) competes with other media conglomerates like Disney (
), News Corp. (
), Time Warner (
) and Viacom (
) in the media and entertainment business.
Our price estimate for CBS stands at $26.34
, a roughly 13% premium to market price. CBS has seen improvement
in its advertising revenues through general recovery of the ad
market and a heightened focus on content quality. We recently
discussed this affect of content quality on ad pricing (see article
Upping Estimates on CBS on Better Ad
Certain shows have helped to improve CBS' ratings. Here we take
the opportunity to explore this idea by looking at the stand-alone
"The Late Show with David Letterman".
While we've previously examined this idea in aggregate, we find it
interesting to explore how individual shows, mainly those that
viewers readily associate with a broadcast network's brand,
contribute to company-wide ad revenues.
The Late Show with David Letterman'
is a late night talk show hosted by David Letterman on CBS. David
Letterman hosted a similar show on NBC before moving on to host the
CBS show in the early 1990′s. A current agreement will put
Letterman in place to continue hosting the show through August
See our full analysis and $26.34 price estimate
Letterman's Show Drives Notable Ad Revenues
Ad Age reports that Letterman's late night show generated annual
advertisement revenues of around $271 million in 2009. Being a show
hosted on a broadcast network, ad monetization is the primary way
the show makes money for CBS.
If we take this revenue number as a baseline, and assume the
show continues beyond 2012, a back-of-the-envelope calculation
would indicate that ad revenue generates roughly 7.5% of CBS
Network's equity value. It is critical to note that CBS Network, by
our estimates, constitutes about 15% of CBS' company-wide stock
value, which we peg at
To simplify, we can estimate that ad revenues from Letterman's
late night show represent a little over 1% of CBS' stock value. Not
an overwhelmingly large contribution, but still significant for a
single show. Notably, the CW Network is accountable for roughly 1%
of CBS' equity value by our estimates. So is Letterman worth more
to CBS than the CW Network?