Is Pandora the Biggest Threat to CBS Radio?

By Trefis Team,

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CBS ( CBS ) primarily competes with other media conglomerates like Disney ( DIS ), Time Warner ( TWX ), Viacom ( VIA ) and News Corp ( NWS ) in the broadcasting and cable networks business.  Like its counterparts, CBS also relies significantly on advertising revenues that are a function of both advertisement pricing and viewership. Our price estimate for CBS' stock stands at $19.72 , which is slightly ahead of the current market price.

Radio remains one of the company's larger profit drivers. CBS radio operates 130 radio stations in the U.S. and offers its audience several formats through the combination of on-air, online and new media platforms. CBS radio, in conjunction with CBS-owned TV stations, constitutes about 27% of the company's stock value, by our estimates.

CBS radio has lost market share over the past few years, primarily due to divestment of some ratio stations as the company focuses its efforts on larger markets. We estimate that the company's share of the radio market declined from a little under 11% in 2005 to about 8% in 2009. With a renewed focus on major markets and improvement in the advertising sector, we estimate that CBS will be able to maintain stable market share around 8% going forward.

However, increasing competition from satellite and internet radio could shake CBS' position in the years ahead.

Pandora Advancing into Drive-Time Market

Pandora, an internet radio service, is now pushing into the drive-time radio market. This market targets listeners during prime commuting hours. As this remains one of the more popular times for people to tune-in to local radio broadcasts, advertisers are typically willing to pay a premium for airtime during these hours. Traditionally, this market has been dominated by larger radio services like CBS. But can the stalwarts withstand Pandora's push?

Pandora has a critical edge on traditional radio players through its advertising capabilities. According to Ford's digital marketing manager, Pandora can use several metrics like age, gender or musical taste of the user to increase the effectiveness of advertising. In 2011, Ford (F) is expected to launch cars with embedded software that will operate Pandora through voice controls. Additionally Mercedes-Benz, owned by Daimler AG (ETR:DAI), is also promoting Pandora's radio service in its vehicles.

Can CBS combat Pandora's momentum with its own internet radio offering (, or will Pandora's progress eat into CBS' market share? If CBS' radio market share declines to 6% by the end of our forecast period (vs. our 8% forecast) there could be roughly 5% downside to our price estimate, pushing our number just under market price.

To see the impact of radio market share on CBS' stock value, drag the trend line in the modifiable chart above.

You can see the complete $19.72 Trefis price estimate for CBS' stock here

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: CBS , DIS , NWS , TWX , VIA

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