Finance

Streaming Gives CBS Earnings A Boost

Q2 Revenues Up 11%; Moonves: Programmers Delivering Most Viewers Should Get Paid The Most by Distributors 7/31/2013 12:42 PM Eastern

 

(Updated: 7:48 p.m. ET)
 
CBS reported record earnings as digital streaming revenue bolstered its broadcasting business.
 
Net earnings totaled $472 million or 76 cents a share, up 11% from $427 million, or 65 cents a share a year ago.
 
Revenues grew 11% to $3.7 billion, led by a 22% increase in content licensing and distribution revenues. Affiliate and subscription fees, including retransmission consent fees, were up 18%.
 
The numbers beat Wall Street analysts' forecasts.
 
On CBS' conference call, CBS CEO Les Moonves ticked off financial metrics that were at all time highs for the company, then addressed the company's retransmission and carriage dispute with Time Warner Cable, which briefly dropped CBS' networks earlier this week before negotiations resumed. The new deadline is Friday at 5 p.m. (ET).
 
"Receiving fair value for our content is core to who we are and we will remain resolute on this principle now and in all future negotiations as well and that's all we're going to be able to say on this topic today," Moonves said. 
 
He later added that when it comes time to divvy up the money distributors charge subscribers, "the one with the most eyeballs should get paid the most. We should be paid appropriates."
 
He also said that he didn't expect the CBS-TW Cable dispute to lead to a change in the regulatory environment, and he called Aereo, which makes CBS programming available online, "more wind than reality. It's an illegal service that's in essence stealing our content. We don't think it's catching on at all."
 
Moonves also talked about CBSs' big summer hit, Under the Dome. While putting on an original scripted series was expensive, he told analysts the bet will more than pay off. 
 
"This has been the summer's biggest drama since 1992 and proves that network television can launch new programming any time of the year," he said.
 
Streaming rights to the show were pre-sold to Amazon, and "because of Amazon and international sales, we were able to make this show profitable before it even went on the air," Moonves said. "The fact that it went on the air and it's a huge hit is almost gravy and will bring a ton of profits into the third quarter."
 
He said that while one could look at this as a new programming cost — episodes cost more than $3 million each — at a time of the year when CBS has minimal programming spending, "you will see us invest more in programming, but also invest with the knowledge that we're going to get it back and then some. That show's going to be profitable for years to come," he said.
 
Under the Dome has been helpful with retrans negotiations as well, Moonves said. 
 
"You can expect us to continue to be more aggressive about using our network platform on a year-round basis going forward," he said. "I think you'll see every network — and I know they are - developing to try to replicate the model that we did. I doubt many of them will have the same ratings as Under the Dome did."
 
Operating income at CBS' Entertainment unit, which includes the CBS Television Network and its TV studio, was up 1% to $429 million in the quarter. Revenue growth was offset by increased investment in television content and higher sports programming costs. Revenues were up 18% to $2.01 billion, driving by higher revenue from digital streaming deals.
 
Ad revenues were up 11%, including 7% generated because the Finals of the NCAA Basketball Tournament was in the second quarter this year and the first quarter a year ago.
 
Moonves said the ad market is improving. In the upfront market, CBS was the leader in volume and pricing, getting price increases on a cost per thousand viewers that were close to 8%. 
 
Football sales were strong, unaffected by 21st Century Fox's plan to launch a new sports cable network.
 
He said he was surprised at how strong the digital video business did. "I'm glad we[re in the Internet market," but added that he liked being No.1 in the TV market better.
 
CBS COO Joe Ianniello said that the company expected ad sales growth to accelerate in the third quarter. "Under the Dome and Big Brother premiered at the end of June," he said, which are generating good ratings. CBS also has more inventory to sell than last year's third quarter, when there were political preemptions and the Olympics to compete with.
 
Further in the future, Moonves said he expects C7 — which counts commercial viewing on DVRs seven days after a show - to become the ad buying currency in next year's upfront. 
 
"I think we're closer and closer to our goal of getting every single eyeball measured," he said. "In addition we have ways to measure beyond C7 and put in more advertising. All this technology and all this measurement is only going to be helpful to us."
 
CBS' cable networks, including Showtime, CBS Sports Network and Smithsonian, had 9% higher operating income at $190 million. Revenues were up 16% to $518 million, driven in part by a pay-per-view boxing match and higher affiliate and streaming revenues at Showtime.
 
Asked about plans for TVGN, the cable channel in which CBS bought a 50% interest, Moonves said  it was a great acquisition at a cheap price. CBS was taking advantage of "low hanging fruit" by putting CBS programming on the network including The Young & the Restless and Big Brother After Dark
 
"It's the highest rating they've ever had," he said adding that the channel will get more CBS programming and more live sports events.
 
Operating income was up 3% at CBS's local broadcasting unit to $255 million. Revenues decreased 1% to $698 million. TV station revenues were down 1% reflecting lower political advertising.
 
Moonves said the current consolidation of the station business "only proves how valuable television stations are in this day and age. … We're happy we held onto them." He said the it's possible the new large groups could get more retrans, but they could also seek to keep more, rather than paying CBS more in comp. 
 
"As you can see we had another tremendous quarter setting us up for yet another tremendous year," Moonves said. "Every one of our segments contributed to our success, obviously led by our content businesses, which continue to prove that this is a golden age for those who have the best programming."
 
"All the growth drivers we've been telling you about for years are performing ahead of our expectations," he said. "And when you look at our importance to cable, satellite and telco providers, the appetite for our content from the biggest companies in streaming, the explosion of international outlets looking to license our content on television and online, you can see why this is happening."