CBS Corp. (CBS) was showered with accolades on Tuesday, Aug. 8, for financial results that further underscore the advantages of owning a broadcast network with mass appeal rather than lots of cable TV networks with shrinking audiences.
CBS shares in the afternoon were up 3% to $66.44, extending the stock's 12-month advance to 27.7%. By comparison, the S&P 500 index has gained 14.1% over the past year and Walt Disney Co. (DIS) , which reports earnings on Tuesday, has added 11.6%.
"Well, it certainly is good to be CBS," Wells Fargo media analyst Marci Ryvicker said in an investor note Tuesday. "We literally spent an hour getting [showered] with good news on CBS' earnings call [on Monday] -- which is a rarity these days."
Bernstein Research's Todd Juenger was less ebullient, though he, too, succumbed to the outsized CBS performance.
"CBS delivered a typical nonsurprise quarter, and according to management, as always, things have never been better, or full of cliches," Juenger wrote. "They are going to 'have their cake and eat it too' (by launching CBS All Access internationally, while also licensing content to 3rd parties in those markets) and 'be all things to all people.'"
Yes, a conference call with CBS CEO Leslie Moonves can be a bit much. As Juenger added, "Who on earth are the [roughly] 2 [million] people paying $6/month for CBS All Access?"
Evidently, they're out there.
The same can't be said for Time Warner Inc. (TWX) , which posted second-quarter earnings that only highlighted the difficulty most cable TV networks are having these days as audiences fragment amid a myriad of venues for short- and long-form video. TBS and TNT are suffering through ratings declines while Disney's ESPN is in the midst of a full-scale programming reset given that its "SportsCenter" franchise no longer has a monopoly on highlights.
Something similar is taking place at Scripps Networks Interactive Inc. (SNI) , owner of HGTV, DIY and Food Network, which said last week that profit at its television networks will be "approximately flat" in 2017 rather than rise 3%, as the company had forecast earlier this year. Scripps shares fell on July 31 despite announcing that it has agreed to be sold to Discovery Communications Inc. (DISCA) in a transaction valued at $11.9 billion including debt.
The key for CBS is its ability to extract higher and higher fees from both pay-TV operators and its local CBS affiliate. CBS said it's on track to reach its goal of getting $2.5 billion a year in affiliate and retransmission fees by 2020. Affiliate fees, which it receives from pay-TV operators, increased 16% in the quarter, while retransmission fees jumped 25%.
Reaching the $2.5 billion goal is becoming increasingly plausible given that CBS, according to Moonves, generates 10% of all television viewership, including cable TV, yet receives just 2% of all distribution fees, money that pay-TV operators and local TV station affiliates pay the broadcaster to carry its programming.
While cable networks are finding it difficult to offset advertising sales declines, CBS has built a nice little digital business, selling monthly subscriptions to its CBS All Access and Showtime. Combined, the two offerings have surpassed 4 million subscribers. As a result, advertising represented just 40% of revenue in the quarter, a significant shift from recent quarters when the figure was over 50%.
Disney, which reports its quarterly results after the close of trading Tuesday, could only be so fortunate.
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