By Amol Sharma
CBS Corp. reported a 5.6% increase in net income for the March
quarter, even as revenue slipped compared with the year-earlier
period, when the company's flagship broadcast network benefited
from its telecast of the Super Bowl and the "Final Four" of the
men's NCAA basketball tournament.
The company's earnings growth in the quarter came primarily from
content-licensing and subscription revenues such as carriage fees
from pay-TV operators.
The entertainment unit, which houses the flagship CBS broadcast
network, posted a 5% drop in operating income before depreciation
and amortization, or OIBDA. Revenue in the unit decreased 9% from
the year earlier period, when CBS generated more than $280 million
in revenue from broadcasting the Super Bowl.
The CBS network, whose entertainment programming includes
megahit comedy "The Big Bang Theory" and political drama "The Good
Wife," is poised to finish the TV season as the No. 1 broadcaster
in terms of total viewers for the 11th time in 12 years.
But after finishing first last year among adults aged 18 to
49--a demographic that advertisers pay a premium to reach--CBS is
on track to finish third this year. Its audience in that
demographic fell 17.6%, though last year's figures included the
Super Bowl and NCAA games.
Some new CBS shows, such as "We are Men" and "Hostages," fell
flat, and there was no new breakaway hit. One challenge for CBS is
restocking its comedy lineup after one of its long-running hits,
"How I Met Your Mother, " ended its run this year. "The Millers," a
new comedy, has been a strong new performer.
On a conference call with analysts, Chief Executive Leslie
Moonves said the company has renewed 20 of its existing shows for
this year and is expecting a boost from carrying Thursday night NFL
football games for the first time. Given that crowded schedule,
"the bar for new shows to get on our network is much higher than
any other network," Mr. Moonves said.
He said CBS is putting special emphasis on producing its own
shows rather than acquiring them from other studios. Owning content
allows the company to make money by selling reruns to domestic and
international TV networks and streaming video players. CBS could
also sell shows to Netflix, Amazon, Microsoft and Yahoo. Mr.
Moonves said CBS has over 30 shows in production.
Mr. Moonves predicted CBS would lead the market in pricing and
volume as broadcasters next week begin "upfront" negotiations with
advertisers--hashing out deals for most of the ad time for the TV
season starting in September.
Overall, operating income edged up 2% to $818 million. Revenue
fell about 5% to $3.9 billion. Net income in the first quarter was
$468 million, or 78 cents per share, up from $443 million, or 69
cents per share, in the year-earlier period.
The cable networks division reported a 12% increase in OIBDA.
Growth came from licensing of programming from the Showtime premium
cable channel such as "Dexter" and higher revenue from cable
operators.
Revenue in the location broadcasting unit that includes local TV
stations fell 2% as lower advertising revenues--affected by the
comparison with the Super Bowl last year--were partially offset by
growth in so called "retransmission" payments by pay-TV
operators.
In the outdoor business, which sells ad space on billboards,
OIBDA fell 7% to $69 million even as revenue grew 2%. CBS late last
quarter completed an initial public offering of the unit, forming a
separate publicly traded company, CBS Outdoor Americas Inc.
CBS netted about $2 billion in the transaction between its sale
of a 19% stake and a dividend from a debt offering by the outdoor
company. Though CBS says it will consider opportunities for
acquisitions, much of the money is going into share
repurchases--CBS said it plans to reduce shares by 17% this year.
"Capital returns will continue to be our focus and our top
priority," said Chief Operating Officer Joe Ianniello.
CBS got approval last month from the Internal Revenue Service to
convert the outdoor business into a real-estate investment trust,
or REIT.
Such entities don't pay corporate income taxes on taxable income
they distribute to shareholders, so long as they pay out 90% of
taxable income.
Write to Amol Sharma at amol.sharma@wsj.com
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