Higher licensing fees, retrans coin drive gains

CBS Corp. is considering wading deeper into the streaming biz as content licensing opportunities abound, CEO Leslie Moonves said Wednesday as he took Wall Streeters through the Eye’s strong third-quarter earnings perf.

Moonves said that given all the money on the table these days as competition for high-end TV content heightens among Netflix, Amazon and Hulu Plus, CBS may ink deals for past seasons of shows currently airing on CBS and Showtime.

The shift would be significant for the company, which in recent years has cut streaming deals only for library episodes of shows no longer active on its networks. The aim has been to protect the value of the traditional syndication window for programming, still the biggest source of profits for hit shows.

“We’re considering adding library seasons of current shows into our streaming deals,” Moonves said. “This could have a major impact on our results next year.” Indeed, content licensing revenue was a major driver in CBS’ 16% profit gain vs. the year-ago quarter, and that’s only for library product.

The hint that more streaming deals are to come piqued analysts’ interest during the earnings call, as Moonves was pressed on what those deals could yield for the Eye. “It could mean tens of millions of dollars,” he said. Such exposure could also be a boon to network ratings of those shows, just as traditional syndication can juice viewership of new segs, Moonves said, citing “The Big Bang Theory” as an example (the laffer bowed last year in reruns on TBS).

Such a move would be a big shift for Showtime programming in particular. Just like HBO parent Time Warner, CBS has tightly controlled the off-line availability of Showtime shows so as to not give subscribers an incentive to stop paying for the premium channels.

“We’ve come to the conclusion that streaming of previous seasons of certain shows will be a benefit,” he said. “Netflix would really like to do that, and we have deals in place for (shows) at very good rates. We think it will be a help to the network, not a hindrance.”

Content licensing is a growing component of the Eye’s revenue base. Moonves cited the strong international reception for CBS frosh dramas “Elementary” and “Vegas,” which commanded $2 million per seg apiece in the overseas market. That was enough to make them “immediately profitable.” Moonves made a point of emphasizing the Eye’s lessening exposure to advertising-dependent businesses, with 44% of its revenue base now coming from non-advertising sources compared to just 30% a few years ago.

Moonves was pressed about the changes in ratings performance that CBS and other networks have seen in the early weeks of the fall season. He called the early results “atypical,” in part because of disruptions from the presidential campaign. Moonves acknowledged that the increase in time-shifted viewing via DVR, VOD and streaming is challenging for all networks given the difficulty of monetizing viewing across multiple platforms. But he vowed that “going forward (CBS) will make it a priority to get paid for all of the viewing going on across all of our shows.” He also said CBS was focused in extending the time frame in which DVR playback viewing is incorporated into ratings that are the basis for advertising guarantees. That time frame now stands at three days, but he noted that CBS research has found that DVR viewing during the live-plus-7 frame increases ratings for shows another 30%.

“We’re pushing to get it to seven days,” Moonves said. “We think that’s going to happen within a relatively short period of time.”

Among other topics discussed during the call, Moonves reiterated that CBS is likely to reach its stated target of commanding retrans revenue (and retrans-fueled payments from its affiliate stations) of $1 billion by 2017 if not sooner. And he touted the strength of advertising sales for the Super Bowl, which CBS airs on Feb. 3. Thirty-second spots on the NFL’s championship game are going for “north of $4 million.” O&O flagship WCBS-TV New York commanded “just shy of $1 million” for a local Super Bowl spot, he added.

By the numbers, CBS touted a record third-quarter performance, with profits jumping 16% to $391 million on a bump in revenue, lower interest expenses and fewer shares outstanding as a result of its repurchase program.

Revenue grew 2% to $3.4 billion for the quarter, led by an 8% increase in content licensing and distribution revenues in the U.S. and abroad. Affiliate and subscription fees, buoyed by retrans deals, rose 12%, and CBS station revenue eased 4% on a dip in radio and the impact on TV of preemptions for the Republican and Democratic national conventions on six nights of CBS primetime. Moonves noted that many of its stations saw a last-minute influx of political advertising that will brighten up the fourth-quarter results.

Entertainment revenue — for CBS network, CBS TV Studios, its distribution group, interactive and CBS Films — rose 3% to $1.7 billion. Networks advertising took a hit from the Olympics and the conventions. CBS said the timing of theatrical releases at the new film division squeezed profit, which fell 5%.

Cable nets led by Showtime saw profit and revenue grow 12% and 4%, respectively, on higher affiliate fees.

Simon & Schuster book publishing logged a 5% drop in revenue as a 20% jump in digital book sales couldn’t offset a dip in print.

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