‘Oprah’ Departure Shouldn’t Be Financial Hit For CBS, Stations

CBS expected to lose less than $50 million in distribution fees when show signs off in 2011

When The Oprah Winfrey Show goes off TV stations’ air on Sept. 9, 2011, the entity that stands to lose the most money is: Oprah.

Winfrey and her Harpo Productions take home by far the most profit from Oprah. CBS Television Distribution (CTD), which distributes the show, earns well south of $50 million annually in distribution fees on the show, estimates New York-based investment firm J.P. Morgan in a research note released this morning. Winfrey herself is worth an estimated $2.7 billion, according to Forbes.

Overall, Oprah is estimated to earn $4 million per week in cash license fees and another $2 million per week in national advertising sales, bringing the show's annual total revenue to more than $300 million, plus what it earns
internationally. CTD sells the show's national advertising, but probably keeps only about 10% of that revenue. 

“We think Oprah’s significance is likely overblown for CBS,” the note reads. “With the distribution loss, our back-of-the envelope calculation implies [an approximate] $0.03 EPS hit in 2012. That’s essentially a rounding error, in our view.
“We estimate that Oprah contributes roughly $25-$40 million of EBITDA annually. That represents about 1-2% of our EBITDA estimate for 2011E. So while the loss of a longstanding distribution deal is disappointing for CBS, it’s hardly a material hit to numbers, in our view.”

That’s certainly not chump change, but it’s far less than CTD earns on other shows that it produces, such as Judge Judy and Entertainment Tonight. Oprah may have once contributed more to CTD’s bottom line, but the distributor accepted lighter distribution fees when it signed its last contract with Harpo in 2004, reports the firm.

“We believe that the most recent contract … was less favorable to CBS historically, with fees stepping down on an annual basis,” the note reads.

Still, perception has some influence on investors. At press time, CBS shares had fallen 4.13% to $12.76 per share. CTD also sells national advertising in the show and its end means an end to that revenue.

For TV stations, the advantage of running Oprah was two-fold: it provided a huge and quality lead-in to the evening news and it differentiated the station in the market. That said, Oprah’s high price tag usually means a station was breaking even at best on the show.

“In our view, Oprah is likely a mixed bag for TV broadcasters,” reports J.P. Morgan. “ABC-skewing broadcast TV operators have the most exposure – Disney, Hearst, Belo, Scripps, Grey, etc. The blow would be much worse if Oprah shifted to a competitive station in a local market, in our opinion. But with the show off broadcast TV entirely (and no land grab for the rights), it is conceivable that station audience/ad share won’t change much for the day part. Our hunch is the bigger hit might optical – as Oprah’s departure will likely be trumpeted in the press as another example of broadcast TV’s declining fortunes.”

Station groups that have the most exposure include privately-held Hearst with Oprah in 18 markets, and Grey with in 16 markets. In the biggest markets, the ABC, Belo, CBS and Scripps stations have the most exposure Oprah. ABC has the show in the country’s largest DMAs, with the show airing on WABC New York, KABC Los Angeles, WLS Chicago, WPVI Philadelphia, and KGO San Francisco.