A Slow-Motion Recovery: Viacom Says Things Aren’t Getting Worse

Here’s another quick glimpse of the advertising market, courtesy of Viacom. The cable giant says ad sales are still down, but that the rate of decline is slowing. And in the fall of 2009, that constitutes pretty good news.

Viacom (VIA) says Q3 ad sales dropped four percent in the U.S., which is two points better than Q2. Companywide, revenue dropped three percent to $3.3 billion, which is what Wall Street expected, but the company slashed enough costs to produce an earnings surprise: After adjusting for one-time charges, Viacom posted earnings of 69 cents a share, well above the 57-cent consensus.

The company’s overall results do a nice job of illustrating why media companies and investors are so enamored of cable TV these days: Even though ads are slumping, the company was able to wring more out of cable system providers (and their subscribers), which more or less kept overall cable revenue flat.

Viacom’s movie business is much less meaningful than its TV operations, but in this case, it underperformed enough to drag the rest of the business down. Viacom blames a six percent drop on crummy DVD sales, which it says suffered compared with strong results a year ago.

But every studio in Hollywood is grappling with crummy DVD sales: The only real question is whether that’s a function of the economy or something larger.

I’ll  listen in on the call (8:30 am ET) and report back if there’s anything else worth noting.

UPDATE: CEO Philippe Dauman mentions the new “Sponge Bob Tickler” for the Apple (AAPL) iPhone app, which I believe means that at least one Viacom employee has won a private bet. Waiting to hear more about Q4 guidance.

The core question: Are Dauman and other Viacom execs mildly optimistic about recovery because of an easy comparison with a year ago or because ads are really coming back? A little of both, Dauman says: “Right now the tone is feeling better, but we have to be cautious.”