On the Comeback Trail

Viacom's CBS O&Os are finally off the couch and back in the game. When you're the back-of-the-pack station group, though, there's tough competition and a long way to go.

In fact, the aggregate revenues for Viacom's owned-and-operated CBS stations in the top three markets—New York, Los Angeles, and Chicago—trailed arch-rival NBC's stations by a staggering $315.1 million in 2002, the most recent year for which BIA Financial Network estimates are available. (BIA is not expected to provide its 2003 revenue data before late April.)

Senior Viacom officials do not dispute the individual-station BIA estimates for those markets in that period. However, the Viacom Television Stations Group "gained share in 2003 and continued to gain share in January 2004," a spokesman says but declines to provide specifics, citing company policy.

Things are changing, helped by stronger management at the local level and stronger shows, like CSI and Survivor, on the network. But by no stretch has the station group fully rebounded. "The competition's actually starting to trash us now. That's a good sign," says Dennis Swanson, the station group's highly visible COO who, in a surprise move, joined Viacom in 2002. "A few years ago, they didn't pay any attention to us."

In the November 2003 sweeps, the CBS O&Os' late news was up in households by 11% over the previous year, though well behind market leaders in most markets. Still, the network was in first place in prime time in 13 of 15 metered markets (B&C, 11/24/03).

Indications at press time are that the momentum continued in the February '04 sweeps. Perhaps the most significant indicator of positive ratings movement in local late news is the retention rate, the percentage of viewers tuned in at the end of prime time who keep watching the local news program.

At WCBS New York, the rate was 67% a year ago; this year, in the first two weeks of February, it was up to 73%, according to station data. Similarly, at WBBM Chicago, retention was up to 76% for the first two weeks in February vs. 64% a year ago.

In 2003, Viacom's entire TV segment, which comprises the CBS and UPN stations and networks, as well as TV production and syndication, saw revenues rise 4% to $7.8 billion, according to Viacom's recently released earnings report. Companywide, Viacom advertising revenues were up 8%.

By comparison, station-group revenues underperformed, increasing just 2% last year.

On the local level, 2003 was a "brutal year," says Swanson, the legendary hired gun lured to Viacom by group CEO and veteran deal-maker Fred Reynolds in July 2002. "We think that, as a division overall ... we outperformed the industry in sales."

Analysts, including at least one who has been critical of the group's performance, and advertisers generally agree that a turnaround is under way at the once moribund Viacom Television Stations Group. They give much of the credit to Swanson, with a nod to CBS network's improved prime-time schedule. Also giving many Viacom stations a boost is Dr. Phil, the hot talk show syndicated by Viacom's King World. It's an important part of the schedule on Viacom-owned stations in major markets, including New York, Philadelphia, Boston, Dallas, Minneapolis, Miami, and Denver.

Swanson, aka the Man Who Discovered Oprah, is something of a TV-industry legend. He has been characterized as a "gruff ex-marine" so often the description is practically part of his name.

But he accepted what is arguably the toughest assignment of his storied career when he took on Viacom Television Stations Group. His mission is to take major-market CBS stations from worst to first. If he can pull it off, it will be a career capstone.

Viacom's 39-station group is the nation's largest, with 20 CBS stations, 18 UPN affiliates, and one independent. It's in 15 of the top 20 markets and includes duopolies in eight: Boston, Dallas, Detroit, Los Angeles, Miami, Philadelphia, Pittsburgh, and San Francisco.

When Swanson arrived, he set about replacing many of his new team's captains, bringing in new general managers at 19 stations. Many came out of sales.

Reynolds, who had come aboard a year earlier, had resolved to give the stations the weapons necessary to fight the long war. That meant new microvans and satellite trucks, new Doppler radar and local-news sets, new high-priced off-net programming, and new high-priced on-camera talent. In some markets, it even meant new transmitters and antennas to boost signal.

"I've probably bought more [$1 million Doppler radar systems] than any other human in America," Reynolds says. Today, the "live" Doppler radar that can alert viewers to impending severe weather is in every major Viacom market.

"We probably clear-cut a forest with all the new sets we've bought" for New York, Los Angeles, Chicago, Dallas, and Denver, he adds. Each CBS station has eight to 10 more gear-packed trucks than it did when he came aboard 2001.

At the UPN stations, which receive only two hours of network programming a day, and then only on weekdays, the main mission has been to bulk up the programming arsenal with high-priced off-network sitcom buys.

The investment in high-priced executive-suite talent, Reynolds suggests, was necessary to change the group's can't-do culture. "There was a culture here of accepting being okay, which is so different from how I would have characterized the rest of CBS at the time and the rest of Viacom currently. For some reason, the TV-stations group was okay with being sort of like the Chicago Cubs," the lovable losers of National League baseball.

There has been something of a renaissance on the network level, too. The general consensus is that roughly half of a major-market station's revenue derives from prime time and late news. Not surprisingly, the focus at the network level has been on strengthening CBS's 10 p.m. ET lineup, which leads into the local news in all those local markets, which in turn feeds back into the network's The Late Show With David Letterman. That effort, spearheaded by the still-proliferating CSI franchise, has been a signal success.

The ultimate goal, according to both Reynolds and Swanson, is to become No. 1 in both ratings and revenues in the top six markets.

After Swanson joined Viacom in mid 2002, Merrill Lynch analyst Jessica Reif Cohen said Viacom's operating cash flow was $250 million less than the NBC stations' in just the top three markets. Today, she has lavish praise for the progress.

"From my perspective, the performance has been phenomenal," she says. "The ratings are up. Particularly local news is up dramatically, in many markets in double digits." The Viacom Stations group will be a "major beneficiary" of a projected improving local advertising market, she predicts.

There's another reason revenues have lagged ratings in the major markets, according to Mike Drexler, chief executive officer of Optimedia International, a major media agency with some $6 billion in billings.

In the No. 1 market, for example, "people who buy New York feel that WCBS's older skew is a problem," Drexler says. "The fact is that the network can only do so much. ... A television station gains not only its reputation but also its ad revenue from the ability to provide local news and local programming. It's a market-by-market issue."

And Viacom has a way to go. "We've got to get to second place before we think about first place," Swanson says. "The ultimate goal is leadership, but we've got to get out of last place."

The operating-cash-flow difference that Cohen identified in 2002 "used to be larger," Reynolds notes. "We're closing the gap. We've gained market share, as measured by revenue, each year that I've been in this role, and we're going to continue to gain share. There's still a lot of upside," he adds.

In January revenues, the CBS stations in New York, L.A., and Chicago "outperformed the market," according to Swanson.

To a great extent, even in this era of consolidation, the big station groups remain money machines, regardless of their ratings, raining cash on their corporate owners' bottom lines. But no ratings battles are more important to the corporate suits than those fought in the major media markets, where the difference between first and, say, third place can mean hundreds of millions of dollars.

In the endless multi-front war for the hearts, minds, and pocketbooks of viewers, the Viacom-owned CBS stations have lagged for years, habitually leaving hundreds of millions of dollars on the ad-sales tables in the biggest markets.

In New York, for example, WCBS took in an estimated $210 million in 2002, according to BIA Financial Network. That was an estimated $130 million dollars less than revenue leader WNBC. That was when Swanson was still in charge there, before leaving for Viacom within a matter of days after announcing his retirement.

Today, Swanson shrugs off the retirement imbroglio. "People made too much of that. I started getting GE pension checks immediately, but you've gotta retire to get your pension check. So I get four checks the first of every month. I get two from Disney from my years at ABC, and I get two from GE from my years at NBC. That's the significance of the retirement: I get retirement checks."

And he's making change at Viacom. Swanson and Reynolds need time to get to the top. And "we need some luck," says Reynolds, noting that some CBS stations have been cellar dwellers for almost two decades. "We need some of our competitors to make mistakes. But we will improve."