CBS Delivers Strong Q1 but Profit Falls on Radio Sale Adjustment, Super Bowl Comparison

Leslie Moonves, President and CEO of
Anthony Behar/Sipa USA

CBS Corp. delivered strong first-quarter numbers but special items related to the sale of its CBS Radio unit weighed on the results, which also suffered in comparison to the year-earlier period when its flagship network aired Super Bowl 50.

The New York-based owner of the CBS broadcast network and Showtime reported Thursday a net loss of $252 million in its first quarter, which included a non-cash charge of $715 million to account for the drop in the share price of Entercom Communications Corp. in the weeks since CBS set a deal to sell its radio operations to that company. That agreement is expected to close in the third quarter. Excluding that and other items, net income from continuing operations rose 3% to $454 million, or $1.09 a share, compared with $442 million, or 95 cents a share, in the year-earlier period.

The company said first-quarter revenue fell to $3.34 billion in the first quarter, compared with nearly $3.59 billion in the year-earlier period. CBS broadcast Super Bowl 50 and an additional NFL game in the first quarter of 2016. Advertising revenue at its entertainment operations fell 23%, fueled by the loss of Super Bowl revenue.

Affiliate and subscription fees rose 17% to $842 million. Content licensing and distribution revenue rose 16% to $845 million, the company said.

Speaking during a conference call for investors, CBS chairman-CEO Leslie Moonves continued to emphasize a growing revenue stream from distribution and licensing of content. The company is also growing the amount of programming it is making for networks and subscription-video-on-demand outlets it does not own. The company also plans to offer the standalone streaming services for Showtime and CBS All Access as a single package, starting next week. Moonves said there would be a small discount offered for the two services as a package. The bigger motivation for CBS to offer the two as a combo deal is to reduce churn, as the variety of programming on CBS and Showtime will give users more reasons to keep the service, added CBS chief operating officer Joe Ianniello.

Moonves sounded an optimistic note about the coming “upfront” market, during which TV networks try to sell the bulk of their advertising inventory for the coming season. He said CBS intended to do the bulk of its deals on a “C7” basis, or based on viewership of commercial breaks up to a week after they first air. He also indicated CBS was eager to use new measures, such as a new “total content” gauge from Nielsen that measures viewers across different kinds of screens.

Content licensing revenue has become a pillar of CBS’ bottom-line, and CBS told investors that there are three more CBS-produced dramas headed for off-network syndication as early as this year: “NCIS: New Orleans,” “Madam Secretary,” and “Scorpion.”

Looking ahead to the fall, Moonves noted that CBS produced fewer pilots this year — eight comedies and eight dramas — because it was able to renew such a high percentage of its existing schedule. The stability of the underlying schedule also allowed them to target the pilots better to fill specific holes or genre needs, and that targeting helped them control costs on pilot R&D. CBS is the producer on a majority of those pilots.

Among other topics raised on the call:

— “Thursday Night Football”: Despite the sky-high pricetag for the package of five games, Moonves said CBS would seek to keep the rights, which are up after the coming season. “NFL is still the best game in town. It adds all sorts of other things to a network lineup,” he said. CBS feels optimistic about the schedule of “Thursday” games set for the fall, he added. “We like the hand we were dealt this year,” he said.

— CBS is not feeling the pressure to acquire more TV stations, amid reports that Fox is in consolidation mode and its hot pursuit of Tribune Broadcasting stations. The union of Fox and Tribune would make Fox the owner of a handful of CBS affiliates. Moonves said CBS would not try to hamper such a sale by yanking a station’s affiliation agreement. (“If Fox buys Tribune they can come to our affiliate meeting. I’ll have Rupert up on stage with me,” Moonves joked.) Of the general trend of consolidation among TV station ownership he said: “We’re watching it with interest. We wouldn’t mind owning more TV stations but only if they’re cost-effective,” he said. CBS at present owns 29 TV stations, most of them CBS and CW affiliates.

— Moonves was pressed about the new contract for Hollywood writers that was reached after tough negotiations under the threat of a strike. The CBS Corp. chief was a key player in behind-the-scenes diplomacy that helped the sides close the gap. He said the gains that the Writers Guild of America achieved had largely been anticipated by the companies in cost-growth estimates. “We were all extremely pleased,” hesaid. “We felt like the deal was extremely fair. It was appropriate for the industry….It is not anything that was not built in to what was anticipated in the (contract). You will not see an adverse effect to the bottom line. We’re very happy it worked out.”