It's Showtime at CBS ( CBS), where the cable network is emerging as a unique and underused asset in a more traditional media pool. When the Viacom ( VIA) banana was split last year, the CBS side got cash-generating but mostly slower growing properties like broadcast stations, the CBS network and publisher Simon & Schuster. CBS also got the more impressive-looking syndication arm King World and Paramount TV. Thrown in the basket was Showtime, a poor cousin to Time Warner's ( TWX) popular HBO cable subscription network. At Viacom, Showtime had a difficult time standing out from a crowd of hypersuccessful cable outlets like MTV and Nickelodeon. But now, with the full weight of CBS behind it, Showtime may be given its opportunity to shine. "We were anxious to get Showtime in our portfolio," says CBS finance chief Fred Reynolds. "We coveted another outlet for distinctive programming that could add to the overall depth of CBS." Despite having slightly more subscribers than HBO (when you include all secondary services each holds such as Flix and Cinemax), Showtime currently generates only a fraction of the revenue that the Sopranos producer does. Both HBO and Showtime have over 39 million subscribers. "Though management would not break out details, we estimate that Showtime earns only one-fourth to one-third of the $1 billion-plus in
operating income before depreciation and amortization that HBO generates," Prudential analyst Katherine Styponias wrote in a recent note. But "with its recent success of original shows such as the Emmy Award-winning Weeds and The L Word and Sleeper Cell, management suggested that Showtime could, over time, have lots of potential." One former Viacom insider said, "On the Viacom side, Showtime was not given as much attention as it will now get, and it keeps CBS in the cable business -- which is a good thing."
While a big payoff is down the line, Reynolds says there is a fundamental belief among CBS management that Showtime can prosper with audiences. Reynolds says that the TV segment is a 20% margin business at CBS, and that Showtime "fits in that range and higher -- it does fine." Needless to say, the network could do even better with the substantial programming and promotional weight of CEO Les Moonves and company behind it. Showtime, with a lending hand from CBS, can now count on getting productions teed up from the likes of megaproducer Jerry Bruckheimer. If Bruckheimer (the guy behind CSI, Amazing Race, Top Gun, etc.) comes to CBS with a concept that might be a little edgier than a standard broadcast primetime show, CBS can corral it onto Showtime, which isn't subject to FCC decency restrictions the way the broadcasters are. Showtime's history has shown that it is edgy original programming, not movie reruns, that audiences are willing to pay a significant premium for. Weeds, an amplified Desperate Housewives on grass, and The L Word, about the lesbian community in Los Angeles, are indicative of the type of TV programming that works in the subscription mold, as HBO has so often proved. And to be sure, the promotional thunder of a mass-media company like CBS will lend itself well to Showtime. If there's the slightest whiff of a successful show, you can bet your bottom dollar that CBS will pump it up. Another element in the mix is that Moonves, who is championing the retransmission cause to see his stations get paid for their broadcast signal on cable operators like Cablevision ( CVC) and Comcast ( CMCSA), also has a bit of a trump card in Showtime that might be used to some advantage in coming negotiations. Reynolds says that CBS believes cable systems ought to pay for programming. The presence of Showtime within the family could give CBS some leverage in that area as current agreements with cable operators come to term.