Digital Deals Boost Earnings at CBS

Moonves confident 2012 will be a record year
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UPDATED: 6:55 p.m. ET

CBS Corp.'s third-quarter earnings jumped 38%, fueled by revenue from digital streaming deals and lower TV programming costs.

Net earnings were $338 million, or 50 cents a share, up from $245 million, or 35 cents a share.

Revenues rose 2% to $3.4 billion, led by new digital streaming agreement and higher affiliate and subscription revenues. Ad revenues were flat at $2 billion. The company said it had 4% growth in primetime on the CBS broadcast network, but political advertising was down from historic levels last year.

"Across the board, we have transformed CBS into a content company designed to perform in any environment," Leslie Moonves, president and CEO, said in a statement. "So far this season, the CBS Television Network is significantly outpacing the field with more programs in the top 10 and top 20 in all key measures than all the other networks combined. Plus, we're adding to the network's roster of up and coming shows."

Moonves added that CBS also continues to monetize its enormous library on new platforms, including domestic and international streaming deals signed since last quarter worth hundreds of millions of dollars. 

"These content licensing deals are increasing the stability of our revenue base, and we are tracking ahead of our strategy to increase our mix toward more recurring, non-advertising revenue streams," he said.

On the company's earnings call with analysts, Moonves said he was confident that 2012 would be an even better year.

"What's truly exciting though is that I believe the company is set up for a record breaking 2012," he said.

Adjusted income for CBS's entertainment division jumped to $366 million from $237 million a year ago on flat revenues of $1.6 billion.

On the conference call, Moonves said "primetime advertising, the network's bread and butter, was up solidly in the third quarter and our ratings  this quarter in the new fall season, are significantly outpacing the field."

Because of those ratings, "we are the network clearly leading the way in the scatter marketplace," he said. "As this continues, it will result in us receiving an even greater share of scatter dollars going forward."

At the same time, last year's upfront buys are sticking despite the worrisome macroeconomic outlook. "Looking at the first quarter, it is business as usual. Very few people are cancelling us because they know they'll have to pay more."

Because the upfront was so strong, and scatter prices are above the upfront, Moonves said CBS expected next quarter's ad revenue growth at the network to be "significantly above" the 4% gain in the third quarter.

CBS also reduced its programming costs. "Over spending doesn't necessarily mean you'll get ratings and it's really good to be able to manage our costs and still do quality programming as well," Moonves said. "When you look at our ratings and you see that our programming costs are down, I think that's a pretty amazing statistic."

CBS will have more retrans revenue from cable, satellite and telco distributors next year, and more reverse compensation revenue from its affiliates. Moonves said a deal had been made during the quarter with one of the network's largest affiliate groups. When it goes into effect next summer, instead of CBS paying the affiliate, the affiliate will be paying CBS.

"There were only a few station groups left that we were paying compensation to. These last couple of deals will wipe that out entirely," Moonves said. "By the middle of ‘12 we will not be paying out anybody and it all comes in. So this will be a cost savings as well as a total reversal. Instead of paying we're getting paid. That's a good way to be."

CBS also expects more money from digital distribution deals in 2012. While more deals may be in the offing, including a possible agreement with Hulu, payments from deals already announced will be bigger in 2012 than in 2011, said CFO Joseph Ianniello.

During the conference call, Moonves was asked how the departure of Oprah Winfrey from broadcast syndication affected the company.

"We distributed Oprah as you know and during the last years, the amount of our distribution fee went down significantly. So I won't say it's terrific to lose Oprah, but a couple of positive things happened for the CBS Corporation," he said. "Number one, Judge Judy became the [top] show in syndication, Dr. Phil became the number one talk show in syndication, two shows that we own. Number three obviously Oprah had been the ABC television stations by and large, so as a result that time period where we became much stronger helped our station group a great deal. So as I said, no knock on Oprah, Oprah was an institution, and we were very happy to distribute her. But because of these factors I think we're going to be in very good shape."

Local broadcasting's income fell to $161 million from $170 million as revenues dropped 3%  to $656 million from $677 million. TV Station revenue was down 6%, but non-political revenue was up 2%, with four of the top 5 categories showing gains, according to Ianniello.

The local situation should improve. "We continue to see a stable marketplace and based on current pacing date, we expect to see non-political TV station revenue to be up low single digits, with the CBS TV stations doing even better than that," he said.

"As you know next year is shaping up to be a very contentious year  in Washington. If we're up at this point in 2011 without virtually any political advertising, imagine what we can do with it in '12," Moonves added.

CBS's cable networks had adjusted income of $197 million, up from $165 million as revenues rose to $420 million from $370 million. Revenue growth reflected higher affiliate fees and a growth in subscribers.

CBS also said its board approved a $1.5 billion increase to its ongoing share repurchase program. The company has already repurchased $850 million in CBS stock under its previous $1.5 billion authorization.

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