And CEO Les Moonves likes not having to rely heavily on advertising. “Ten years ago, it was greater than 70%. We love advertising, but diversifying our revenue leads to more certainty in our earnings,” he told analysts on Monday. It also says an OTT sports streaming service is in the works.
According to CEO Les Moonves, only four of every 10 dollars earned by CBS Corp. are coming from advertising these days, allowing the company to blunt the on-year, off-year effect that political revenue has on company earnings comps.
“That’s just 40% of our revenue that comes from advertising,” Mooves told analysts in a second quarter earnings call on Monday. “Ten years ago, it was greater than 70%. We love advertising, but diversifying our revenue leads to more certainty in our earnings.”
One of the key non-advertising revenue streams is one in which the company gets to double-dip. Stations that are part of its local broadcast group earn retransmission consent fees, and the CBS Television Network earns reverse compensation fees from its affiliates. The two categories accounted for a 25% gain during the just-announced second quarter.
And the pair figure to grow dramatically in the very near future. According to COO Joe Ianniello, virtually the entire book of retrans and reverse comp contracts is up for renewal during the next three years. “As you know, each deal we do is better than the last,” he stated.
Ianniello also believes CBS has a solid argument when asking for higher rates. “CBS as a standalone network generates over 10% of the total ratings across the entire television landscape, including all of cable and broadcast. However, today we are only getting 2% of distribution fees.”
Both execs at various times during the conference call with analysts said that the advent of OTT services has been a very good thing. In many case the company is getting consent contracts at better rates than those currently in place with traditional MVPDs. They explained that CBS and Showtime content are must-haves for any such service.
All of this is not to say that advertising is a problem. Moonves said that its upfront was up in the face of negative predictions, and that it earned price increases in the high-single digits with a double-digit increase for latenight programming.
Improvements in audience measurement that capture the increasing amount of time-shifted viewing is also making it possible to factor in the value of advertising attached to such programming. Moonves said advertisers are beginning to accept a charge for viewing seven days past air date, with 35 days a possibility in the future, noting that this aspect of advertising sales was in “… the early innings.” The CBS position is if somebody watches an ad it delivers, no matter when, then CBS should get paid.
Ianniello said that during 2Q the television group was able to more than offset lost political income with retransmission consent cash and income from the NCAA Basketball Tournament. Entertainment, pharma and fast food were cited as three of many ad categories that were 2Q gainers.
The group will benefit in the third quarter from a gain of 10 hours of primetime programming that was dedicated to political coverage last year, and significantly, will be going up against NBC stations that will not be syphoning off advertising dollars with coverage of the Summer Olympics as they did last year.
Asked about how CBS gets along with its affiliates, Ianniello said: “I think we have a great relationship with our affiliate body,” and cited a comprehensive deal with affiliates regarding virtual MVPDs and other items. “We want them to be successful, we obviously want to be paid for our success as well. So, we have a lot of examples of ways we can do it so it’s win-win, so we’re very proud of that relationship.”
Moonves said CBS’s own digital offering, CBS All Access, is already more than half way to its goal of 8 million subscribers by 2020, and believes that with more than 4 million in the fold, the target can now be seen as conservative.
Although it doesn’t have a name yet, the company plans to leverage the content and expertise of CBS Sports into a streaming service before the year is out. Because the basic platform already exists, Mooves said launch costs will be minimal.
Moonves didn’t have much specific to say about the future of sports rights bidding given the possibility of digital entrants, but he did note that the NFL was a big proponent of broadcast, as demonstrated by the fact that broadcast is the home of the Super Bowl simply because it produces the best ratings.