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Investment Overview for CBS (NYSE:CBS)
Below are key drivers of CBS' value that present opportunities for upside or downside to the current Trefis price estimate for CBS:
CBS & CW Network Ad Revenue: CBS & CW Network Ad Revenue represents ad revenues earned by CBS Television Network and CW Network. These broadcasting networks heavily rely on advertising. Currently we forecast the advertising revenues to increase from around $4.8 billion in 2013 to $6.38 billion by the end of our forecast period. There could be more than 10% downside to our price estimate if this figure remains under $5 billion. This could happen if the cable networks grow at a much faster pace. Over the course of the past few years, the cable networks have risen in popularity owing to their specific focus. This has helped them create loyal audience base and consequently broadcast networks have suffered in terms of viewership. On the other hand there could be around 10% upside to our price estimate if the network revenues blows past expectations north of $8 billion by the end of our forecast period. This is possible due to a better ad marketplace driven by the growth in the economy and CBS' appealing content.
CBS Cable Networks Subscription & Licensing Revenue: Currently we forecast this figure to rise from about $2 billion in 2013 to close to $3 billion by the end of our forecast period. However there could be a downside of about 10% to the our price estimate if the figure remains rangebound around current levels due to high competition from other networks such as HBO and also due to rise of alternative video platforms such as Netflix. On the other hand, there could be upside of about 10% if this figure was to increase to $4 billion instead driven by growth in subscription fees.
For additional details, select a driver above or select a division from the interactive Trefis split for CBS at the top of the page.
CBS makes money primarily through advertising on CBS Television Network, licensing of TV shows, fees charged to cable and satellite operators for carrying premium channels such as Showtime, and advertising revenues earned by its owned TV stations, radio business and billboards.
Cable Networks are most valuable for CBS primarily due to their consistent revenue growth rate and high margins.
Cable Networks revenues stood at around $2.07 billion in 2013 and the growth rate has averaged at around 10% for the past few years. Even though revenue figure is quite low compared to that for its other businesses such as CBS Network, Local Broadcasting etc., the expected growth is attractive. Given the demand for premium content, stability of subscription business and annual fee increases, we expect these revenues to grow to $3.6 billion by the end of our forecast period.
Furthermore, this business has high EBITDA margins of around 45% compared to 35% for local broadcasting and just 23% for CBS Television Network.
Increasing pay-TV competition
Increasing competition among pay-TV providers such as Comcast, Time Warner, DirecTV, AT&T and Verizon is favorable for media companies. In such a scenario, CBS can gain negotiating power in discussions regarding the pricing of subscription fees for its programming content.
Increasing disputes with pay-TV service providers
Even though competition among pay-TV companies is increasing, they cannot continue bidding up subscription prices for channels. In order to protect consumers, pay-TV providers are increasingly taking a stand against media companies, leading to frequent channel blackouts.
With growth of online streaming companies such as Netflix that monetize primarily older content, licensing opportunities have expanded for media companies. This is helping them recoup some of the lost revenues from declining DVD sales.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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