CBS Looks Good Out of the Gate

Feb 27, 2006  •  Post A Comment

Despite a sizable fourth-quarter charge related to the reduced value of CBS Corp.’s television and radio assets, Wall Street analysts say they are bullish on the future of the media company.

“CBS appears well positioned to benefit from a television market recovery in 2006 and we expect the strong management team to deliver on its promise to improve levered returns for equity holders,” said Jessica Reif Cohen, a media analyst at Merrill Lynch, in a research note.

Said William Drewry, an analyst at Credit Suisse, in his own research report: “We believe [CBS] is an excellent large cap value play in the media sector with significant cyclical upside to forward estimates in the core TV, radio and outdoor businesses if macroeconomic conditions accelerate.”

Indeed, Wall Street seemed largely unfazed by the huge loss booked in the fourth quarter, which resulted in the company reporting a loss of $9.1 billion, versus a year-earlier loss of $18.5 billion. It was the first time the company had reported earnings since it was split from Viacom at the end of last year.

Driving the red ink was a $9.5 billion write-down on the value of the company’s television and radio assets, the second time the company has had to write down the value of its assets to reflect a reduction in their value. A year earlier, what was then Viacom took an $18 billion charge related to the reduced value of its radio and outdoor assets.

Revenue was up 2 percent for the quarter to $3.8 billion.

For the year, CBS posted a narrowed loss of $7.1 billion versus a year-earlier loss of $17.5 billion. Revenue was largely flat at $14.5 billion.

With the exception of its radio business, which was down slightly, CBS’s main operations-television, outdoor, theme parks and publishing-were up for the quarter.

The television division, which includes the CBS and UPN broadcast networks, television production, syndication and Showtime Networks, reported a 1 percent rise in revenue to $2.5 billion, reflecting a 3 percent rise in advertising revenue that was offset by lower television licensing revenue.

For its part, Viacom said last Wednesday that it posted a 67 percent decline in fourth-quarter profit as charges related to the split of the company, layoffs and film write-downs weighed on the overall results. The company, which now consists of cable networks and the Paramount Pictures film studio, reported a fourth-quarter profit of $129.5 million, compared with a year-earlier profit of $393.2 million. Revenue rose 9 percent to $2.7 billion. The numbers reflect Viacom’s results had it been made up of the cable and film studio assets for the entire year.

Viacom Up for Year

For the year, Viacom’s profit surged to $1.3 billion from a year-earlier $293.7 million, while revenue advanced 18 percent to $9.6 billion.

Much of the company’s growth came from the cable networks operation, which includes MTV Networks and BET. Fourth-quarter revenue rose 16 percent to nearly $2 billion, fueled by a 15 percent jump in advertising revenue and a 13 percent increase in affiliate-fee revenue.

Back at CBS, CEO Leslie Moonves appeared to downplay the potential threat that News Corp.’s new rival start-up network, My Network TV, might pose to The CW Television Network, pointing out that The CW has already locked up affiliate agreements covering half of the United States.

Answering questions put to him during CBS’s fourth-quarter earnings call, Mr. Moonves said the CBS-owned television stations that will be affiliated with The CW, along with a number of Tribune Co.-owned TV stations that have locked up 10-year affiliation agreements, give The CW an advantage over News Corp.’s new offering.

“The affiliate process for the stations not aligned with Tribune is under way, and we are already seeing major activity in many markets, with many lucrative deals to come,” he said.

Meanwhile, Mr. Moonves said it was unlikely that CBS would make a bid for Spanish-language broadcaster Univision Communications, which earlier this month announced that it was putting itself up for sale. Ownership restrictions, and the fact that CBS is at the cap for TV station ownership, make it unlikely for CBS to have a shot at landing Univision’s assets.