Goldman Sachs media analyst Mark Wienkes initiates coverage on CBS (CBS) with a Sell rating and and a $16 price target. Wienkes thinks that three key challenges mean that CBS’ share price is going nowhere, except down, fast.
Wienkes identifies CBS’ first challenge as a “suboptimal asset mix” compared with cable TV and internet-focused companies that gain share and advertising by targeting tighter demographic ranges. Wienkes:
The enhanced relatively tighter audience demographics delivered by cable network, Internet, and digital out-of-home assets are gaining consumption and advertiser share relative to the declining Broadcast TV, Radio, and Newspaper media… Cost reductions will be necessary to drive EBITDA growth unless the TV network enters a strong upswing in its content cycle relative to ABC, FOX, and NBC. However, given an ageing schedule of hits we feel this shift could be challenging in the near term. We also believe acquisitions will not significantly accelerate CBS’ growth unless they were coupled with more aggressive sales of slower-growth assets.
CBS’ second hurdle, according to Wienkes is the broader trend of viewer erosion as a result of DVR usage, share loss to cable TV, and an increasing number of alternative uses for telivions, like gaming and internet browsing. Wienkes:
At a broad audience level, we believe broadcast television will continue the mid-single digit secular decline in viewership experienced for most of the last 15+ years, driven by DVR usage, share shift to cable networks, and alternative use of TVs (VOD, Internet, games).
Wienkes’ 3rd CBS hurdle is the networks ageing lineup of shows, which Wienkes thinks is dragging down results for four reasons:
(1) share losses to other broadcast networks after consistent growth from 1998-2005; (2) the oldest roster of top 10 shows on television, at an average age of 5.5 years versus 3 years or less for ABC, FOX, and NBC; and (3) a development gap from two consecutive seasons of low new launch success, with only one new show from 2007-2008 returning, and potentially none from the 2006-2007 vintage.
Ouch. Care to comment, Les? Sumner?
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