Increased political ad spend benefits CBS; upside to stock is small

by Trefis Team
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CBS (NYSE:CBS) competes with broadcast networks like ABC, owned by Disney (NYSE:DIS), and Fox, owned by News Corp (NASDAQ:NWS), for the dwindling ad dollars available for network TV.  In a recent Supreme Court ruling, the limit on corporate spending to influence political campaigns in the US has been removed.  This is expected to increase political ad spending in 2010 and the years thereafter due to more political contributions from corporations.

CBS is expected to take significant share of extra ad spending

Typically, political ad dollars are spent with big media companies that own broadcast networks (CBS, ABC, NBC, Fox).  We expect CBS, one of the leading broadcast networks, to earn a significant share of the extra ad dollars.

Small upside for CBS stock

About $3 billion will be spent in 2010 towards political campaigns.  With the new court decision, an extra $300 million is likely to be infused into the TV ad market.  This extra $300 million amounts to less than 1% of $45 billion overall TV ad spend in 2009.

Due the size of the CBS network, we estimate that CBS could grab as much as a third of the extra ad spend ($100 million); however this will only increase its broadcast network revenues by about 2%.  Even an increase of $100 million for each our forecast years leads to upside for CBS of about 10 cents per share, or 1% of the $9.22 Trefis price estimate for CBS’s stock.

Overall ad pricing more important

For CBS, the state of the overall ad market is much more important than the extra political ad spend to result from the recent Supreme Court decision.  Below you can see how CBS’s stock could be impacted if the recent ad pricing declines on its broadcast network were to be reversed.

For additional analysis and forecasts, here is our complete model for CBS’s stock.

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