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Leslie Moonves Talks M&A Environment, OTT Growth, TV Station Deals and NFL Discussions

CBS Corp. is coming off a strong 2016 financial performance with all of its content-focused growth engines revving high. So high that CBS Corp. would seem to be an increasingly attractive acquisition target for the tech and telco giants who are kicking tires on content-related acquisitions.

Leslie Moonves, CBS chairman-CEO, acknowledged that M&A interest is generally in the air right now for media firms but he emphasized that CBS feels no pressure to sell.

“We’ve always said we are self-contained and we like our position,” Moonves said Wednesday during a conference call with analysts following the release of its fourth-quarter and full-year 2016 earnings.

“Obviously the wireless companies as well as the Silicon Valley companies are all looking at the content companies as being very valuable. They’re all trying to get into the content business,” he said. “We feel very secure in who we are, and we’re going to continue to play the game that way.”

During the hourlong call, Moonves and CBS chief operating officer Joe Ianniello touched on everything from CBS’ positive view of new FCC chairman Ajit Pai to its appetite for TV station acquisitions to subscriber growth of its CBS All Access and Showtime streaming services.

Moonves emphasized at the start of the call that with the pending sale of CBS’ radio division to Entercom Communcation, the percentage of CBS’ revenue coming from advertising will fall to 45%. That’s an important number to Wall Street because subscription and content licensing revenue is more stable and predictable.

Moonves was pressed by analysts about the state of CBS’ NFL advertising business after a down season for NFL viewing. He said he recently met with NFL commissioner Roger Goodell for a conversation about ways of speeding up the game, limiting the amount of time referees spend watching instant replay and possible “reformatting” of how commercials are inserted into the telecasts. Moonves assured Wall Streeters that didn’t mean cutting advertising units but taking new approaches “that are equally beneficial.”

“We’re trying to make the game as good an experience as we can make it,” he said.

Moonves gave a thumbs-up to new FCC chairman Ajit Pai, who has vowed to take a laissez-faire approach and is expected to try to lift some of the ownership restrictions now in place. “We’re looking forward to not having as much regulation and looking forward to the ability to do more,” he said.

One of Pai’s moves is expected to be an increase or even elimination of the cap on TV station ownership, which now stands at 39% of U.S. TV households. CBS is close to the cap now with its 29 TV stations.

“In the right circumstance if the cap is lifted we would strategically want to buy some more stations,” Moonves said. “Through retrans and political advertising the local (TV) markets are extremely good to us.”

He said CBS’ focus would stay on stations in the top 25 markets. “We’re a big-market company,” he said. If the opportunity comes to pass, “we will be aggressive but we’re not going to be stupid about it. We have a very well-functioning local stations division that could obviously take more in.”

Other highlights from the call:

  • CBS’ deal to be part of Hulu’s digital MVPD service does not include stacking rights to CBS’ current season shows. Those are reserved for the Eye’s CBS All Access SVOD service.
  • CBS, unlike other station owners, did not participate in the FCC’s recent auction of broadcast spectrum to digital and wireless firms. As prices came down, CBS decided it was better for stations to maintain their full allotment in order to maintain the strongest possible high-def signals.
  • CBS will grow revenue and earnings in 2017 despite tough comparisons from having carried the Super Bowl in 2016.
  • Moonves would not disclose new subscriber numbers but said CBS All Access and the stand-alone Showtime offering were exceeding subscriber expectations. Variety reporter earlier this week that Showtime has hit 1.5 million subscribers and CBS All Access is not far behind. Ianniello stressed that most of the sub growth for the services was additive rather than replacing traditional MVPD subs, and that the profit margins on the OTT business were strong. Both execs said the services were well on their way to CBS’ goal of amassing a total of 8 million OTT subs by 2020.

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