CBS Profit Rises Despite Slip in Revenue -- 2nd Update

By Dow Jones Business News, 
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By Amol Sharma

CBS Corp. reported a 5.6% increase in net income for the March quarter, even as revenue slipped compared with the year-earlier period, when the company's flagship broadcast network benefited from its telecast of the Super Bowl and the "Final Four" of the men's NCAA basketball tournament.

The company's earnings growth in the quarter came primarily from content-licensing and subscription revenues such as carriage fees from pay-TV operators.

The entertainment unit, which houses the flagship CBS broadcast network, posted a 5% drop in operating income before depreciation and amortization, or OIBDA. Revenue in the unit decreased 9% from the year earlier period, when CBS generated more than $280 million in revenue from broadcasting the Super Bowl.

The CBS network, whose entertainment programming includes megahit comedy "The Big Bang Theory" and political drama "The Good Wife," is poised to finish the TV season as the No. 1 broadcaster in terms of total viewers for the 11th time in 12 years.

But after finishing first last year among adults aged 18 to 49--a demographic that advertisers pay a premium to reach--CBS is on track to finish third this year. Its audience in that demographic fell 17.6%, though last year's figures included the Super Bowl and NCAA games.

Some new CBS shows, such as "We are Men" and "Hostages," fell flat, and there was no new breakaway hit. One challenge for CBS is restocking its comedy lineup after one of its long-running hits, "How I Met Your Mother, " ended its run this year. "The Millers," a new comedy, has been a strong new performer.

On a conference call with analysts, Chief Executive Leslie Moonves said the company has renewed 20 of its existing shows for this year and is expecting a boost from carrying Thursday night NFL football games for the first time. Given that crowded schedule, "the bar for new shows to get on our network is much higher than any other network," Mr. Moonves said.

He said CBS is putting special emphasis on producing its own shows rather than acquiring them from other studios. Owning content allows the company to make money by selling reruns to domestic and international TV networks and streaming video players. CBS could also sell shows to Netflix, Amazon, Microsoft and Yahoo. Mr. Moonves said CBS has over 30 shows in production.

Mr. Moonves predicted CBS would lead the market in pricing and volume as broadcasters next week begin "upfront" negotiations with advertisers--hashing out deals for most of the ad time for the TV season starting in September.

Overall, operating income edged up 2% to $818 million. Revenue fell about 5% to $3.9 billion. Net income in the first quarter was $468 million, or 78 cents per share, up from $443 million, or 69 cents per share, in the year-earlier period.

The cable networks division reported a 12% increase in OIBDA. Growth came from licensing of programming from the Showtime premium cable channel such as "Dexter" and higher revenue from cable operators.

Revenue in the location broadcasting unit that includes local TV stations fell 2% as lower advertising revenues-- affected by the comparison with the Super Bowl last year--were partially offset by growth in so called "retransmission" payments by pay-TV operators.

In the outdoor business, which sells ad space on billboards, OIBDA fell 7% to $69 million even as revenue grew 2%. CBS late last quarter completed an initial public offering of the unit, forming a separate publicly traded company, CBS Outdoor Americas Inc.

CBS netted about $2 billion in the transaction between its sale of a 19% stake and a dividend from a debt offering by the outdoor company. Though CBS says it will consider opportunities for acquisitions, much of the money is going into share repurchases--CBS said it plans to reduce shares by 17% this year. "Capital returns will continue to be our focus and our top priority," said Chief Operating Officer Joe Ianniello.

CBS got approval last month from the Internal Revenue Service to convert the outdoor business into a real-estate investment trust, or REIT.

Such entities don't pay corporate income taxes on taxable income they distribute to shareholders, so long as they pay out 90% of taxable income.

Write to Amol Sharma at amol.sharma@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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