Lower Ratings May Weigh Over CBS Corporation’s Q2 Earnings

August 6th, 2014 by Trefis Team
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CBS Corporation (NYSE:CBS) will report its Q2 2014 earnings on August 7. We believe that lower ratings of shows on CBS broadcasting network impacted its earnings. In the previous quarter, the company witnessed a 5% decline in overall revenues due to absence of Super Bowl and NCAA games. [1] While CBS may report lower revenues and earnings for the quarter, we continue to believe that the media house will do well in the second half of 2014, driven by telecast of more NFL games and growth in ad pricing due to its dominance in the television viewership.


See our complete analysis for CBS

Lower Ratings May Be Reflected in Q2 Earnings

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CBS ended the 2013-14 season at the second spot after NBC, with a 2.4 rating. However, the ratings declined by 17% over the last season. [2] This in part can be attributed to the absence of Super Bowl. The network’s established shows such as The Big Bang Theory and NCIS are also seeing drop in ratings in the coveted 18-49 demographic. While How I Met Your Mother garnered higher ratings, the show has now come to an end. However, if we take into account total viewership, CBS continues to stay at the top with season average of 10.64 million viewers, ahead of NBC with 9.21 million viewers. [2] CBS has picked up momentum in summer programming with shows such as Under The Dome, the benefits of which will be visible only in the third quarter.

It must be noted that lower ratings translate into lower advertising revenues for content owners such as CBS. During the previous quarter, advertising revenues at CBS declined 12% to $2.16 billion. [1] We are eager to see how advertising trends in the current quarter. However, we continue to believe CBS will do much better in second half of 2014, due to a combination of higher ad pricing, an uptick in advertising led by U.S. midterm elections, and the telecast of more NFL games as compared to the prior year. Despite lower ratings, CBS managed to secure 7% growth in upfront ad sales for next season, which further supports our view. [3]

As far as the non-advertising revenues are concerned, the growth has been better. In the previous quarter, content licensing and affiliate revenues were up by 6% and 9% respectively. [1] We believe that this trend will continue in the near term as CBS syndicates more of its programming. Accordingly, CBS is likely to post growth in its non-advertising income in the second quarter as well. We will look for confirmation with the release of earnings.

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Notes:
  1. CBS Corporation’s SEC Filings [↩] [↩] [↩]
  2. 2013-2014 Season: NBC Leads Among Adults 18-49 & CBS Tops Total Viewers Through Week 35 Ending May 25, 2014, Zap2it, May 28, 2014 [↩] [↩]
  3. TV networks wrap upfront ad sales; NBCUniversal nabs $6 billion, Los Angles Times, Jun 24, 2014 [↩]