(Corrects to state Charter is moving Viacom's networks to its most expensive tier)
* 2nd-qtr revenue $3.26 bln vs est. $3.02 bln
* Profit 79 cents/shr vs est. 59 cents
* Domestic ad sales fall 4 pct
* Shares fall 3.6 pct in early Nasdaq trading
By Jessica Toonkel
May 4 (Reuters) - Viacom Inc, the owner of MTV, Comedy Central and Nickelodeon, reported second-quarter profits that beat Wall Street's estimates on Thursday, but advertising and distribution headwinds weighed on its stock in early trading.
News that Charter Communications had re-tiered five of Viacom's flagship networks to its most expensive programming tier, which will likely result in lower affiliate revenue for Viacom.
That news, which was detailed in a Deutsche Bank analyst note published Thursday, along with the softening ad market, resulted in Viacom's stock dropping as much as 10 percent Thursday morning.
In mid-morning trading, Viacom's shares were down 3.3 percent at $37.97.
Deutsche Bank estimated the re-tiering will reduce affiliate and advertising revenue by about 5 percent, mostly over a 3-year period.
The New York-based media company reported a 4-percent drop in domestic ad sales, in line with analysts' expectations, according to FactSet.
Affiliate revenue — the fees that Viacom collects from cable TV operators as well as Internet distributors — rose 2 percent to $1.16 billion in the quarter, reflecting higher rates.
Revenue from Viacom's filmed entertainment business, which houses the Paramount film studio, jumped 37 percent to $895 million in the company's second quarter ended March 31, breezing past analysts' average estimate of $676.5 million, according to financial data and analytics firm FactSet.
Viacom's revenue from Comedy Central, MTV and other media networks, climbed 1 percent to $2.39 billion, helped by growth in overseas markets.
The company in February said it would focus on six of its brands as part of a turnaround plan orchestrated by Chief Executive Bob Bakish, who took the helm in December. The brands are: Paramount, BET, Comedy Central, MTV, Nickelodeon and Nick Jr.
Bakish has also said he is focused on improving relations with Viacom's affiliates, and licensing less content to video streaming companies like Netflix and Hulu.
Another key focus for Viacom is to turn around the business at Paramount, following years of underperformance.
In March, the company hired movie industry veteran Jim Gianopulos, the former head of Twenty-First Century Fox's film studio, as Paramount's new chief.
Net profit attributable to Viacom plunged 60 percent to $121 million, or 30 cents per share in the second quarter, partly reflecting a $174 million charge related to restructuring.
Excluding one-time items, Viacom earned 79 cents per share. Analysts on average had expected 59 cents per share, according to Thomson Reuters I/B/E/S.
Viacom's revenue rose 8.5 percent to $3.26 billion, beating analysts' expectations of $3.02 billion. (Reporting by Rishika Sadam in Bengaluru; Additional reporting by Anya George Tharakan; Editing by Sai Sachin Ravikumar)