CBS’ Lovefilm Deal Highlights Its Growing Reliance On Licensing Fees

by Trefis Team
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Lovefilm, an Amazon (NASDAQ:AMZN) company, has announced a multi-year licensing deal with CBS Corporation (NYSE:CBS) that will expand the range of TV content already available on Lovefilm instant streaming service. [1] CBS has been eying and relying on such licensing deals to boost its income due to the slower growth in its broadcasting and publishing business.

While the network’s cable and broadcasting licensing fee crossed $500 million in 2013, the company aims to reach $1 billion mark by 2017. [2] Given the popularity of its content and surge in online streaming, that shouldn’t be much of a problem for CBS.

See our complete analysis for CBS

Lovefilm Deal

Late last month, Lovefilm said that its U.K. and German subscribers will be able to stream U.S. television series from CBS and the premium television network Showtime. The shows available in both the countries include the hit CBS series The Good Wife and Blue Bloods, plus programming from Showtown such as Nurse Jackie, Californication and Dexter. The deal between Lovefilm and CBS is also great news for Star Trek fans, the original 1960s series and Star Trek Voyager will now be available to stream on-demand. [1] The agreement with Lovefilm expands CBS’ revenues through licensing and distribution of its content.

CBS’ Licensing Fee Is Driving Growth

Licensing fees and other revenues contribute close to 20% to CBS’ $50 stock value. These revenues are generated from the syndication of shows produced or acquired by CBS Television Studios, CBS Studios International and CBS Television Distribution, which include hit shows such as CSI.  In Q1 2013, the network’s licensing and distribution revenues decreased by 1% as the growth in licensing revenues from digital streaming was more than offset by the timing of theatrical releases and domestic syndication sales. [3]

CBS has been relying more on revenue sources such as online streaming and retransmission fee given the slow growth in broadcasting business. The broadcasting revenues increased by 2.6% in Q1 2013 as compared to Q1 2012, while CBS’ overall revenues increased by 6.4% during the same period. [4] The latest deal with Lovefilm is expected to earn incremental licensing revenue. More importantly, the deal is not going to hamper its other syndication revenues since the programming that Lovefilm is getting access to is already sold to other networks or channels for syndication. For CBS, similar opportunities going forward could spur more growth to licensing revenues and drive up CBS’ stock value.

Our price estimate for CBS stands at $50, roughly in line with the market price.

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Notes:
  1. AMAZON’S LOVEFiLM ANNOUNCES DEAL WITH CBS STUDIOS INTERNATIONAL IN THE UK AND GERMANY, Lovefilm Press Release, Jun 24, 2013 [] []
  2. CBS Gains on Plans for Licensing Fees, Share Repurchases, Bloomberg, Feb 15, 2013 []
  3. CBS’ SEC Filings []
  4. CBS’ SEC Filings []
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