the company owned by other shareholders.

“We believe the benefits of this transaction to our shareholders far outweigh the present value of the non-cash advertising that was available to us over the next four years,” Rubenstein said. “As we have evolved into a diversified media company with established brand names and an increasing number of business customers, our overall need for a high level of consumer advertising has diminished substantially. Consequently, CBS’ advertising platform, which in the early stages of our development was quite beneficial, is no longer a strategic asset for us.”

For Viacom, which inherited the agreement with Hollywood Media when it merged with CBS Corp. in 1999, the deal allows it to reduce its liabilities in the troubled Internet space while giving it more available inventory, after a relatively strong network upfront buying season earlier this year.

Initially, the 1999 investment in Hollywood Media (then Hollywood.com) had been conceived as a way for CBS to play catch-up in the then-exploding online sector, as Disney’s ABC and GE’s NBC already had prominent Internet media strategies.