Content

CBS Spots Bargain in TVGN

Deal for 50% Stake Diversifies Distribution 3/31/2013 8:00 PM Eastern

In agreeing to buy a 50% interest in TV Guide, parent of the TVGN cable network and website TVGuide.com, for an estimated $100 million, CBS hopes it has found a low-cost way to broaden its content-distribution alternatives while providing TVGN with added firepower for carriage renewals.

CBS did not reveal the purchase price of the deal, although several reports put it at about $100 million. Deadline.com first reported that CBS was close to a deal. CBS purchased the 50% interest from JP Morgan’s One Equity Partners for an undisclosed sum.

Lions Gate Entertainment, which owns the other half of TV Guide, first purchased the network and website in 2009 for $240 million. It sold a 50% interest to One Equity later that year for about $120 million.

The deal will pair CBS’s programming, production and marketing assets with Lions Gate’s resources in movies television and digitally delivered content.

WIN-WIN SCENARIO

The deal also beefs up CBS’s nonbroadcast distribution assets, which prior to the Lions Gate deal consisted of premium network Showtime, the Smithsonian Channel and CBS Sports Network. Lions Gate, which also produces Weeds and Nurse Jackie for Showtime, gets a deep-pocketed partner with strong programming chops.

RBC Capital Markets media analyst David Bank called the acquisition a win for both sides. CBS gets access to 80 million cable homes for a bargain price and TVGN gets access to better programming and becomes part of a cable and broadcast stable that can improve its content mix and boost its affiliate fees. Currently, according to research firm SNL Kagan, TVGN gets about 3 cents per subscriber per month in affiliate fees from distributors.

While Bank would not estimate how much higher those fees could climb, being associated with the top-rated broadcast network (CBS) and the second-largest premium network (Showtime), as well as niche networks the Smithsonian Channel and CBS Sports Network, should help TVGN in future carriage negotiations.

“I think this was such a no-brainer,” Banks said in an interview. “They [TVGN] have better incremental content to potentially drive ratings and organic affiliate fee increases. They also have an opportunity to utilize some of [CBS’s] ability to package channels and ultimately make the sum of the parts greater than the whole. The thing that makes this such a home run is that the entry price was so incredibly cheap.”

While TVGN has struggled to find an audience for its syndicated and original fare — it primarily airs reruns of shows such as Who’s the Boss and Designing Women and has launched original reality shows such as Wilson Phillips: Still Holding On — the addition of CBS content can only add to the mix, Bank said.

While CBS and Lions Gate have not tipped their hand as to what programming may show up on the channel, they did say in a statement announcing the deal that the channel will remain “entertainment-focused, with a specific rebranding and programming strategy to be announced at a later date.”

Bank said programming options abound for TVGN, ranging from adding shows from the CBS library, creating new content or using the channel as a vehicle for airing broadcast-network programming that is preempted for special events.

For example, Bank said CBS could air its Sunday news magazine 60 Minutes on TVGN when National Football League games run long on the broadcast channel.

“It’s really beneficial to have a secondary national platform just in the event that you have two events occurring at the same time,” Bank said. “They’re hedged at an incredibly low price.”

‘PRIME REAL ESTATE’

TV Guide has been on the block for about a year and attracted little interest. Part of the reason for the tepid past response has been its contractual obligation to run program-guide grids that take up most of its screen space. That is changing and heading into 2013, TV Guide said it had full screens available in 83% of its households, up from 70% in 2012. That is expected to rise to about 90% by the end of this year.

Whatever the plan, there will be little pressure from Wall Street to get it resolved in the immediate term, Bank added.

“They bought a piece of prime real estate and it’s a bit of a fixer-upper,” Bank said. “The value is obvious. What they do with it, what they build on the land, remains to be seen, but there are so many different opportunities that could [bring] such upside.”

September