Despite a month-long blackout by Time Warner Cable, one of its largest distributors, CBS Corp. reported its best-ever third-quarter financial results.
"The fact is that the blackout did not negatively affect our company's third-quarter results," CBS CEO Les Moonves told analysts during the company's earnings conference call. He said that the deal CBS eventually cut with Time Warner Cable "has led to dramatic gains in retrans, which is now up 50% year to date. And you will see even bigger increases in the years to come."
Moonves said third-quarter retransmission-consent deals with Time Warner Cable and Verizon have reset the rate the company expects to earn from distributors. Those deals cover only 20% of the nation, leaving room for retrans revenue to grow.
"In addition and very importantly, we also retain full digital rights to our content, giving us the flexibility to do a number of deals since we struck the Time Warner Cable one," Moonves said, ticking off a streaming deal with Showtime for Netflix, a deal to put more CBS content on Comcast's Streampix service, adding the Smithsonian Networks on Apple TV and putting all of CBS' primetime shows on its app.
CBS also retained its authenticated TV Everywhere rights. CBS COO Joe Ianniello said the company was open to authentication. "We just want to be paid for that," he said, noting that traditional retrans and carriage agreements cover inside the home rates and distributors will have to pay more to offer content to subscribers outside their home and on other devices. "It's our content. We spend a lot of money for that intellectual property and we want to fully monetize that," Ianniello said.
With retrans, reverse compensation, digital distribution and international syndication all growing, Moonves said that the mix of CBS's revenues are now 50-50 between advertising and non-advertising sources. A few years ago, the proportion was 70% advertising and 30% non-advertising.
Advertising revenues were strong in the quarter, with a 13% gain at the CBS Television Network, and will continue to grow because of a strong ad market in the fourth quarter, particularly for sports, and because of changes in the works for how TV viewing is measured and sold.
Moonves noted that more viewing beyond linear-same day is being monetized. He noted that VOD viewership is being included in C3 ratings and that CBS had struck some deals with advertisers based on C7 ratings, which include delayed viewing of commercials for seven days following air. He said he expects C7 to become a standard.
"There are advertisers that realize if you watch a show four days later it has the same value. More and more of these deals are going to be done," he said.
In the quarter, CBS also got a boost from an increase in original programming including the surprise hit series Under the Dome. Next summer CBS plans to program a second season of Under the Dome, plus a new series Extant, starring Halle Berry. "We've essentially opened a new daypart," he said. The high rating generated by Dome means that CBS was able to get a bigger share of the quarter's ad dollars, reclaiming some from cable, which has been more aggressive about putting original programming on during the summer.
All year round, CBS' properties plan to increase the amount of content they own to increase the downstream revenue they can control. Showtime's Dexter will be available on Netflix next year, and the company is also holding discussion about syndicating the just-ended series to TV stations and basic cable networks.
Moonves said 2013 will be a record year for CBS. "We're also extremely confident we'll have a terrific 2014," he said.
In the third quarter, CBS said net earnings rose to $494 million, or 80 cents a share in the third quarter, from $391 million, or 60 cents a share, a year ago.
Revenues were up 11% to $3.6 billion. Advertising revenues were up 4%, driven by network advertising, which was up 13%. Content licensing and distribution revenues grew 18%, led by domestic licensing revenues from the first-cycle availabilities of NCIS: Los Angeles and The Good Wife.
Operating income for the Entertainment division, which includes the CBS Television Networks and the CBS Television Studios, was up 12% to $431 million in the quarter. Revenue was up 12%, offset by increased investment in television content.
Cable network operating income increased 15% to $261 million. Revenue rose 37% to $596 million, punched up partly by receipts from the Floyd Mayweather pay-per-view boxing match on Showtime.
Local broadcasting operating income dropped 15% to $181 million. Revenues were down 3% to $641 million because of lower political advertising after an election year. Television station revenues were off 6% and non-political revenues were flat, the company said.
During the quarter, CBS repurchased 5.3 million shares of its Class B Common Stock for $279 million. Year-to-date through Sept. 30, the company repurchased 39.7 million shares of CBS Corp. Class B Common Stock for $1.84 billion at an average price of approximately $46 per share.