CBS Network Ratings Trends This Season And The Impact On Advertising

January 2nd, 2015 by Trefis Team
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CBS Corporation‘s (NYSE:CBS) broadcasting network continues to be the most watched network into the 13th week of 2014-15 season. However, it stood at the second spot after NBC  in the coveted 18-49 demographic ratings. [1] While CBS tried to bring new programming to bear, most of its new shows were cancelled amid lower ratings. Apart from Mom, most of its scripted shows are down in ratings. Mom, The Good Wife and The Mentalist in scripted, and 60 Minutes, Undercover Boss and 48 Hours in unscripted, were the only shows to see viewership growth. [2]

For content owners, higher ratings translate into better advertising revenues, which is of immense value for CBS and accounts for more than 50% of the company’s overall revenues.  The company has seen a 7% decline in advertising revenues amid lower ratings in the first nine months of 2014. [3] A similar ratings trend can be seen in most of the broadcasting networks. However, we believe that CBS will reap the benefits from its continued focus on original programming. It may see better ratings in the coming years led by its popular shows including The Big Bang Theory and NCIS, and a mix of sports programming.  On that note, we discuss below the trends in television advertising and our forecasts and estimates for CBS’ advertising revenues.

See our complete analysis for CBS

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Steady Growth In Advertising Revenues

CBS and CW television network has seen steady growth in advertising revenues over the past few years. Revenues have increased from $4.12 billion in 2008 to $4.80 billion in 2013. Most of the growth came in 2013, reflecting the benefits of Super Bowl broadcast. During the first nine months of 2014, segment advertising revenues stood at $3.09 billion. The overall advertising revenues were down 7% during the same period. However, this can also be attributed to the absence of the Super Bowl, which boosted the advertising income in the prior year. [3]

We estimate CBS and CW advertising revenue will be around $5 billion by the end of our forecast period, primarily driven by the appeal of its content. CBS has been the most watched network for quite some time now, led by its popular shows such as The Big Bang Theory and NCIS. However, a decline in ratings will weigh over the advertising income in the near term and we don’t expect any significant change in the segment revenues during our forecast period. Moreover, 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. We believe this trend will continue and weigh over broadcasting networks in the coming years.

Trends In Television Advertising

Advertisement pricing has picked up since the recessionary period of 2008 and 2009. The overall U.S. advertising market is growing and advertisers are willing to shell out more money on advertisements. Television still remains the biggest medium for advertisements and content owners will benefit from this broad level improvement. Television currently accounts for close to 40% of all advertising and it is expected to drop to 37% by 2017, according to a research by ZenithOptimedia. However, this downturn will primarily be due to a rise in ad spending at other platforms and television ad spending will continue to grow by 3% annually until 2017. [4] It will be interesting to see how the scatter market trends for CBS in the coming months. (The scatter market refers to ad sales closer to the broadcast date rather than upfront market.) In November, the overall broadcasting spend was up 3% while CBS saw a 6% growth. It also saw a 40% growth in scatter market for broadcast as compared to the prior year period. [5]

We estimate revenues of about $14.56 billion for CBS Corporation in 2014, with EPS of $3.00, which is in line with the market consensus of $2.90-$3.30, compiled by Thomson Reuters. We currently have a $52 price estimate for CBS Corporation, which is more than 5% below the current market price of $56.

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Notes:
  1. 2014-2015 Season: NBC Leads Among Adults 18-49 & CBS Tops Total Viewers Through Week 13 Ending December 21, 2014, Zap2it, Dec 23, 2014 [↩]
  2. CBS 2014-15 Season Ratings (updated 12/27/14), TVSeriesFinale, Dec 27, 2014 [↩]
  3. CBS Corporation’s SEC Filings [↩] [↩]
  4. Executive summary: Advertising Expenditure Forecasts December2014, ZenithOptimedia [↩]
  5. SMI: TV Ad Spending Down 2% in November, Broadcasting & Cable, Dec 17, 2014 [↩]