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By Joe Flint and Lisa Beilfuss 

A legal battle for control of Viacom Inc. continues to hamper the media giant's ability to make deals and conduct business, but Chairman and Chief Executive Philippe Dauman says recent court decisions have him feeling optimistic about a possible resolution.

Last week, courts in both Massachusetts and Delaware said legal efforts to scrutinize the mental capacity of Viacom controlling shareholder Sumner Redstone can go to trial in October. In Massachusetts, Mr. Dauman and another Viacom board member are fighting their removal from a trust that will oversee 93-year-old Mr. Redstone's holdings in Viacom and its sister company, CBS Corp., after he dies or is incapacitated. In Delaware, Mr. Dauman and four other directors are disputing their attempted ouster from the Viacom board.

"We view these favorable court rulings as positive steps that move us ahead towards a resolution," Mr. Dauman told analysts on a conference call to discuss the company's fiscal third-quarter results. Before those rulings, Viacom had been engaged in settlement talks with Mr. Redstone's holding company, National Amusements, that potentially could have led to Mr. Dauman's resignation and Chief Operating Officer Tom Dooley being named interim chief executive, people familiar with the matter said.

The legal tussle has slowed Viacom's efforts to sell a minority stake in its struggling Paramount Pictures movie unit.

The Wall Street Journal, citing people familiar with the matter, has reported that Viacom is in talks with China's Dalian Wanda Group Co. to sell a 49% stake in Paramount in a deal that would value the studio at $8 billion to $10 billion.

"The process has slowed down in recent weeks," Mr. Dauman said of a possible Paramount deal. The recent court rulings, he expects, will allow Viacom management "to progress with several parties" and "create a better environment" to present potential sales to the board. National Amusements and Mr. Redstone, through representatives, have questioned the wisdom of selling a chunk of Paramount, a key dispute that set off the recent power struggle.

In the legal battles, Mr. Dauman has argued that Mr. Redstone no longer has capacity to make decisions like the recent changes to his holding company's board, his trust and the Viacom board. Mr. Dauman has also alleged that his daughter Shari Redstone, a Viacom vice chair, is manipulating her father to try to gain control of his empire. Ms. Redstone has denied these accusations.

Besides a Paramount deal, Mr. Dauman said the fight is "creating an overhang for our company." The uncertainty, he said, has led to a slowdown in talks for a significant subscription video licensing deal that he said would be a boost to the company's bottom line. Such a deal was expected to be completed already but has been delayed.

For the quarter ended in June, Viacom reported a profit of $432 million, or $1.09 a share, down from $591 million, or $1.47 a share, a year earlier. Excluding a tax benefit, per-share earnings fell to $1.05 from $1.47. The company was hurt by the continued weak performance at many of its cable networks including MTV, higher costs and a poor box-office showing.

Revenue edged up 1.6% to $3.12 billion.

Analysts polled by Thomson Reuters had projected $1.01 in adjusted earnings per share on $3.01 billion in revenue.

Viacom had already lowered expectations in June. At that time, the company said it expected per-share earnings between $1 and $1.05 for the quarter, compared with an average analyst estimate of $1.38, according to Thomson Reuters.

Shares in the company, down 23% over the past year, rose 0.5% to $44.22 in midmorning trading.

On Thursday, Viacom said revenue from the company's media networks business -- its largest -- declined 3.2% as domestic ratings fell and advertising dollars declined. Amid declining sales and climbing expenses, profit in the segment tumbled 22%.

Viacom, owner of networks including VH1 and Nickelodeon, has grappled with viewers' increasing tendency to cut the cable cord, like other media companies.

"There are disruptive challenges in our industry, particularly for those companies like Viacom that focus on younger demographics," Mr. Dauman said.

But technology and changing media consumption patterns aren't the only problem. The hits haven't been coming at many of its channels including MTV, which recently installed new management in an effort to turn the channel around.

"We really had a fallow period," Mr. Dauman said of MTV.

Viacom's filmed entertainment revenue, meanwhile, jumped 30% from a year earlier, thanks largely to higher licensing fees. But the underperformance of "Teenage Mutant Ninja Turtles: Out of the Shadows" and rising costs pulled film earnings to a loss of $26 million, down from a year-earlier profit of $48 million.

"There is no question the studio has had a rough go at the box office recently," Mr. Dauman said.

Mr. Dauman noted that Viacom's international performance during the quarter was stronger than its domestic showing. He said the company continued to work on its strategic plan of increasing spending on producing original content and ramping up its data-driven advertising products. Total expenses rose 18%, pushing the company's operating margin down to 24.8% from 35.4%.

Write to Joe Flint at joe.flint@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

August 04, 2016 11:20 ET (15:20 GMT)

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