Mogul won't sell shares to pay down NAI debt
Sumner Redstone assured investors on Thursday that not “a single share” more of CBS or Viacom would be sold to pay down debt of his National Amusements holding company.“Obviously, these were extraordinary circumstances which resulted in NAI having to take action, which is clearly atypical. This was not something NAI wanted to do, nor is it something that NAI intends to do again,” Redstone said on a conference call to discuss CBS’ quarterly earnings. Despite a steep loss at the broadcaster, chief exec Leslie Moonves had some heartening observations on national advertising, the scatter market and even the plunge in auto ads — which he thinks has bottomed out. CBS lost $12.5 billion for the September quarter, vs. a $340 million profit a year ago, on a one-time, noncash $14 billion charge to write down the value of assets. TV and radio have been hit hard by a shaky economy that’s squeezed advertising, which makes up more than 70% of the company’s business. CBS had warned earlier this month that a writedown was coming. Excluding the charge, CBS said it had adjusted net earnings of $290 million, down 19% from the year before. Revenue nosed up 3% to $3.38 billion, driven by the domestic cable syndication sale of “CSI: NY” and the acquisition of Netco CNET. Earlier this month NAI was forced to unload $233 million in CBS and Viacom stock it had used as collateral in a $1.6 billion bank loan; a sharp drop in the shares put NAI in breach of loan covenants. Redstone said he fully expects a deal with lenders to renegotiate terms. Analysts, who’d been jolted by the initial sale, didn’t seem completely reassured. “If the price of CBS and Viacom continues to decline, how can you be sure you won’t have to sell more?” asked Merrill Lynch analyst Jessica Reif Cohen on the call. Redstone declined to reply to her question or several others on the topic, citing the sensitivity of ongoing negotiations with banks. “While Mr. Redstone was exceedingly clear that he had no intention of selling more Viacom or CBS shares, he was forced to sell $233 million worth a few weeks ago and may not have a choice going forward if debt renegotiations do not pan out in time,” wrote Pali Research analyst Richard Greenfield in a note to clients Thursday morning. Addressing Wall Street’s intense interest in the advertising market, Moonves said national advertising hasn’t fallen anywhere near as much as local. “We are not seeing the weakness nationally that we are seeing locally and don’t have that fear that it will fall off a cliff,” he said. Cancellations of upfront commitments by advertisers have been “minimal.” “I spend a lot of nights awake thinking about a lot of things, and that’s certainly not one of them,” Moonves said. He said CBS has some 20% of its ad time left for scatter, about par for the course. He said scatter is selling “slightly above where we were in the upfront.” And he noted that although the scatter market is feeble, CBS’ strong ratings this season will make the Eye network the prime beneficiary of whatever money is out there. CBS is on top both in overall viewers and in the young adult demos advertisers crave. Moonves also thinks the slump in advertising by a beleaguered U.S. auto industry, which has taken a painful toll on local TV and radio, has hit bottom. “I can’t imagine it getting any worse than it is now,” Moonves said. CBS is seeing some of the slack being taken up by foreign carmakers, who perceive an opening to grow market share. Toyota is currently CBS’ biggest auto advertiser. “We love Detroit … but you just can’t look at Detroit,” he said. CBS’ television operating income fell 17% to $369 million — including the impairment charge mentioned above that hit the TV, radio and outdoor businesses. Television revenue nosed up 2% to $2.1 billion. The division includes the CBS television network, stations and distribution, CBS Paramount Network Television, Showtime and CBS College Sports. Pay cabler Showtime, which has hit paydirt with “Weeds,” “Dexter,” “Californication” and “The Tudors,” will be increasingly focused on original series and less on movies, Moonves said. A trio of film studios, Paramount, Lionsgate and MGM, are creating a premium channel to funnel their product, in direct competition with Showtime and HBO. Moonves noted that Showtime’s contracts with Lionsgate and MGM run through the end of this year, that the network has a deal with the Weinstein Co. and that it will get some movie titles in the future from the nascent CBS Films banner. “There is no shortage of movies. But our strength is original programming, and that’s what you will see more of and less movies. But again, there is no shortage of movies,” Moonves said. Results at CBS’ online business used to be reported in the television group, but the for the first time it was broken out this quarter as a separate division, having gained critical mass from the $1.8 million purchase of CNET earlier this year. Interactive losses widened to $15.2 million from $13.3 million. With the CNET deal, revenue surged to $141 million from $36 million. On a comparable basis, assuming CNET was part of CBS in the year-earlier quarter, interactive revenue was up 6%. While some on Wall Street think CBS overpaid, Moonves said, “The CNET acquisition is at the heart of our long-term growth strategy” and has catapulted CBS into the ranks of the top 10 Internet companies. Radio profit plunged 19% to $131 million. Revenue fell 12% to $392 million, reflecting the weak advertising market and the impact of radio station sales. CBS announced last quarter plans to sell 50 mid-market stations. Execs said there’s been lively interest in the assets, although the tightness of credit markets now makes it hard to close deals. “The good thing is we don’t have to sell by any specific date,” Moonves said. Outdoor advertising profit sank 48% to $52 million. Revenue was slightly down, by 1%, to $549 million. Profit would have been 26% without the writedown. Publishing profit at Simon & Schuster rose 8% to $23.4 million, Revenue grew 5% to $225 million on sales of bestselling titles “The War Within,” by Bob Woodward, and “Real Life: Preparing for the 7 Most Challenging Days of Your Life,” by Dr. Phil McGraw. In another area of interest to investors, CBS execs insisted that they would maintain an attractive dividend, although they didn’t promise to keep it at current levels. CBS shares, which have been battered in recent months, closed up 8.1% at $9.43 after the earnings report and amid a modest rally of the broader market.
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