News Articles

CBS Earnings Jump in Second Quarter

Netflix deal contributes to revenue growth 8/02/2011 04:25:24 PM Eastern

RELATED:

Crown Media Reports Profit in Second Quarter
International Networks Push Discovery Profits Higher

Basic Momentum Continues at Comcast
Time Warner Reports Higher 2Q Earnings
Sinclair Revenue Flat in Q2
Media Stocks Hammered as Market Loses Ground

CBS reported higher-second quarter earnings as digital distribution revenue and affiliate fees rose. And with more streaming deals under its belt and a strong upfront behind it, the company sees good times ahead.

CBS said its net income was $395 million, or 58 cents a share, more than double the $150 million, or 22 cents a share, it registered a year ago.

Revenues rose 8% to $3.6 billion.

CBS CEO Les Moonves told analysts on the company's earnings call that success was the results of several factors that make CBS different from the old-line broadcaster it once was. For one thing, it  is driving revenue and profit growth from emerging platforms, like the Netflix deal it signed in the first quarter.

"This deal is another example of how we are capitalizing on the value of our content by selling it to new distributors without taking away from established revenue streams," Moonves said.

Moonves added that CBS was also growing oversees where demand for the companies content is growing as cable competition heats up.

Domestically, the company's non-advertising revenue is growing, particularly retransmission fees from cable, satellite and telco video distributors and reverse compensation from affiliates.

Moonves said he remains confident that CBS will hit its goal of $250 million in retrans revenue in 2012. "That does not include any of the fees that we're going to get from our affiliates," he added. "So, over the next three to five years, we think combined those numbers can be in the $600 million to $700 million range for those."

In television, Moonves said CBS' primetime lineup was getting stronger. Last season ended with scatter pricing up 40% from the previous year's upfront, and in the new upfront, CBS led in total dollars and chalked up the biggest price increases among the broadcasters. (Scatter prices in the third quarter remained 40% above scatter prices, CFO Joe Ianniello said.)

Importantly, Moonves said that while advertisers can back away from upfront deals, "we have seen absolutely none of that" as marketers react to a weak economy. "As a matter of fact, with football coming back and the fall season coming ahead, we're seeing increased demand for our shows.  .  . frankly we're looking forward to the fall."

Beyond the fall, Moonves said CBS had more room to grow.

After the end of the second quarter, CBS announced content streaming deals with Amazon and another with Netflix internationally. Those deals did not contribute to CBS' second quarter earnings.

Moonves said the deals reflect a growing lineup of buyers for CBS content.  Regarding the content deals, what's exciting about it is, there are people "Dishjust announced today that they are going to spend a considerable amount of money buying content and buying libraries," he said. "So, the world is getting bigger everyday and expanding and we hear about Apple wanting to buy content and Google, et cetera, et cetera, and Microsoft. So, we think having the content we have is going to get bigger and bigger."

And CBS isn't running out of content. "We have three CSIs that are now on the air that aren't part of these Netflix deals or the Amazon deals, one day they will come off the air and we will get a lot of money for those in those platforms," Moonves said. "We have a ton of content and each one of these packages can just grow. Now, in Netflix that 7% does include a lot of our prime library stuff like Cheers and Frasier, but we have plenty more and there will be plenty more coming in."

With digital distribution growing, owning a cable network is no longer a priority for CBS. "It is not on our must-do-list," Moonves said. "We are bringing in so much money when we talk about our content food chain, starting with network advertising, going into what we're selling in syndication, then going into these new platforms. The need for a basic cable network to put our content on no longer becomes very important to us. So, we're fine without it. Thank you."

Revenues from content licensing and distribution rose 21%, thanks in part to the Netflix streaming deal. Affiliate and subscription fee revenues rose 12%.

Advertising revenues were up only 3%, in part because the company's new deal splitting the NCAA Basketball Tournament results in a sharing of revenues but higher profits.

Operating income at CBS' entertainment division rose 97% to $440 million. The gains reflect lower programming costs due to the new NCAA Basketball deal. Revenues were up 10%, thanks in part to higher retransmission fees and growth in network primetime advertising.
 
CBS' cable networks showed a 35% increase in operating income to $176 million. Revenues rose 12% to $413 million. The company credited growth at Showtime Networks and CBS Sports network for the gains. Moonves said Showtime was also making money by selling its original programming overseas.

Operating income for local broadcasting rose 7% to $230 million. Revenues rose 2% to $691 million, versus last year when station ad growth was fueled by political spending. Local TV was up slightly, a good performance considering disasters in Japan curtailed auto spending and that the company owned one less station. Looking ahead to the fourth quarter, CFO Joe Ianniello said non-political TV station revenue was pacing up low single digits.

March