CBS
joined the list of media companies riding an improved advertising market to
report higher third quarter profits.
Net
income rose 53% to $317 million, or 46 cents per share, from $207.6 million, or
30 cents a share, a year ago, the company said Wednesday.
Revenues
slipped 2% to $3.3 billion from $3.35 billion. A year ago, CBS benefited from
first-cycle syndication sales of five key shows that brought in $300 million in
revenue. The company said it its ad revenues rose 10% and that affiliate and
subscription fees rose 15%.
"CBS'
strong momentum continues to grow across our businesses," said Leslie
Moonves, president and CEO in a statement. "Just as we saw last year,
each quarter in 2010 is delivering higher profits than the quarter before. The
operating environment continues to improve, and we are reaping the benefits of
our lower cost structure, with margins that are approaching pre-recession
levels."
Moonves noted that
CBS has been the top-rated network in the new season, with its new shows
getting off to successful start. Meanwhile, the broadcast advertising
marketplace remains strong both nationally and locally, with robust pacing
increases across the board. As we close out the year, we believe that the
fourth quarter will continue the trend of improving upon the quarter before it,
he added.
With free cash
flow growing, CBS declared plans to buy back $1.5 billion worth of its own
share.
Revenues for the
company's Entertainment segment, which includes the CBS Television
Network and CBS Television Studios, fell 12% to $1.62 billion. A year
ago's revenue included sales of Medium, Criminal Minds, Ghost
Whisperer, Everybody Hates Chris and Numb3rs. Ad revenues at
the CBS broadcast network were up 7% and prices for ads in scatter were up 35%
after a strong upfront. "That bodes well for the fourth quarter and first
quarter as well," Moonves said during the company's conference call
with analysts. Interactive display ad revenues grew 17%.
Operating income
for the Entertainment segment fell 14% to $277.9 million.
Moonves said
things would be improving in the next year, as a new retransmission contract
with Comcast takes effect bringing in new revenues, and a new deal sharing the
rights to the NCAA Men's Basketball Tournament lowering sports rights
costs take effect. Retransmission fees are up 40% and the company will reach
its target of $100 million in retrans fees this year.
At the same time,
the network is talking to its affiliates about reclaiming some of the money
they get for retrans. "So we are making those deals. They are not very
noisy, but we are getting paid by them. And it should, over the next number of
years, also amount to hundreds of millions of dollars down the road,"
said CFO Joe Ianniello, who noted that the biggest CBS affiliate deals
don't come up till 2013 and 2014.
Moonves also
described the improved economics for CBS Television Studios, which has 27 shows
in production. The three dramas it produces for CBS were all sold
internationally for more than $2 million an episode, which means "all
three were profitable before a single episode aired."
"Within weeks of
announcing Hawaii Five-0 was on our schedule, we sold it in more than 100
markets, and now it's in nearly all 200 of our overseas markets . And of
course, on this show, domestic syndication is still to come," Moonves
said, all of which shows that "ratings success represents just the first
length in our increasingly valuable monetary content chain."
Down the road
looks good for CBS. "Looking further out to 2011, we expect to have
another strong year," said Ianniello. ". Here is what we know. We
know this year's upfront was up high single-digits, which runs through Q3 of
2011, and scatter is tracking well above upfront. Given the strength of our
schedule, we expect this trend to continue. We know the cost of the current
prime time schedule is less than last year's, and with our revised NCAA
agreement, sports costs will be down next year as well. We know we have new
retrans agreements that provide meaningful upside in 2011. We know we have more
favorable Outdoor contracts. We know we will get cost savings from our 2010
restructuring activities. We know interest expense is going to be lower, and we
will generate significant free cash flow."
CBS' cable
networks saw revenue rise 12% to $370 million. Showtime Networks'
subscriptions were up 7% to 64.9 million. Earnings for the cable networks rose
33% to $170.5 million.
CBS's local
TV stations had a 25% increase in revenues, driving by growth in ad sales.
CBS' local broadcasting group, including radio, had a 15% increase in
revenue and a 49% increase in operating income to $195.1 million. While a
record amount of political ads fed the growth in ad sales, the political ads
pushed other ad commitments back into November and December, Ianniello said.
Without the election ads, sales are tracking at a 20% increase from last year,
he said.
Near
the end of the conference call, one analyst asked what would happen if the NFL
locked out its players next season.
"Well, Joe and I are going
to get out on the field and start tossing the ball around," Moonves said.
"It's not programming you replace. It's not like, ‘Okay, if I take
off this show for prime time, I'll have another show ready.' The NFL is
the NFL, and it's very valuable. But we are hoping that nothing bad happens
here."
