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Earnings Preview: Viacom 2Q profit seen down

LOS ANGELES (AP) -- Viacom Inc. reports its second-quarter earnings before the market opens on Wednesday as worries about audience ratings fade, but new concerns emerge about the viability of its licensing business to online video providers.

WHAT TO LOOK FOR: Viacom Chief Executive Philippe Dauman will likely address the company's licensing relationship with Netflix Inc., which the streaming video company said will expire at the end of May.

Netflix has been paying Viacom for the right to show a broad range of its programming from channels like Nickelodeon, BET and MTV to its streaming customers. The company is now looking to license individual shows only.

The existing deal amounts to about $130 million in revenue per year, generating after-tax profits of about $55 million, or 3 percent of Viacom's total net income, estimates Nomura analyst Michael Nathanson.

Some of that income is now at risk, Nathanson says.

As online video providers such as Netflix and Amazon.com Inc. focus more on exclusive and original programming, bulk deals involving programming that is made available broadly could fall by the wayside.

For example, Nickelodeon's "Dora the Explorer" is available on multiple streaming services. Amazon Prime subscribers can watch five seasons' worth, while Netflix subscribers can watch four.

While the end of its deal with Netflix won't affect the quarter's results, it could affect Viacom's strategy going forward.

WHY IT MATTERS: Viacom's business is being affected by changing consumer behaviors. As more people use Internet-based on-demand streaming services, the traditional pay TV model is being disrupted. Viacom's ability to adapt to these changes will be key to its health as a company.

WHAT'S EXPECTED: Viacom is expected to post an adjusted 95 cents per share of earnings on revenue of $3.18 billion.

LAST YEAR'S QUARTER: The company reported adjusted earnings of 98 cents per share on revenue of $3.33 billion.