CBS’ Strong Q4 Performance Reaffirms Our Optimistic Outlook

CBS Corporation’s (NYSE:CBS) Q4 earnings were above street estimates led by advertising growth. The company’s entertainment segment posted 8% advertising growth and a strong 44% jump in retransmission and reverse comp. ^[1] This is remarkable given that the media industry is going through a challenging period of declining ratings, which has impacted the advertising revenues. In fact, declining ratings have impacted cable networks more than broadcasting networks in the past few quarters. This can primarily be attributed to sports programming with broadcasting networks, which garners much higher viewership and better ad pricing. For instance, CBS is charging $10 million for a 60-second ad spot during this year’s Super Bowl telecast. ^[1] This compares with $580,000 CBS charges for The Big Bang Theory. ^[2] CBS benefited from a double-digit increase in Q4 broadcast ad spending and it estimates strong uptick in upfront sales later this year. Overall, 2015 turned out to be better for CBS as compared to some of the other media companies. The network posted flat viewership and only a 5% decline in key demographic ratings compared to the prior year. This compares with a 15% drop for Fox and 9% decline for NBC. ^[3] Looking forward, CBS is poised to see solid growth in Q1 due to an extra NFL playoff game, along with Super Bowl 50 and the Grammys (also see – What Factors Can Drive Growth For CBS’ Advertising Revenues?).

Looking at cable networks, CBS benefited from international licensing of its original content along with the continued subscriber growth at Showtime Networks in the U.S. While the segment revenues jumped 13% in Q4, operating income was down 5% due to higher margin titles being licensed in the prior year period. ^[4] Cable network revenues for CBS have grown at an average annual rate of 9% in the last five years to $2.25 billion in 2015. This can be attributed to strong performance of Showtime’s original programming, including Shameless, Ray Donovan and Homeland, among others. The demand for these shows has aided affiliate pricing and subscriber growth. We expect the company to continue this growth trajectory in the coming years. Showtime has been successful even with its new programming, such as Billions, which has seen a ratings uptick and it has been renewed for the second season. Also, Showtime and HBO are some of the popular cable networks that have been able to post subscriber growth even in the recent years with increased cord-cutting amid growth of alternative video platforms. This can be attributed to the content quality and demand for their programming. And this strengthens our view that the cable networks will continue to provide a steady growth for CBS in the foreseeable future. Showtime also launched its over-the-top streaming service in 2015, which is gaining subscribers in the U.S. and this will further aid the overall segment revenue growth in the coming years (also see – How Important Are Cable Networks For CBS?).

See our complete analysis for CBS Corporation 

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1. CBS Corporation’s (CBS) CEO Leslie Moonves on Q4 2015 Results – Earnings Call Transcript, Seeking Alpha, Feb 12, 2016 [↩] [↩]
2. TV Ad Prices: Football, ‘Empire,’ ‘Walking Dead,’ ‘Big Bang Theory’ Top The List, Variety, Sep 25, 2015 [↩]
3. 2015 TV Ratings: ABC, CBS, Fox, NBC Battle For Bragging Rights, The Wrap, Dec 22, 2015 [↩]
4. CBS Corporation’s SEC Filings [↩]