Upside to CBS from Viewership Strength
CBS (NYSE:CBS) primarily competes with other media conglomerates like Disney (NYSE:DIS), Time Warner (NYSE:TWX), Viacom (NYSE:VIA) and News Corp (NASDAQ:NWS) in the broadcasting and cable networks business. CBS Network is one of the big four broadcasting networks in the U.S., offering both news and primetime shows. Like its counterparts, CBS network relies on advertising revenues which are a function of both advertisement pricing and viewership.
Previously, we examined the potential impact of recently improved ad pricing trends on CBS’ stock value (CBS Network Gains From Better Ad Sales Pricing). While improved ad pricing is primarily a result of general improvement in the advertisement market, we also mentioned certain roadblocks that could hinder future pricing growth for CBS, such as an aging broadcast viewer demographic. [1].
However, it seems that CBS has seen strong viewership across the age spectrum. Continued improvement in viewership trends could present upside to CBS’ stock value should CBS strengthen its position across the younger demographic typically targeted by advertisers.
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We estimate that CBS generates 19% of its stock value from its CBS Network. Our price estimate for CBS stock stands at $19.72, roughly 10% ahead of market value.
Viewership Declined Historically
We estimate that the weekly average viewership declined from about 7.5 million in 2005 to close to 5.9 million in 2007. This was primarily a result of the growing popularity of cable networks which took some share of viewership away from broadcasting networks like CBS. Additionally, CBS struggled to gain share in the younger demographic. After 2007, CBS recorded slight improvement in viewership trends, partially driven by the presidential election. Going forward we forecast average viewership to remain relatively stable.
Recent Improvements
According to a recent press release, CBS is maintaining a strong position in viewership across the age spectrum. According to Nielson data for the week ending Dec 12, 2010, CBS stood atop the viewership totals for the 25-54 demographic (for the 11th time in 12 weeks) and was second for the 18-49 demographic. Season-to-date, CBS ranks first for both age ranges. [2] This high viewership is being driven by the success of shows like Criminal Minds, Two and a Half men, The Mentalist, CSI, The Big Bang Theory etc.
These trends indicate that CBS may be making progress in the younger demographic, which could bode well for both viewership totals and ad pricing. While we demonstrated in our previous article that improved ad pricing could add 3% to CBS’ estimated value, improvement in viewership can add another 4% if viewership rises to 2005 levels by the end of our forecast period.
You can see the complete $19.72 Trefis price estimate for CBS’ stock.