CBS Corp. Touts Financial Upside of Emerging Businesses

At an "Upfront for Investors," the company says there could $3 billion in annual revenue from digital distributors like Netflix, new international TV markets, retrans and other emerging opportunities.

NEW YORK - CBS Corp. is approaching $1 billion in annual digital revenue across its operations and has new revenue opportunities worth $3 billion annually or more over the coming years thanks to emerging businesses, top executives from the media company said here Thursday.

The company recently reported revenue of $14.1 billion for 2010.

CBS Corp. put the spotlight on such new opportunities - from  retransmission consent fees and reverse compensation paid by TV station affiliates to payments from online video services like Netflix and international TV syndication dollars - during a three-hour  "Upfront for Investors" in midtown Manhattan Thursday afternoon.

Management's overarching message: CBS Corp. is in the best financial position that it has ever been in and has a lot more upside.

The media company's first major investor gathering since its split from Viacom in 2006 was led by president and CEO Leslie Moonves and also featured CBS Entertainment president Nina Tassler, CFO Joe Ianniello, a range of other top executives and a video from CBS late-night star David Letterman who shared a list of top 10 things to like about CBS.

Moonves said his hope was to shine the spotlight on "an even brighter future" for the media company that he called "a premium content engine" and on "what CBS will become given all the opportunities in front of us."

While CBS was seen as the low-growth company following the split from Viacom, Moonves urged investors to finally look beyond such labels, emphasizing that a lot has changed since then and that both companies are doing well these days. Sumner Redstone, chairman and controlling shareholder of both firms, was not in attendance.

Moonves mentioned a big 2009 CBS stock gain followed by a smaller gain in 2010 and more growth year-to-date, which has left CBS shares outperforming the stocks of peers. But management isn't content and sees more upside.
Ianniello told investors and analysts that financial momentum should boost CBS shares to $35-plus.

Outlining potential new revenue, which in many cases comes with high profit margins, Ianniello highlighted a $500 million opportunity each for the company's young local Web sites for major metropolitan areas and new international TV markets, such as Brazil, India, China and Russia.

Following a non-exclusive library content deal announced a few days ago with Netflix, Ianniello predicted more such deals - each worth hundreds of millions of dollars - in the future, which could eventually equate to $1 billion in high-margin revenue.

Retrans fees, which CBS reiterated will contribute $250 million in revenue by 2012, would amount to up to $2.5 billion if broadcast networks were paid a share of program fees equivalent to their viewership, the CFO also pointed out another area for potential growth.

Plus, he calculated that reverse compensation could be worth $225 million a year in several years - assuming 25 cents a month for each of the CBS affiliates' 70 million-plus homes. Moonves said that CBS has quietly struck a range of such deals already. While negotiations have been tough at times, he said affiliates understand that CBS deserves a cut because it provides popular content.

Together, retrans and reverse compensation revenue could well become another $1 billion a year revenue stream, according to the CFO.

As is the case at many investor events these days, Netflix and how content companies should best deal with it once again once again was a topic of much debate during the Q&A portion of the CBS event.

"We focus on long-term value," not short-term profit, Ianniello said when asked by an analyst how CBS decides which online distributor to strike a content deal with. Netflix got programming that was "sold many times over" already, so CBS felt it wouldn't cannibalize other businesses, he said.

Asked why CBS hasn't put its content on Hulu, Apple TV and Google TV, executives said there either wasn't the consumer demand or - in the case of Hulu - the risk of hurting the core business was too big.

"The two big dogs are advertising and syndication," said Moonves. The Netflix deal does not hurt those revenue streams, while Hulu may do so, he explained, quipping that  some companies that are part of Hulu now likely wish they had played their cards like CBS.

Or as Ianniello put it: Moving first in the digital space doesn't guarantee better financials.

Zander Lurie, senior vp of strategic development, shared with the Wall Street crowd that digital revenue across CBS Corp.'s business was nearing $1 billion.

He, too, emphasized that CBS had no plans to do "stupid deals" in the digital space.

CBS always asks three key questions, he explained: Do millions of people want to consume content on the service or device in question? Would CBS be paid appropriately? And is the revenue incremental or cannibalistic?

CBS chief researcher David Poltrack echoed that companies owning popular content are in the driver's seat when it comes to new digital players.

Asked if they would stay away from a new digital video service that lacks half of the shows they consider must-have content, 90 percent of consumers say yes, he cited research. And CBS has more must-have shows than its peers, he added.

"All these new video distribution options are...only as good as the content they offer," Poltrack concluded.

Among some of the other financial data nuggets in various presentations Thursday, Moonves told the Wall Street crowd that content makes revenue for CBS Corp. forever. Case in point: I Love Lucy, which last year brought in tens of millions of dollars, even though the final episode of the show aired decades ago.

Moonves and Ianniello also highlighted that the three CSI franchises and NCIS have all become franchises with a profit of $1 billion-plus over their life time on TV, excluding any DVD or digital money. Hawaii Five-O, The Good Wife and NCIS: LA are among those shows that may join them, the CFO said. Helping show profits is the hot international syndication market, he said.

For those investors who despite CBS's diversification of revenue weren't convinced yet, Moonves highlighted that there will be more shareholder returns in the form of dividends and stock buybacks after $2.3 billion in such returns since 2006. "No media company is better positioned than us to deliver returns," Moonves said.

Meanwhile, Tassler touted CBS for having such a broad range of hit shows, saying the network not only has the most winners, but also the best balance across TV genres.
Openings on the CBS schedule are limited, but those shows that make it onto the schedule this coming fall will have strong surroundings, Tassler said.

And Moonves predicted that CBS will conclude this season as the top network again after doing so in seven of the past eight seasons.

Letterman in his pre-taped video opened with an indirect reference to Charlie Sheen and his CBS hit Two And A Half Men, which recently went on hiatus. Saying that he wished he could be at the investor gathering, Letterman quipped that "I'm currently in rehab."

In his list of 10 things that are great about CBS, Letterman joked that How I Met Your Mother star Neil Patrick Harris
will host any employee's wedding or bar mitzvah and that CBS is the only network with a new hit show called CSI: NCIS CI NSI CN. He ended by showing a picture of Moonves and quipping that CBS is the only network whose parent company has a president who looks like a guy in a Flomax commercial.