CBS shares saw a boost on Wednesday on the heels of the company’s presentation to investors that sought to change the narrative on the Eye’s long-term prospects at a time when Wall Street is generally skittish about Big Media.
CBS threw down some markers — including bullish five-year projections about the growth of its CBS All Access and Showtime streaming services — and disclosed its intent to shed its radio station group, which has become a drag on earnings. The general, although not universal, reaction to the presentation among analysts was positive, as demonstrated by the stock gains on Wednesday. There’s no doubting that CBS chairman-CEO Leslie Moonves and his team are at heart master storytellers, and they proved that Tuesday as they plotted out their own story arc for the next five years.
“Don’t paint all media companies with the same brush — we’re different,” Moonves told the packed house early on during the three-and-a-half hour presentation at Manhattan’s Equitable Center. “There is no other pure-play content machine like the CBS Corporation…What we offer is clean, simple, very valuable and essential.”
All of a sudden, it seems, amid the fears of earnings-eroding cord cutting activity, the fact that CBS is not a cable-heavy company is playing to its favor rather than being seen as a detriment as it was for years. Over and over, CBS execs insisted that the Eye is well protected in a world of shrinking bundles and over-the-top options because its NFL franchises and programs are must-have for operators. CBS, unlike its Sumner Redstone family sibling, isn’t dragging along a slew of low-profile channels that are likely to become extinct in the next few years. And CBS has taken two big leaps into the world of a la carte programming with CBS All Access and Showtime’s stand-alone streaming option.
Showtime president-CEO David Nevins argued that in addition to the OTT standalone option, the shrinking of the traditional cable bundle is good for pay TV because it reduces the upfront cost of consumers taking any subscription package before they even consider a Showtime add-on.
“With every skinnier bundle that comes to market, Showtime becomes more accessible to the consumer and more revenue comes to us,” Nevins said.
The proximity of the Investor Day presentation to the upfront-season mating ritual of buyers and sellers was also no accident. Moonves expressed great optimism for a strong upfront selling season this year — “It is a time for confidence” — given the heat in the scatter market and the general strength of the U.S. economy in a year that offers the advertising double-whammy of a Summer Olympics and a presidential election.
Moonves and CBS chief research officer David Poltrack also hammered the message that the undeniable growth curve in spending on digital advertising is not coming out of the hide of the largest broadcasters but out of print, outdoor and niche cable outlets. Both execs argued that for blue-chip marketers, digital ad buys without TV to reinforce the campaign are a wasted effort. “Digital is complementary,” Moonves said. “It’s not a replacement for the power and reach of TV.”
Poltrack added that for the biggest of the big in digital advertising — Google and Facebook — most of their ad dollars come from marketers who are not big buyers of broadcast TV advertising.
Moonves and Co. also talked up the strength of the pipeline at CBS for worldwide content sales. Even lower-profile CBS series like “Hawaii Five-0” and “Elementary” have generated some $3 million-$3.4 million per episode strictly in international sales — making them profitable virtually from day one. CBS projected its total international revenue will rise from about $1.5 billion last year to $2.3 billion by 2020. That projection also ensures — fair warning to its Hollywood studio rivals — that CBS will make every effort to own every inch of its prime-time schedule in order to hit that target.
Overall the CBS storyline was well-received by analysts. The stock was up as much as 4% in trading Wednesday, closing at $54.44, up 3.5%. After slumping 14% in 2015, shares have been on the upswing, rising 12.7% so far this year. The transition of Moonves taking the chairman’s reins from Redstone on Feb. 4 was a prime catalyst for the spike.
“We remain bullish on CBS post its 2016 Investor Day,” Credit Suisse’s Omar Sheikh wrote in a note issued Wednesday, adding that he “came away with increased confidence that CBS has substantial growth ahead of it.”
Bernstein Research’s Todd Juenger sounded the note of a theater critic who saw a little too much over-acting on the stage even though he generally liked the play.
“All told, our enthusiasm for CBS shares has been building, but our initial takeaway from these announcements make us less enthusiastic. If numbers go up and the stock goes up, now all of these forecasts will be theoretically priced in (so where’s the upside then?), and their ability to achieve them (and prove it) is dubious (to us),” Juenger wrote.
As Moonves and Co. well know from years of launching TV shows, they can’t all be rave reviews.