Non-Advertising Revenues Will Drive CBS’ Q1 Earnings

May 7th, 2014 by Trefis Team
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CBS Corporation (NYSE:CBS) will report its Q1 2014 earnings on May 8. We expect another solid quarter with growth across its segments. The company will see the benefits of its January deal with Amazon (NASDAQ:AMZN) over the distribution rights for Extant, a series produced by Steven Spielberg’s Amblin Entertainment. Also, it will benefit from the deal with Hulu for the expansion of a non-exclusive, multi-year licensing agreement to stream programs from CBS’ television library on the Hulu Plus subscription service. CBS will continue to ride high from its solid programming, including The Big Bang Theory. It must be noted that CBS’ overall ratings through March 30 were down 20% from last season. [1] However, the network held to its top position in terms of total viewership. We continue to believe that the media house will do well in the near term with a strong lineup and growth in ad pricing due to its dominance in the television viewership.


See our complete analysis for CBS

CBS’ Overall Ratings Decline But Outlook Positive

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For 27 weeks of the 2013-2014 broadcast television season (through March 30), CBS ranked third with a 2.4 rating average, down 20% from the prior year period. NBC was in first place among adults 18-49 with a 2.9 rating average, up 21% from last season, followed by FOX at second with a 2.6 rating, up 4% from last season. [1] NBC’s growth was driven by the telecast of the Winter Olympics (Read – Comcast Adds Pay-TV Subscribers For The Second Consecutive Quarter; Q1 Results Impressive With Strong Growth Across The Segments). However, if we look at total viewership, CBS continues to stay at the top with season average of 10.81 million viewers, ahead of NBC with 9.92 million viewers. CBS has picked up momentum post-Olympics. In the first six weeks since the conclusion of the Olympics, it has won five straight weeks in viewers and four of the last five in 18-49 and 25-54 demographic. [2] It must be noted that better ratings translate into higher advertising revenues for the content owners such as CBS. During the previous quarter, advertising revenues at CBS Television Network rose 4% year-over-year, but they were offset by lower political advertising revenues at Local Broadcasting. [3]

On the comedy front, CBS will finish the season as a leader with eight of the top 10 comedies in total viewers and six of the top 10 in 18-49 demographic, according to Nielsen’s ratings through April 13. [4] The Big Bang Theory continues to dominate in the comedy segment with average viewership of 17.84 million (so far), up 6.16% from the prior year period. CBS’ How I Met Your Mother also witnessed a rise of 6.89% in viewership. [5] CBS will benefit from the success of these shows and the company’s focus on original programming will continue to aid its overall growth. We believe that CBS will see higher revenues from advertising in Q3 and Q4, reflecting the benefits of a strong upfront marketplace, its new NFL Thursday night package and the U.S. midterm elections.

As far as the non-advertising revenues are concerned, the growth has been even better. If we look at the previous year, content licensing grew 15% close to $4 billion and affiliate and subscription fees grew 16% to $2.2 billion. [3] It is significant that CBS has been able to increase its non-advertising revenues. This collectively accounts for 40% of the company’s revenues. With non-advertising revenues growing at a higher pace than that of advertising revenues, the company can look forward to a more stable growth outlook. The company in its previous conference call stated that it will soon be close to achieving a 50:50 mix of advertising and non-advertising business. [6] In the first quarter the company will see continued growth in its non-advertising income, reflecting the benefits from Amazon and Hulu deals.

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Notes:
  1. 2013-2014 Season: NBC Leads Among Adults 18-49 & CBS Tops Total Viewers Through Week 27 Ending March 30, 2014, Zap2it, Apr 1, 2014 [↩] [↩]
  2. CBS CONTINUES POST-OLYMPICS MOMENTUM, CBS Corporation’s Press Release, Apr 8, 2014 [↩]
  3. CBS Corporation’s SEC Filings [↩] [↩]
  4. CBS IS 2013-2014 COMEDY LEADER, CBS Corporation’s Press Release, Apr 17, 2014 [↩]
  5. CBS 2013-14 Season Ratings, TV Series Finale, As of May 6, 2014 [↩]
  6. CBS Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Feb 12, 2014 [↩]