CBS (CBS)

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CBS Corporation (NYSE: CBS, NYSE: CBS.A) is an international mass media conglomerate. CBS operates in five separate segments: Television, Radio, Outdoor, Publishing and Interactive.^[1] The CBS television network is ranked first among the major U.S. TV networks by ratings, by Nielsen Media Research.^[2]

CBS obtains most of its revenue from its entertainment segment. CBS' competitors are also primarily in the television business, including Disney's ABC and Comcast's NBC. The nature of the industry dictates that CBS is heavily dependent on advertising revenue for a lot of its business. This has led to some struggles for CBS from 2007-2009, with the economic downturn negatively affecting the advertising industry as a whole. Other trends affecting advertising include the rising prevalence of time-shift technology (such as DVRs) and the rise in the number of people watching shows online instead of on TV, both of which harm CBS' overall ad revenues.

Business Overview

The CBS corporation is a global media conglomerate that operates businesses in television, radio, outdoor advertising, the Internet, and publishing.^[1]

Business Segments

Entertainment (53.6% of Revenue)

This segment is CBS's largest business in terms of revenue.^[1] The television segment is comprised of four subdivisions which include: CBS television network, CBS Paramount Network Television and CBS Television Distribution, Showtime Networks, and CSTV College Sports Television.^[3]

The company shares control of the CW network with Time Warner (TWX), which controls the remaining 50% share. The CBS Paramount Network Television and CBS Television Distribution provides the company's television production and syndication operations. The Showtime Networks are CBS's premium subscription television stations. The Showtime channels provide commercial free media for subscribers and are mainly focussed on films, but also include sporting events and network series.^[4] CBS's College Sports Network is the company's cable network and online digital media outlet that is devoted to college sports.^[4]

CBS Television Revenue Sources

• Advertising Revenue: CBS earns most of its revenue through advertising sales.^[5] This dependency on advertising leaves CBS especially vulnerable to the proliferation of new media formats that allow consumers to time shift programming (i.e. fast forward) and thus may reduce advertisers’ willingness to purchase advertising (though current estimates of time shift programming availability/usage are relatively low). Furthermore, CBS is vulnerable to decreases in advertising in general, regardless of new media formats.

• License fees: These revenues are generated through the CBS Television Distribution Group and CBS Paramount TV.

• Affiliate fees: These revenues are generated through the Showtime and CSTV networks.

• Home Entertainment revenue: The licensing of home video rights for CBS content is accounted as home entertainment revenue.^[6]

Cable Networks (10.4% of Revenue)

This segment operates Showtime Networks and CBS College Sports Network.^[7]

Local Broadcasting (18.1% of Revenue)

This segment includes CBS television stations and all of the company's radio stations. CBS's radio operations include 137 radio stations across 29 states in the U.S.^[1] The company targets the largest radio markets in the U.S. with 76% of its stations in the top 25 domestic markets.^[8] Formatting includes adult contemporary, oldies, rock, country, all-news, talk, sports/talk, and jack (“play anything”). CBS's radio business is highly dependent on advertising revenue.^[9]

Outdoor (13.3% of Revenue)

CBS Outdoor provides outdoor advertising around the world, with displays in most of North America’s largest metropolitan areas.^[10] These displays are made on billboards, buses, trains, mall kiosks, stadium signage and transit shelters. CBS Outdoor also sells advertisements throughout the globe, including exclusive rights to sell advertising on the London Underground through 2015.^[10]

Publishing (6.1% of Revenue)

CBS Publishing falls under Simon & Schuster, a publishing company that publishes and distributes consumer books in the U.S. and internationally.^[11]

Trends and Forces

Dependent on Advertising Expenditures

The increase of new media formats that allow consumers to time shift programming may reduce advertisers’ willingness to purchase advertising. Nielsen Media Research estimates that 17.2% of households have time-shifting technology (i.e. a Digital Video Recorder (DVR) like TiVo).^[12] Despite this, television is still considered the most effective medium through which an audience is reached and current studies of time-shifting technology show that not all commercials are skipped.

Since CBS depends largely on advertising expenditures to earn its revenue, the company is vulnerable to any downturns in advertising spending, such as the declines amidst the global recession in 2007-2009.

Changes in the Legislation

For the media industry in general, changes in the law proposed by the FCC, US Congress, and/or International laws, may adversely affect revenue by forcing companies to change their format or by prohibiting certain forms of revenue. For example, recently the US Congress proposed a law that would allow for free or a reduced charge to political candidates. The FCC found that unbundling packages of cable services may be beneficial to consumers, but this would create greater competition between channels and could adversely affect revenue.

Audience Acceptance

Predicting the level of audience acceptance of content in television and radio programming is very difficult and hence there are many flops. Also, with such high competition for an audience's attention, releasing a program during the same time or around the same time as another high quality show from a competing show may result in hindered performance, despite the program's high quality. A fair portion of revenue is dependent on the library of television programming CBS maintains (past programs, etc.), which must continuously be filled with popular content (a difficult task in and of itself), and failure to maintain it would adversely affect revenues.

CBS-AOL Merger

CBS Radio (CBS) and Time Warner (TWX) under AOL Radio are combining opertations. CBS radio indicates that this is big push in the high growth market of streaming radio. The managements' comments include that partnering with AOL will help them achieve pursuits of their own, providing opportunities to scale and positioning them as leaders in this high growth market. CBS and AOL have come together to form what they term as a leadership position with massive distribution abilities.

Competition

Because CBS is such a diverse media conglomerate, it competes against many companies across its different media industries. For example, in television broadcasting, CBS competes against other television companies like Walt Disney Company (DIS)'s ABC and General Electric Company (GE)'s NBC. The CBS television network is ranked first among the major U.S. TV networks by ratings, by Nielsen Media Research.^[13]

References

1. ↑ ^{1.0 1.1 1.2 1.3} CBS 2008 10-K, Item 1, pg. 1
2. ↑ CBS, ABC, Fox Still Hold Season To Date Honors, TV by the Numbers.
3. ↑ CBS 2008 10-K, Item 1, pg. 2
4. ↑ ^{4.0 4.1} CBS 2008 10-K, Item 1, pg. 6
5. ↑ CBS 2008 10-K, pg. II-5
6. ↑ CBS 2008 10-K, pg. II-6
7. ↑ CBS 2009 10-K pg. I-1  
8. ↑ CBS 2007 Form 10-K, Edgar Online, Page I-9.
9. ↑ CBS 2008 10-K, pg. II-16
10. ↑ ^{10.0 10.1} CBS 2008 10-K, Item 1, pg. 12,13
11. ↑ CBS 2008 10-K, Item 1, pg. 15
12. ↑ Digital Nation: Nielsen Pegs DVRs At 17.2%..., Media Post Daily, April 26, 2007.
13. ↑ CBS, ABC, Fox Still Hold Season To Date Honors, TV by the Numbers.