Consistency Doesn't Mean Complacency

CBS chief Leslie Moonves is remaking his business amidst prosperity.

By Melissa Grego -- Broadcasting & Cable, 11/1/2010 12:01:00 AM

The CBS network is off to another solid fall season, and President and CEO Leslie Moonves is always happy to tout that fact while stumping for the overall well-being of broadcast television, especially as retransmission cash wars flare up all over the industry.

But to peg Moonves as hanging on to the old way of doing things would be short-sighted, as he is very aware—and honest—about all the changes he must make. Yes, he is the torch-bearer for the need to get paid by cable operators, last week becoming the second executive after Fox’s Kevin Reilly to bemoan that USA Network gets paid more by cable operators than broadcast networks do.

But Moonves also is evolving his business constantly, citing specific examples like the need to remake the news business (and its top-heavy talent salary structure) and an unwillingness to take losses on sports-rights packages like NCAA basketball, for which he found a partner (Turner Sports) to stem significant deficits.

Speaking at the 2010 Broadcasting & Cable/Multichannel News OnScreen Media Summit on Oct. 28 in New York City, Moonves outlined many of these changes—and the motivations to do so—to B&C Executive Editor Melissa Grego. An edited transcript of that conversation follows.

The World Series started last night, and a lot of people couldn’t see it. What does the Fox-Cablevision situation mean to you? Is it good, is it bad?
Well, nobody likes to see a dispute like this, and obviously we don’t know the details of the bid and the ask. We have been very early on a big proponent of networks [deserving] to get paid for their content. We deserve to get paid for our retrans. We do not want the government involved, we don’t think they should be involved. We think the companies should settle these [disputes] themselves.

When you started going after cash for retrans 3, 4 years ago, is this how you saw or envisioned it playing out—getting this ugly? And does it need to be?
Did I envision it like this? I don’t know. Anytime you have two sides with a dispute, you know, things like this happen. But once again, we need to remember that 99% of these get solved without there being any dispute between the parties. And once again, let me reiterate, having the FCC or the federal government come in in any way, shape or form I think would be a terrible mistake.

Do you find yourself rooting for your broadcast brethren in any of these?
Well, I think it’s pretty obvious which side of this dispute I’m on. You know, who knows what they’re [Fox] asking for or what Cablevision has offered—I really don’t know those numbers. So if there’s preposterous asks on either side, which there may be, I can understand the dispute. But obviously I’m a broadcaster and we’re a content provider, and we think the content providers should be paid appropriately.

How well is broadcast or network TV positioned for the next 12 months, and how is it positioned relative to other media and entertainment businesses? Network TV is down [this fall]…
Two of the networks are down, two of the networks are up from last year. We have been up just about every single year over the last decade. Network television works if you know what you’re doing, if you put on hit shows, if you build a schedule. So the network ‘game,’ per se, is very profitable. We’re looking at higher profits than we have seen in a long, long time. As the economy is coming back, number one, you saw the upfronts. They were extremely strong across the board. And now you look at the schedules as it proceeds, and with our schedule and the ratings we’re getting, the scatter market is going to be phenomenal for us. We are in far better shape, because it was a lot less makegoods for us than anybody else. So the prognosis for us—not only in the fourth quarter, I have to be careful because we do earnings next week—but the prognosis for the fourth quarter, the first quarter, the second quarter are all extremely strong because of that. Our schedule, I can sort of predict where the rest of the season is going to be. The only question marks will be what happens at the Super Bowl and how well American Idol does, but we’re going to be right up there across the board.

For the year, do you think ad revenue will be up, not just the upfronts but overall?
For us, it will be by a lot.

You said some interesting things about news a few weeks ago at [the University of Texas]. One of them was “The Katie Couric deal will be the last big deal of that kind ever done. Those days are over.” Her deal is up in May, so is it safe to say that if you make a new deal with her, it’s not going to be at that same price?
Well that whole thing was very interesting. I learned a lesson, which I probably would've learned before, because I was making a presentation at the University of Texas and I had a prepared speech and it went very well, but no good deed goes unpunished. So before the speech they said ‘Will you do me a favor and go to a class of students in the communications department?' So I said sure. So 16 kids and they're all very bright, half of them were film, half of them were journalism. And we got into a chat about the future of news. Little did I know that one of them was the blogger for the University of Texas newspaper. And literally, that little blog in Austin, Texas, by the time I hit the plane coming back to New York, it was all over the place.

I’m a huge Katie Couric fan. I’m very happy we brought her to CBS, I know there was a lot made about how much money she makes [but] she’s done a sensational job. She works her butt off every single day. I think her newscast is as good as anybody’s, we’re really proud of her. We haven’t begun a discussion on an extension of her deal, but I think she’s terrific.

So if you do make a new deal, is there a chance that it could be at the same rate, or no?
I’m not going to negotiate in front of 300 people. It’s not the right thing to do.

What stands in the way of doing a deal with CNN along the lines of what you did with Time Warner and Warner Bros. with The CW?
Time Warner and I have a terrific relationship. We obviously own The CW together, we did do the terrific NCAA deal. Warner Bros., outside of CBS, is our biggest provider of network programming, so the relationship between the two companies has never been stronger. We’ve obviously had conversations, it’s no secret, with CNN about what we can do together. The structure of these two operations is very, very different. It’s rather hard to cross over in a meaningful way. They’re cable, they’re based in Atlanta, they’re non-union. We are a union shop. There are those issues. You know, we’ve had those discussions, but it’s a tough nut to crack, it is. We tried 10 years ago, and we tried last year. It’s just been a difficult thing.

If you were to do a CBS-CNN deal, would it be along the same model, would you co-own it the way you do The CW?
It's hard to do when you have two large media companies; it's hard to make a joint venture with a division of the company. It's hard logistically, it's hard from a business point of view, it's hard from a content point of view, it's hard [regarding] who's in charge, who's making the last decision, because every creative decision also has a financial decision that goes with it. There are a lot of little points, it's not just ‘OK, we'll share Anderson Cooper or Katie Couric and we'll merrily go down the road.' It proves to be very, very difficult.

Do you think it’ll happen?
I don’t know, I don’t know. Right now, it doesn’t look good.

Let’s talk about sports, speaking of Turner and Time Warner. Certainly it’s OK to have a loss leader in business, and sports in a lot of ways is that, and you made this terrific deal with them on NCAA…

It’s not a loss leader anymore. When we had the NCAA tournament, it was. But right now the CBS Sports department is a profitable division because of that deal.

Can you continue to get the big games, the big franchises with the escalating rights fees? Can you do it on your own, do you have to do these partnerships?

Our big sports events are obviously the NFL number one, the NCAA basketball tournament number two. We obviously carry more golf than anybody else, we have the U.S. Open tennis tournament and we have college football. College football, we just signed a new deal for 14 years—very lucrative. The NFL has been very smart I think in negotiating. By the same token, we are profitable with the NFL. We hope to continue that deal for a long, long time to come. The NCAA deal was a long-term deal where the rights escalated drastically going into this year. So we were looking at sizeable loss, which is why we reached out. We were able to make a terri! c deal that is mutually beneficial with Turner, which sort of saves our bacon with the NCAA. So right now, all of our sports are in good shape. Look, we wish Tiger Woods will come back, we’ll make more money in golf. And I mean come back as a contender. That’s very helpful to us. We wish the U.S. Open wouldn’t rain out every year.

Do you want the Olympics?

Not at the prices that they seem to be going for. We are no longer going to bid for loss leaders. We don’t need to do that. We’re leading the world in a lot of different ways. We don’t need to invest in something that we’re going to lose money on just to help…the prestige of this network. I think we’re already there.

But if you could do like what you did with NCAA, with Turner, would you?

Certainly. It’s a great event.

Hulu, Netflix, Apple TV, Amazon, where is all this going? Do you see, once we’ve figured all this out, found money in this ecosystem?

Well that’s the idea, that’s the hope. Look, we consider ourselves a content company and a distribution company. And we do what we like to call the “content food chain,” which starts out with, “Where does the money come from with our content?” It starts out with network advertising, it goes into syndication, retrans, DVDs, and then it starts moving its way down the line. We are the number one network, we like being in that position. Because of that, we’ve been a little bit more conservative about putting our content online. We didn’t join Hulu for that reason, because we felt our content are our family jewels, and we don’t like putting our family jewels in a joint venture where other companies can decide what to do with our content. We obviously participate in iTunes because we feel that’s value-added. The great things about all these [platforms], about Netflix and about Apple TV, they’re all acknowledging that they can’t live without content, without the best content, and they want to pay for it. So we’re going to get paid for it. It’s our job, and we spend, needless to say, a lot of time talking about it, [asking] “Does this fit? If we make this deal, is this going to hurt our syndication sale? Is it going to hurt viewers on the network? Is it going to hurt our ability to sell DVDs? Is it a smart thing to do in the overall ecosystem of the CBS content chain?” Look to where there are opportunities to make money with your content and not hurt other businesses. That’s our philosophy in a nutshell.

Clearly the distributors are starting to pay cash for broadcast signals. So who ends up paying for that?
Well, in a universe where the average home gets about 150 channels and they're only watching 13 to 15 of them, one of those 13 to 15 is CBS, guaranteed. Most of those 13 to 15 are Showtime. I would argue that if you're paying us retrans money, it shouldn't be passed on to the consumer, we don't want that, we don't expect that. But when you look at what is out there, I always say people are paying six cents for the Karate Channel! All right? They're paying six cents for the Karate Channel, they were paying zero for CBS. So if you took out 10 Karate Channels, I don't think the average household in America would miss that. If you took out CBS, America's number one watched network, I think America would miss that. I think they would miss that a lot more, so I think that the system is out of whack. You pay for where the viewers are. That's what should happen. The MSOs should not make a bigger profit, it shouldn't be passed on to the consumer, but you pay for the eyeballs that you are receiving.

So it should come out of the other programmers that may be worth less?
Well, the programmers that are watched by seven people.

The affiliate model-how is that holding up? ABC is doing something kind of different with their inventory exchange with affiliates. How is that working? Do you see the relationship changing in a small or a big way in the next several months, in the next year, for you?
The relationship with our affiliates clearly has evolved over the last 10 years and it's somewhat different than it was before and in many ways it's exactly the same. We believe in having a very strong affiliate group. We believe in the health of those stations and if those stations are healthy it helps us a great deal as well. But the world has changed from us giving them money to the idea of reverse compensation. And as retrans becomes a bigger and bigger player for all these stations, once again a lot of that retrans money is given because of what the network is providing. You're paying retrans because of football, because of Letterman and because of our hit programming. We really believe in having a very strong affiliate group. We like it when our stations do well. Look, our affiliate group is 40% us. Our own stations. So obviously if we're doing well as a station group, the rest of the country is doing very well. One of the numbers I'm most proud of, and needless to say we're considered really good guys by our affiliates, is we win 10 to 11 [p.m.] five nights a week. So you've seen a great shift in what's happening in the 11 o'clock news, where we're winning markets that we were never a player in before. And you see because of weakness at ten o'clock in some of our competitors that the ballgame has shifted very much. They are very pleased by that. Remember, an affiliate's revenue and our own revenue comes about 50% from primetime and late night. Obviously with CBS doing as well as they are, that's a big chunk of money going in the right direction. In addition, when we give them a lead in to their 11 o'clock news, which is clearly a center of the universe for them, and we're giving them a substantial lead-in most nights of the week or five nights a week, they're very happy with us.

Would you or are you considering anything like what ABC is doing, swapping national inventory for local?
We do that all the time. As a matter of fact, we have done that during election season. The station groups, obviously there is a great deal of political activity there, which is very good for the television business. I don't know if it's great for America, but it's great for the television business. We love seeing billionaires who are angry at each other spending $140 million of their own money. It's terrific. Let them keep going. We have five television stations in California. The numbers are pretty spectacular. It's great. So as we head toward the election, which is early November, we have swapped inventory to give them more inventory the last few weeks in October, the first week in November, in exchange for inventory that goes back to the network in November. Once again, it's a case of where you go where the money is, where the best economics work out. There's no hard and fast rule but this was an opportunity for the affiliates to win, the O&Os to win and for the networks to win.

You just didn't make a big announcement about it, you just did it systematically and quietly?
We just did it quietly. We're a humble little company.

To your point about the changing face of news at 6:30 and what you get, and I think you also made a comment to those 16 students that most of what Katie's going to say at 6:30, you're going to be able to get that information elsewhere, when do you think in 2011 it's fair to say we'll see a format change of some kind to the CBS Evening News?
I don't know yet. Obviously you look to improve whatever your product is, be it news, sports or entertainment. I think our product is terrific. Are there different ways of doing news? Maybe. It's a very different world than it was even five years ago. We do not have the advantage of having a cable sister network to help us. Could it look differently? Sure, it's very possible.

Do you see a value in having some sort of standard in the business for approaching authentication?
You can't have a standard; they're all so different. Look, we're very much in favor of authentication. We feel like, once again, getting paid appropriately by Comcast, they should be able to protect our content-they're paying us appropriately for it. And within that 10-year Comcast deal, there is the ability to do authentication when we are ready to do it, because we believe in that. But each one, they're so different, they're valuable and yet they're dangerous. So each one needs its own discussion. We're in conversations, everybody that you've mentioned we've talked to at least three times. Some of them were interesting. Some of them will be interesting later on, like we're not ready to go in. Look, the Apple 99-cent thing, we didn't think we were ready to do that now. Is it something we would consider in the future? Maybe. Let's see how it evolves.

Last question: Clearly you're known to be an optimistic guy, but there's got to be something that you lose sleep over with your business at some point or another. What is your biggest concern for your business, for the business overall that we should all be putting our minds to?
My biggest concern, what I lose sleep over, is that this content gets disseminated to a thousand different places or a hundred different places with one percent of the viewership on each one of them, which will mean the premium content will be unaffordable. Right now we're getting dollars in advertising, we're getting dollars in affiliate fees, we're getting dollars in syndication, and then there are pennies out there. And I don't want it to dissipate the content where it's too diverse and it's too out there. And we're not going to be able to afford to pay for that premium content like we are now, because that premium content is our bread and butter.

Andrea Domanick contributed to this report.

E-mail comments to mgrego@nbmedia.com and follow her on Twitter: @MelissaGrego