Under the Dome
. Source: CBS.
Among major television networks,
has a strong reputation, delivering an impressive performance
this year that saw it lead in average viewers and dominate the
top 10 shows for key demographic groups. Yet even as CBS delivers
on its core business, rival
is much more popular among stock investors, despite ABC's laggard
status in broadcast television. With CBS having taken steps to
boost its content-production business by divesting itself of
noncore businesses, shareholders want to know whether the
network's stock can catch up to Disney in the eyes of
CBS: The way it was last quarter
CBS reported its second-quarter results Thursday afternoon, and
investors had to deal with mixed messages on the company's
performance. Overall revenue fell more than 5% for the quarter,
which helped send net income from continuing operations down by
almost 4%. Adjusted earnings per share actually climbed from the
year-ago level, though, as a big reduction in share count
outweighed the downward pressure on overall income.
CBS logo. Source: Wikimedia Commons.
Looking closer at CBS' operations, three of its four business
segments saw declines in sales, with its core entertainment
division leading the way down. Local-broadcasting revenue also
fell, and cable-network sales, which include the key premium
service Showtime, inched downward very slightly. CBS' Simon &
Schuster publishing unit was the sole bright spot, with a revenue
gain of almost 12%, but publishing makes up such a tiny part of
the overall business that it was unable to overcome downward
pressure from the video-content side of company.
CBS gets more than half of its revenue from advertising, and
ad sales fell 7% for the quarter. Revenues from content licensing
and distribution fell even more sharply, overcoming gains in
affiliate and subscription fees.
How CBS is moving forward
For its part, CBS seemed to dismiss the mixed results. The
company noted that the loss of the key NCAA Final Four basketball
semifinal game to Turner Broadcasting System in early April this
year had a material impact on revenue, but Executive Chairman
Sumner Redstone instead
content production as "the cornerstone of our continued success,"
and CEO Les Moonves touted the company's status as the
most-watched network of the summer.
One area where CBS hopes to challenge Disney is with the new
Thursday Night Football series, with games during the first half
of the fall season moving from the proprietary and little-watched
NFL Network to CBS this year thanks to the network's $275 million
one-year deal with the National Football League. That will
provide an answer to Disney's Monday Night Football programming,
and the novelty of having football available on network
television on Thursday night could add to CBS' already-strong
reputation for Sunday football programming.
CBS will show Thursday Night Football for the first half of the
2014 season. Image source: NFL.
But football isn't the only weapon in CBS' arsenal. The
network has worked hard to develop its own stable of programming,
with CBS this fall owning four of its five new series for the
season and therefore retaining all the potential future licensing
potential if they succeed.
Why CBS might never catch up to Disney
With CBS having completed its divestiture of its
CBS Outdoor Americas
billboard business, the company will focus even more on video
content production and distribution. What Disney has that CBS
lacks, though, is a broader slate of offerings designed to
maximize revenue from that content. CBS can collect licensing
revenue from hit shows and characters, but it doesn't have
Disney's theme parks to take advantage of popular concepts to
draw vacationers. CBS has a film division, but it hasn't made the
aggressive moves that Disney has to acquire content-rich studios
like Marvel and Lucasfilm and the cross-platform merchandising
and licensing opportunities that come with them.
Those competitive disadvantages have forced CBS to resort to
more shareholder-friendly actions to keep its valuation high. For
this quarter, CBS said it would authorize a $6 billion stock
repurchase program, adding to the accretive impact of falling
share counts on earnings per share. At the same time, CBS also
boosted its dividend by 25%, pushing its payout yield above
Based on the fact that CBS stock had jumped 4% by midday
Friday, shareholders seem confident that the network's moves will
put the company back on a solid growth trajectory . But despite
its television success, CBS has a long way to go before it can
match Disney's multimedia success and earn the reputation that it
thinks it deserves.
Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to
profit? There's $2.2 trillion out there to be had.
Currently, cable grabs a big piece of it. That won't last. And
when cable falters, three companies are poised to benefit.
for their names.
CBS Doubles Down on Content, but Can It Ever
Catch Up With Disney?
originally appeared on Fool.com.
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