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CBS Beats on Sales with a Nod to Netflix

NEW YORK ( TheStreet) -- CBS (CBS - Get Report) was surging Thursday a day after the country's most-watched network posted an 11% increase in sales to $3.7 billion, driven in part by licensing deals with Netflix (NFLX), Amazon (AMZN) and Hulu.

CEO Leslie Moonves appeared to do what he has generally done by loudly surpassing Wall Street estimates. Analysts had been looking for sales of $3.51 billion.

Syndication fees have "profoundly changed the business model for those who own the content," Moonves said in a conference call with analysts and investors.

CBS reported the largest quarterly net income in its history, $472 million, or 76 cents per share, for the three months ended June 30, surpassing forecasts that called for $448.4 million, or 72 cents a shares, on $3.5 billion in sales. That compared to profit of $427 million, or 65 cents a share, on $3.47 billion in revenue from the same period a year ago.

Shares were gaining 3.7% to $54.77 to extend CBS' advance this year to 44%. That compares to a 19% gain in 2013 for the S&P 500.

The source of CBS's strength as a network, and the stock's 58% rise over the past 12 months, continues to revolve around Moonves ability to extract attractive fees from cable-TV, satellite and locally affiliated television stations. Revenue from Netflix, Amazon and Hulu can be added into the mix. Morgan Stanley media analyst Benjamin Swinburne predicts CBS will surpass its $1 billion re-transmission revenue goal in 2017.

Advertising growth is expected to "accelerate" in the third-quarter, said Joe Ianniello, CBS' chief operating officer as the company gets higher sales from "Under the Dome" and "Big Brother." "We'll have more inventory to sell in this third quarter, and there are no summer Olympics to eat into advertising spending," he said.

CBS' second-quarter earnings coincides with the ongoing and contentious battle with Time Warner Cable (TWC - Get Report) over those fees. Regarding the negotiations, Moonves said that "receiving fair value for our content is core to who we are and we will remain resolute in this principle."

CBS and Time Warner Cable narrowly averted a blackout of CBS channels in New York, Los Angeles and Dallas earlier this week by agreeing to extend their talks until Friday at 5 p.m. EDT.

"We think he who has the most eyeballs should get paid the most," Moonves said. "There are 100s of channels but most people are watching 10 to 15 of those, and we're one of them. In many homes, we're No. 1. And most people agree with us, and we are getting paid fairly in most places."

Industry observers have generally given CBS the better odds for winning the Time Warner Cable fight on the notion that good content is the engine behind pay-TV subscriber usage, and that pay-TV operators will pay up to get it.

"Networks remain underpaid," Swinburne added in a July 24 investor note. "CBS and its network peers delivered roughly 40% of the audience on TV in this past season, yet receive only about 6% of monthly subscription revenues across all the TV networks and less than 2% of the typical $80-90 monthly video revenue generated by [pay-TV providers.]"
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