CBS, the most ad-dependent and US-focused of the big media companies, reported lower revenue at its TV, radio and publishing divisions. Overall, Q4 revenue was down 3% to $3.76 billion from $3.88 billion a year ago, due in part to record political ad spending in the year-ago quarter and sales of some small-market stations. Net profit fell 14.5% to $286.2 million compared to $335 million a year ago.
Moonves on the economy: “Like all of you we are tracking the general economic news affecting the marketplace. Fortunately the sectors most affected: home building and real estate are not significant advertisers on our air. At CBS we are not seeing a recession in day to day operations.”
On the writers strike: “It lasted longer than anyone would have liked. But the network business is back. We will be presenting to advertisers at Carnegie Hall in May. In the short term we were able to manage operating costs at the network very effectively. We significantly reduced expenses through costly writer contacts. The financial picture was not affected by the strike in any way shape or form.“
Organic growth was anemic (1%) at CBS, despite the strong scatter TV advertising market, compared to 9%-10% growth at Disney and News Corp. and 2% at Time Warner, according to a Goldman Sachs research note.
CBS revenues by division:
Outlook: “The Company expects OIBDA and operating income growth to be in the range of 3% to 5% for 2008, excluding stock-based compensation expense. The Company’s 2008 business outlook is based on 2007 OIBDA of $3.18 billion and operating income of $2.73 billion, which exclude stock-based compensation expense.
CBS Q4 earnings call notes:
CEO Les Moonves kicks it off with a reminder: CBS is a content company, and it generates plenty of free cash flow ($122 million) in Q4.
8:49: Moonves touts internet initiatives. Says this year’s March Madness will reap $21 million in ad revenue–up from $4 million last year, and $250k in revenue in 2005, the first year of streaming the event. Costs remain the same.
8:50: Moonves says will throw upfront at Carnegie Hall with new shows in the fall and has begun aggressively pursuing the best TV concepts for pilots. He says CBS will commission fewer, cheaper TV pilots this year.
8:52: Radio ratings up 6% and set to gain from political spending, especially issues-spending in California. Says CBS owns six big-market stations in California that will benefit from meaningful primary spending, for the first time.
8:56: Les says CBS has invested in a dozen interactive properties. Strong balance sheet “enables us to be very nimble so we can take advantage of any content or internet company that may present itself.”
Turns over call to CFO Fred Reynolds:
8:59: Non-renewal of some outdoor contracts and lower political dollars led to a 4% decrease in overall revenue in q4.
9:00: CBS network ad revenues were flat to a year ago. Strong scatter pricing offset the effect of the strike, which forced company to air more repeats than normal. Les had previously said that current-year TV ratings are not comparable to 2006-2007 season due to the change in standard from live ratings to commercial ratings standards.
9:02: has bought back 6 million shares in January as part of buyback program. Over 14% of shares outstanding have been repurchased.
9:03: TV revs were down $100 million in q4. lower political spend and TV station divestments account for all of the drop, Reynolds says. The network had significantly lower programming costs, due to the writers strike.
9:05: Returned $4 billion in cash to shareholders in 2007. Strong balance sheet can invest in new businesses and continue to return cash to shareholders.
9:06: Q1 outlook: will deliver lower ratings because CBS had the Super Bowl last year. The Final Four also will be booked in the second quarter, rather than in the first quarter last year. Operating income expected between 3-5% excluding stock-based compensation in 2008.
Reynolds says the strike cost the network about $70 million in Q4, not much since costs on producing shows went down.
What do do with cash?
Moonves says first priority is to pay dividends, then acquisitions. Says he thinks the prices of potential acquisitions will be coming down in the next year.
How has the TV business model changed following the strike, and is it permanent?
Moonves: The changes that have happened–we have cut our overall deals (with writers) by 50% and cut script production in half. We will never get back to what we had before so these changes are fundamental. In addition the Upfront will have a lot less bells and whistles. We won’t do an affiliate meeting. The cost changes will be with us forever.
On Showtime, when will the film contracts come up?
Moonves: We are talking to all three companies. The output deals will be renewed at lower rates.
What was the core advertising trend at the stations and the network?
Political had three points impact on growth rate for political. No political spending on the network, only on local assets.
Cash for retransmission or other forms of compensation?
Moonves: We’ve done 20 contracts and we got cash for them, but says CBS is open to other deals as long as cash hits the bottom line. “We are open to any sort of deal.”
One segment more impacted by the economy more than others?
Moonves says scatter pricing 30% above the Upfront ad rates. Moonves says hasn’t seen any effect of downturn, but expects if it happens it will affect small-market TV and radio first.
Can you still find TV hits while cutting TV development costs?
Moonves: There has been a lot of wasted spending. The most expensive shows don’t always hit it out of the ballpark. Pilots are overated. Its all about episode 20 not episode one. The strike has allowed us to re-examine how you get from point A to point B. I don’t think you have to spend $5 million on a pilot to find a hit.
CBS is reliant on crime dramas, which are expensive. Plans to diversify from the genre?
Moonves: In terms of the crime genre, CSI costs no more than Lost, Desperate Housewives or Heroes. CSI franchise has generated $2 billion in revenue. “At CBS, crime has always paid.”
Won’t CPMs (ad rates) go down at some point?
Moonves says CPMs have gone down twice in the last 20 years. Every year advertisers decide to bow out of the upfront and end up regretting it later. “I expect CPMs to be up in May.”
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