No Signs of Ad Slowdown at CBS, Moonves Says

Upfront ad orders firming up

By Jon Lafayette -- Broadcasting & Cable, 9/14/2011 4:54:09 PM

CBS is still not seeing any signs of an advertising slowdown, CEO Les Moonves told an investors' conference Wednesday.

"I know people are saying it should be slowing down; we're just not seeing it," Moonves said at the Bank of America Merrill Lynch Media, Communications & Entertainment conference. "I know the economy is suffering right now," he added, "Smart guys realize the way to cut back is not by reducing advertising."

Moonves said that upfront "holds" are being converted into firm orders at the same rates as last year. Those advertisers that left were quickly replaced at higher rates. Other upfront advertisers are increasing their orders and new advertisers are coming into the scatter market.

He said he expects CBS to do well in the scatter market in the fourth quarter and first quarter because CBS has only five new shows in its lineup, while its rivals have more new shows on their schedules. "I anticipate we're going to be very much in demand by the first quarter," he said. "I know we're the boring network, we're the stable network and we just win."

He's also expecting political advertising to be a big factor in 2012. "Judging from the climate that's out there, there is going to be such a huge amount of money spent. 2012 is going to break records and outdo 2010 by a considerable amount," he said. "It may not be good for the country, but it's going to be good for CBS."

CBS also has revenue coming in from retransmission consent agreements with cable, satellite and telco distributors, as well as from reverse compensation deals with affiliates. Moonves said he expected reverse compensation to reach meaningful levels of revenue in 2014 and 2015. "Next month we'll announce a significant deal with a big affiliate. It's concluded," he said. "It's a substantial deal because they have already negotiated their deals with the MSOs and we're going to be sharing that with them."

On the digital front, Moonves said not joining Hulu was "one of the smartest things we've done." He said he didn't like to be in joint ventures with rivals -- it is owned by News Corp., Disney and NBCUniversal --  and that by keeping its content on its own website, CBS keeps 100% of the ad revenue generated, rather than 70%. It also has more control over its programming. "Overusing content online might hurt ratings on the other networks. I like the way we're playing the game."

CBS has played the game by making non-exclusive deals with digital distributors Netflix, Amazon and even Hulu in Japan. Moonves said CBS' Netflix deal covered about 7% of its vast library and brings in hundreds of millions in revenue.

"Netflix is another means of distribution. I'm very happy to sell our content to USA, TBS and Netflix," Moonves said. He added that he didn't know how many digital distributors the marketplace could support, but "the more the merrier. We like selling our content to everybody."

Moonves said the key to the TV business is owning programming.

"Content is forever. We made over $20 million a year on revenue from I Love Lucy. It is a show that was last produced in 1957," he said. "Fifty years from now there will be some other guy sitting in this chair and he'll be selling CSI."

While Moonves was his usual optimistic self, analyst Anthony DiClemente of Barclays Capital slightly lowered 2011 earnings estimates for CBS.

DiClemente cited lower network ad revenue growth because of rerun programming in the third quarter and slower revenue growth in dayparts other than primetime, tough political comparisons for CBS' local broadcasting segment, and lower traditional syndication revenues.

"While our 2011 [earnings per share] estimate goes to $1.90 from $1.97, our below-consensus 2012 EPS estimate of $2.18 remains unchanged, as we believe a cyclical slowdown in ad revenue growth is already reflected in our assumptions. Thus, we are also maintaining our price target of $30," he said in a research report.