CBS Stock Rises on Comcast Deal

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CBS stock rose 3.5% on Monday after announcing a new 10-year retransmission consent agreement with Comcast, a deal that should put more cash in the broadcaster's coffers and boost carriage for two of its fledgling cable networks.
CBS stock closed at $15.30 per share Monday, up 3.5% (52 cents per share). Comcast shares rose by 1 cents each (0.05% per share) to close at $19.48 each on Monday.
Financial terms of the deal were not disclosed. But both companies have said publicly that the new pact includes a more robust carriage agreement for CBS's Showtime Networks premium channels (including an online component), Comcast's promise to launch the Smithsonian Channel and its pledge to extend the reach of CBS College Sports Network.
For CBS, the deal means a likely increase in retrans fees - either directly or through additional fees to Showtime or the other cable networks - and added credibility for Smithsonian and CBS College Sports. For Comcast, the deal avoids a potentially embarrassing retrans fight and locks in carriage fees for a longer period of time (most carriage deals are for three- to five-year periods).
CBS has been one of the more aggressive pursuers of retrans cash and has said publicly that it expects its total retrans haul to be in the $100 million range this year. Past estimates have the broadcaster winning retrans fees of about 50 cents per subscriber per month from distributors. CBS has completed about 60 retrans agreements, including deals last year with Time Warner Cable, Verizon Communications and Cablevision Systems. While terms of the Comcast deal were not disclosed, some observers believe that the MSO may pay less, given its size (23.2 million subscribers) and the length of the deal.
SNL Kagan estimated that at 50 cents per subscriber per month, Comcast would have to pony up about $69.2 million annually in retrans fees. Kagan noted that Comcast's cost base may be less, but also estimated that retrans fees to CBS could grow to about $1 per subscriber per month by the end of the contract.
But the real gains could be for the other cable networks - Smithsonian and CBS College Sports.
According to SNL Kagan estimates, Smithsonian Channel, is available in about 9.2 million homes and receives an average carriage fee of 23 cents per month per subscriber. CBS College Sports, available in about 36 million homes, was attracting about 20 cents per subscriber per month, according to SNL Kagan.
According to people familiar with the deal, Comcast will launch Smithsonian beginning next summer in select digital markets. While the channel may not be available to all Comcast digital customers, it should broaden the base for the channel considerably. Comcast, according to its second quarter financial report issued July 28, has about 19.2 million digital video customers.
CBS College Sports already is available to some Comcast customers on a digital or sports tier. The new agreement will broaden that base as well.
Another surprise is the timing of the deal. Comcast's retransmission consent agreement with CBS was not set to expire for another 18 months. The MSO's willingness to cut a deal early could also have affected the rate it ultimately paid.
Miller Tabak media analyst David Joyce said that Comcast's willingness to do a deal 18-months in advance could be tied to the pending approval process of its $30 billion NBC Universal joint venture. The Federal Communications Commission is currently evaluating the deal and Comcast is hoping for government approval by the end of the year.
Joyce said that the deal is a big positive for CBS and points to Comcast "trying to be very friendly in dealing with all constituents who may complain to the FCC and [Dept. of Justice] about the potential power a Comcast/NBCUniversal deal may have."

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