CBS Radio Chipping in Nearly 30% of CBS Stock Value

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. Like its counterparts, CBS also relies significantly on advertising revenues that are a function of both advertisement pricing and viewership.

Our price estimate for CBS’ stock stands at $19.72, which is slightly below the current market price.

Radio is one of the CBS’ larger profit drivers. CBS Radio operates 130 radio stations in the U.S. and offers its audience several formats through the combination of on-air, online and new media platforms. CBS Radio, in conjunction with CBS-owned TV stations, constitutes about 27% of the company’s stock value, by our estimates. Thus staying competitive in this field is critical for CBS. We recently wrote an article wherein we discussed how Pandora is pushing more into radio market and threatening traditional radio services (see Trefis article Impact on CBS if Pandora Becomes the Biggest Threat to Radio).

A closer look at Internet radio market suggests that while Pandora is gaining fast, traditional broadcasters are holding their ground at the moment with their own internet offerings. A study conducted by SNL Kagan estimates that CBS Interactive had around 226 million unique visitors while Clear Channel 110 million. ^[1] This compares to Pandora’s 50 million or so uniques. CBS earned close to $75 million revenues in 2009 from its online radio properties as per SNL Kagan estimates, Clear Channel Radio’s online radio revenues earned around $175 million and Pandora earned close to $50 million. ^[1] As far as revenues and traffic, the traditional players like CBS and Clear Channel are ahead of Pandora as per 2009 data.

Distribution is the key

We note that all three of them have extended their distribution to mobile phones and iPad via development of apps. In fact CBS recently launched a new app for iPhone with which its Radio.com platform will be  available for free on iPhone device. Distribution is going to be one of the keys to success of internet radio especially with so many connected devices flooding the market. We have seen the power of distribution for services like Netflix (NASDAQ:NFLX) that are available across wide range of devices and gaining traction. It looks like all 3 players are competing neck to neck in this area.

What could be done more?

Traditional radio players like CBS and Clear Channel have stuck largely to traditional monetization models in the internet arena and have not pushed for individual subscription based services. CBS has a personalized music service called last.fm, but this is a small portion of its online traffic. However personalized radio subscriptions apart from general ones might be attractive to many users who may be willing to sign up for subscription to access such services. Pandora has targeted this area and traditional broadcasters can also adopt it to mitigate Pandora’s threat. Additionally personalized radio stations for users can also help in better ad targeting.

How do you think CBS’ radio market share will trend in future? Modify the forecast below to see the impact on CBS’ price estimate.

You can see the complete $19.72 Trefis price estimate for CBS’ stock here.

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1. Internet radio increasingly competitive in 2010, rbr.com, May 5 2010 [↩] [↩]