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CBS Corp. in the Fish Bowl

Jan 9, 2006  •  Post A Comment

Now that the breakup of Sumner Redstone’s Viacom has been completed, Wall Street and the entertainment industry are for the first time in more than five years about to get an up-close look at the inner workings of a broadcast network.

CBS began trading as a separate company last week following the year-end split of Viacom into two publicly traded companies-a high-growth entity that retains the Viacom name, and counts as its assets MTV Networks and Paramount Pictures, and a slow-growth but cash-flow-rich company called CBS Corp. that includes television and radio broadcasting as well as publishing and outdoor advertising.

With challenges from new ways to deliver content to competition from cable looming over most broadcast networks, CBS Corp. arrives on the public markets at a time of great change for traditional media, and eyes are likely to be watching CBS closely for clues as to how other broadcast networks are grappling with the evolving media landscape.

After starting out of the gate stronger than Viacom last Tuesday-the first day of trading since the split-shares in CBS moved into the shadow of the new Viacom, though both companies appeared poised to end the week higher. Viacom shares were up more than 5 percent Thursday, while CBS shares were up more than 2 percent.

Mr. Redstone broke up his media company on the belief that two separate companies could be worth more than the combined entity. So far, however, the two companies collectively are worth about as much as the original Viacom.

By nearly all accounts, Viacom is generating the most enthusiasm among Wall Street analysts, who point to the company’s growth prospects as a reason to be bullish on the stock.

CBS Corp., meanwhile, is being perceived as the company that, though limited in terms of growth, owns assets that generate tons of cash. Credit ratings agency Fitch Ratings cut CBS’s debt ratings to BBB from BBB-plus and issued a negative outlook, citing limited growth potential in TV and radio and the belief that CBS faces challenges competing as a stand-alone company.

It’s not the first time that CBS has traded as a public company. CBS was publicly traded until May of 2000, when it was acquired by Viacom in a $36 billion transaction. Before that, CBS had traded in various forms on the New York Stock Exchange since 1937.

CBS officials said they are ready for the challenges and appear confident that they are well positioned to beat most prognostications.

In an interview with TelevisionWeek, CBS CEO Leslie Moonves pointed out that while Viacom might be cast as the high-growth company, the growth prospects at CBS are nothing to sniff at. He noted that CBS’s television stations continue to grow and CBS management remains focused on “blocking and tackling … making sure these assets perform to the best of their ability.”

“Wall Street thinks that we’re the slow grower, but I think as we head down the road [the market will see] we are a very proactive and aggressive company,” Mr. Moonves said.

Some analysts appear bullish on CBS’s prospects as well. Veteran broadcasting analyst Victor Miller of Bear Stearns rates CBS’s stock at “outperform,” saying that CBS’s 39 television stations, 178 radio stations and television production assets combine to create one of the country’s largest content and distribution players. And though syndication’s growth prospects look dim, the company should continue to benefit from solid network trends at CBS and UPN.

Jessica Reif Cohen, a media analyst at Merrill Lynch, said that though CBS is likely to grow more slowly than Viacom, she expected Mr. Moonves not to be satisfied running a slow-growth company, adding, “We believe [Mr. Moonves] relishes the role of playing the underdog.”

She noted that the CBS Television Stations Group margins, now at 40 percent, could be driven up to 50 percent within five years, while the TV production operation faces significant upside after years of lagging behind competitors.

Mr. Moonves said he wouldn’t dismiss making another cable play. CBS also gets in the split premium cable network Showtime.

He also repeated his promise to seek compensation from cable operators once current carriage agreements expire.



BEFORE THE SPLIT



Viacom

Assets: MTV Networks (including MTV, VH1, Nickelodeon, Nick at Nite, Comedy Central, CMT, Spike TV, TV Land); BET; Paramount Pictures; Paramount Home Entertainment; Famous Music; Paramount Parks; Simon & Schuster; CBS and UPN broadcast networks; the CBS television stations group; CBS Radio; the CBS, Paramount and King World television production and syndication operations; Showtime; and Viacom Outdoor

Management: Sumner Redstone, chairman and CEO; Tom Freston, co-president and co-chief operating officer, responsible for the company’s cable and film assets; Leslie Moonves, co-president and co-chief operating officer, responsible for the company’s broadcast, radio and publishing assets





AFTER THE SPLIT



Viacom

Assets: MTV Networks; BET; Paramount Pictures; Paramount Home Entertainment; Famous Music

Management: Sumner Redstone, executive chairman, founder and controlling shareholder; Tom Freston, president and CEO



CBS Corp.

Assets: CBS and UPN broadcast networks; the CBS television stations group; CBS Radio; the CBS, Paramount and King World television production and syndication operations; Showtime; Viacom Outdoor; Paramount Parks; and Simon & Schuster

Management: Sumner Redstone, executive chairman, founder and controlling shareholder; Leslie Moonves, president and CEO



Source: The companies