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Investment Overview for CBS (NYSE:CBS)
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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.
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Cable Networks are most valuable for CBS primarily due to their consistent revenue growth rate and high margins.
Revenue growth
Cable Networks revenues stood at around $1.77 billion in 2012 and the growth rate has averaged at around 9% 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 $2.6 billion by the end of our forecast period.
High margins
Furthermore, this business has high EBITDA margins of around 48% compared to 37% for local broadcasting and just 23% for CBS Television Network.
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Increasing pay-TV competition
Increasing competition among pay-TV providers such as Comcast, Time Warner, DirecTV, AT&T and Verizon is favorable for media companies. In such a scenario, CBS can gain negotiating power in discussions regarding the pricing of subscription fees for its programming content.
Increasing disputes with pay-TV service providers
Even though competition among pay-TV companies is increasing, they cannot continue bidding up subscription prices for channels. In order to protect consumers, pay-TV providers are increasingly taking a stand against media companies, leading to frequent channel blackouts.
Online licensing
With growth of online streaming companies such as Netflix that monetize primarily older content, licensing opportunities have expanded for media companies. This is helping them recoup some of the lost revenues from declining DVD sales.
Trefis Forecast Rationale for Cable Networks Subscription & Licensing Revenue
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${forecast} refers to revenues generated by Showtime Networks, CBS Sports Network & Smithsonian Networks. These revenues are primarily derived from subscription fees paid by pay-TV service providers. However, a small portion of these revenues also includes revenues earned by licensing of Showtime's original content.
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${forecast} has consistently increased over the past few years amounting to $1.77 billion in 2012. This has resulted from increase in subscribers as well as subscription rate increases. Going forward we expect this growth to continue.
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Trefis considered following factors for its forecast
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- Appeal of Showtime
- Flix airs classic movies, which differentiates it from other channels airing more contemporary movies, and reality shows as well.
- Showtime's compelling original programming will help. Its original shows Dexter, Brotherhood and Championship Boxing have done well in the past. Its current lineup of original shows includes Dexter, Homeland, Shameless, Weeds, The Borgias, House of Lies and several others.
- Subscription fee growth
- The contracts between media companies and pay-TV service providers are long-term, and include pre-defined yearly subscription rate increases. Given the demand for good content, CBS' cable networks will benefit from this yearly increase.
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- Competition & growth of alternative platforms
- Competition from HBO is high, which charges a very high fee per subscriber and yet maintains a subscriber base of close to 40 million subscribers. HBO has also launched its streaming app HBP Go. Furthermore, the alternative platforms that eat of subscriber's share of viewing time, such as Netflix, present a threat.
Back to Company OverviewHow 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 MethodologyView All Help Topics