CBS Ready to Scare Up Profits in Quiet Films Division

NEW YORK ( TheStreet) -- CBS  ( CBS) has held the self-proclaimed title of "America's Most Watched Network" for some time now.

The network channel has several of the most watched shows with N.C.I.S., The Good Wife, The Big Bang Theory and National Football League games.

However, buried in the corporate structure of parent company CBS is a film division that continues to underperform and post minimal revenue contributions. Could an adaptation of the children's classic horror story Scary Stories to Tell in the Dark bring meaningful revenue contributions to the division?

Screenwriters Marcus Dunston and Patrick Melton are bringing the controversial horror anthologies from Alvin Schwartz to the big screen in a new deal with CBS Films. Dunston and Melton have worked together on a large amount of horror films, including The Collector, The Collection, Feast and the last four movies in the Saw franchise. The duo pitched a film based on the first book in the three-part series, which was released in 1981.

Investors in CBS should be salivating over the potential of this popular three-book series being turned into multiple movies. Through the first week of December, four CBS Films movies have made $79.3 million. That makes CBS Films the 14th highest ranking movie studio on the year. In fact, in each of the last three years, CBS has had under a 1% market share in the growing film industry. In 2012, the studio made $89.9 million from four movies.

With the rights to the Scary Stories franchise, CBS has the potential to turn around its quiet film segment. I believe the company should follow the path Saw took by releasing a movie each October around the time of Halloween. Horror movies do particularly well, and the release of the first Scary Stories movie in October of 2015 or 2016 could easily become the highest grossing movie under the CBS Films umbrella.

From 2004 to 2010, a Saw movie was released every October. Each movie averaged $59 million in domestic box-office ticket receipts and $65 million in foreign markets. With an average total box office take of $124.8 million, the movies remain part of one of the highest grossing horror franchises of all time. Screenwriters Dunston and Melton were responsible for writing the last four movies in the franchise. Saw IV ranks as the third highest grossing movie in the franchise domestically and overall. Saw 3D made $90.4 million in foreign markets, the highest the franchise saw in its history.

CBS is the most watched television network, competing against NBC  ( CMCSA), FOX  ( FOXA) and ABC  ( DIS) as the big four broadcast channels. When it comes to movies, CBS severely lags its three media rivals. Through the first week of December, movie studios for these three companies had all posted box office totals over $1 billion. CBS had a surprise hit with Last Vegas, which grossed nearly $60 million in domestic markets. Surprisingly enough, that total also made Last Vegas the highest grossing movie for CBS Films. The total passed last year's The Woman in Black ($54.3 million). CBS Films has had only 10 movies gross more than $10 million in domestic markets. Clearly, the film division could use some hits.

The film division is currently buried in CBS's entertainment segment, which also includes CBS TV, CBS Global and CBS Interaction. The business segment generates the most revenue and profits for CBS. In fiscal 2012, entertainment made up 55% of CBS's revenue. Through the first nine months of fiscal 2013, entertainment has made up 56% of the company's total. CBS will also spin off its Outdoor Americas segment in 2014 as a real estate investment trust, which will put a higher emphasis on the company's television and film segments.

The film should become highly anticipated as more details arise on plot and stories to be used. The first book had 29 mini-stories used. So far, filmmakers have said the film is based on "a group of outcast kids who stand up to their fears to save their town when nightmares come to life." Many fans of the three book series are hoping that the gruesome images drawn by Stephen Gammell will also be included or incorporated into the film(s). The book series has sold more than seven million copies and brings with it controversy, as the books have been boycotted and called for a ban several times due to the content and images included.

A first movie will likely hit the big screen in 2015 or 2016. Shares of CBS are up 50% in 2013 and remain up more than 600% in the last five years. With strong brands like CBS, Showtime, Simon & Schuster, The CW, and CBS Sports, the company is well positioned for the future. With a more focused approach to CBS Films, the company can generate even higher revenue and profit figures. Scary Stories to Tell in the Dark is one of the scariest books ever written, the popular novel can now scare up some money for CBS via the big screen for years to come.

At the time of publication, the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Chris Katje has been fascinated with the stock market since a young age. That passion turned into a freelance writing career that began in 2008. Mr. Katje has seen his work appear on Seeking Alpha, the Motley Fool, The Street, and Variety. Chris's annual top ten stock picks list continues to beat the market and grow in popularity. You can follow Chris on Twitter (@chriskatje).

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