NEW YORK — CBS’ new TV station group CEO Mel Karmazin promised a group of Wall Street investors Wednesday he would deliver a turnaround in the poorly performing unit as soon as the third quarter of this year.
To lift advertising revenue among the station group, Karmazin revealed he has put the advertising sales force on commission-only compensation effective July 1 — compared with the present mix of 75% salary-25% commission — and warned that anyone who wanted to earn a salary “should work at the post office.”
In his first public appearance since taking over the station group last month, a move that prompted Peter Lund’s resignation as CEO of CBS’ Television and Cable Group, Karmazin delivered a tough-talking speech that promised the stations would report higher revenue in the third quarter and every quarter thereafter.
And Karmazin, CBS’ biggest individual shareholder, who enjoys a big following among institutional investors, made clear he would not tolerate failure to achieve that target.
“I will not stand in front of investors and give you reasons as to why we haven’t increased our revenues … In my opinion there are no good answers (for failing to do so),” Karmazin said. CBS’ parent Westinghouse Electric Group stock rose 75¢ to a 52-week high of $23.31 Wednesday.
Speaking at a media and entertainment conference organized by Wall Street firm Montgomery Securities, Karmazin made clear why his presence at Westinghouse has calmed nerves on Wall Street. Alluding to concern about the potential for CBS to make a money-losing bid to regain the NFL rights from Fox later this year, Karmazin said, “The fact that I have a lot of stock in the company and my interests are the same as yours gives us a seat at the table on making sure that we are prudent on how we approach the sports rights.”
He said little about the network or programming issues other than predicting that the new schedule put forward by “our programming genius” Leslie Moonves would “give us the opportunity to be No. 1” next season.
Karmazin’s main focus now is on overhauling the TV station group, which he described as an “awesome group of properties” which had done a “terrific job in reducing expenses, but not done such a terrific job in generating revenues.”
The station group’s revenue fell 6% in the first quarter to $177 million after falling slightly in 1996, but Karmazin insisted the decline is about to come to an end. “Investors will see as soon as the third quarter a turnaround in the top line (revenue), and you will see revenue growth … Each quarter is going to be better than the quarter before.”
Karmazin noted that third-quarter growth would be helped by the comparison with last year’s Olympic Games-affected ratings, as well as by improved ratings in the May sweeps, which increased CBS’ advertising rates for the third quarter.
Karmazin’s new commission-only pay arrangement is also meant to motivate the advertising sales force to get new business. “We are being helped by a new viewpoint that exists on the part of the TV managers. They need to sell more advertising this year (and) they recognize the advantages of them doing that.”
Karmazin is instituting a harsher regime than exists at CBS’ main rivals. ABC is believed to pay its station group advertising salespeople salary and commission, while NBC doesn’t have a standard for its station group — some stations pay salary while others don’t, an NBC spokeswoman said.
Karmazin’s edict on revenue growth also sets a tough objective, as the fourth quarter could be expected to be lower than last year’s fourth quarter, when political advertising inflated revenues. Karmazin noted, however, that political ads are sold at lower rates than most advertising.
Much of his message to Wall Streeters was on the potential of CBS’ radio division to drive the entire company. Karmazin’s background is in radio — he sold Infinity Broadcasting to CBS a year ago and made the company the biggest radio broadcaster — and CBS’ radio stations have the highest margins of any in the industry.
Using analyst estimates of the radio group’s earnings before interest, taxes, depreciation and amortization (cash flow) in 1997 of $600 million-$700 million, Karmazin said the radio group alone could service Westinghouse’s $6 billion debt.
This left the rest of the company with “tremendous free cash flow” which will be used for acquisitions in radio and “out-of-home” (billboard) businesses, and possibly more TV stations.