Despite Earnings Downturn, Moonves Sees Upfront Success for CBS

Feb 18, 2009  •  Post A Comment

Despite the tough economy and a deep advertising market slump that cut CBS’ fourth-quarter earnings in half and forced the company to slash its dividend, CEO Leslie Moonves said he’s looking forward to the upfront.
Citing ratings growth at the company’s broadcast network during Wednesday’s earnings call with analysts, Mr. Moonves said, “Believe it or not, we are looking forward to the upfront, because we have quite a story to tell.”
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He said it was hard to predict how strong or weak the upfront market would be, but added, “We feel strongly we’ll be in the best position to take advantage of it.”
With its reliance on advertising revenues at its broadcast network and its local television, radio and outdoor advertising businesses, and few assets in the relatively stronger cable sector, CBS’ earnings took a beating.
Fourth-quarter net earnings were $136.1 million, or 20 cents a share, down 52% from $286.2 million, or 42 cents, the same quarter a year ago. Revenues fell to $3.5 billion from $3.8 billion.
For the full year, CBS posted an $11.7 billion loss, compared with a $1.2 billion net profit in 2007. Revenues slipped to $14 billion from $14.1 billion.
CBS said its operating income from its television businesses fell 40% to $272.2 million in the quarter. Television revenues fell 8% to $2.2 billion.
CBS Chief Financial Officer Fred Reynolds said half the decline in television revenue came from a drop in network television period sales, which were down 13%, partly because the company lost nine primetime hours to election and debate coverage and partly because scatter pricing was down from last year’s fourth quarter.
A drop in local ad sales accounted for the rest of the decline, he said.
The company declined to describe how first-quarter ad sales are tracking at the network. Mr. Moonves said, “With our ratings, we are getting the lion’s share of the scatter market,” although “volume is not nearly as strong as we would like it to be.”
He said second-quarter options were “fairly normal.”
Other media companies have reported that a higher-than-normal number of advertisers have been using the options in their upfront deals to cancel planned buys.
With the advertising market troubled, Mr. Moonves noted that CBS’ non-advertising income had increased to about a third of its revenues.
That figure includes a growing sum from retransmission consent. CBS recently made deals with Verizon, Time Warner Cable and Dish Network.
In the past, Mr. Moonves has said CBS eventually hopes to generate about $250 million a year, or 50 cents per subscriber, in retransmission fees from cable and satellite operators.
On the earnings call, he said, “On the basis of the deals we have concluded, yes, we are on target for a few years down the line to hit those kinds of numbers.”
Previously CBS had completed 24 deals with smaller distributors.
“To have the second-largest cable operator, the second-largest satellite group and the largest telco at the numbers we got, we are very satisfied,” he said.
Also include in non-advertising revenues is syndicated sales of programming, up 41% in 2008.
Mr. Moonves said he expected the second half of 2009 to be stronger than the first half because five more shows will be going into syndication: “Criminal Minds,” “Everybody Hates Chris,” “Ghost Whisperer,” “Medium,” and “Numb3rs.”
CBS also said its interactive unit, including the acquisition of CNET.com, boosted its operating income seven-fold and its revenues three-fold.
CBS cut its quarterly dividend to 5 cents a share from 27 cents a share, a bigger cut than some analysts expected.
CBS said the cut will ensure the company will be able to pay debts coming due through 2010 out of cash on hand and expected cash flow, which was important while the economy is uncertain and credit hard to obtain.
“That’s why we believe this is a prudent action to take while we await improvement in the economy and the credit markets,” Mr. Moonves said. “By taking this step now, we will further strengthen our financial flexibility to meet our debt obligations even in difficult credit markets, and still provide our shareholders with an attractive dividend.”

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