Credit where it’s due. You have to hand it to Les Moonves who is locked in a struggle for control of CBS with principal owner Shari Redstone. He has built the company into a flourishing enterprise by leveraging his broadcasting assets to reap hundreds of millions from retrans, reverse comp, program licensing and, most recently, direct-to-consumer OTT.
Luck And Brains Have Served Moonves Well
Those of you who regularly attend New York theater know that the standing ovation is not what it used to be — a special acknowledgement for an extraordinary performance. Just about every show on Broadway brings at least the orchestra circle to its feet.
But for a business executive to be so recognized as CBS CEO Les Moonves was last week at Carnegie Hall during what is essentially a sales pitch — the network’s annual upfront presentation — well, that is special.
It was clearly a show of industry support for Moonves, who is locked in a struggle for control of CBS with the company’s principal owner Shari Redstone. She wants to merge CBS with her flagging media company Viacom, impose her will on CBS and control the post-Moonves succession.
Moonves sees the Viacom merger for the dumb idea that it is, and undoubtedly resents Redstone’s meddling in a company that he has nurtured to robust good health with bright prospects over the past decade.
When CBS and Viacom were split apart in 2006, the consensus was that Moonves and CBS had gotten the short end. Its chief assets were the broadcast network and its O&Os, and everybody knew then that broadcasting was doomed to a slow and sad decline.
Moonves proved them all wrong with luck and smarts.
The luck came in the form of retransmission consent. At the same time that CBS gained its independence from Viacom, broadcasting was just waking up to the fact that TV stations were the most valuable channels on cable systems.
Along with Nexstar and Sinclair, CBS was among the first to insist on substantial retrans payments, and over the past 12 years the revenue from them has grown and grown. They are the financial backbone of the CBS of today.
He took his two biggest brands — CBS and Showtime — and created two pay OTT programming services where the dollars flow directly from consumer credit cards to CBS without any middleman taking a cut. CBS All Access and Showtime OTT are now substantial and growing contributors to earnings.
On the CBS first quarter earnings call earlier this month, he boasted about his suite of new ad-supported OTT channels — CBSN, CBS Sports HQ and a not-yet-branded one based on Entertainment Tonight.
“All of these streaming services allow us to sell advertising to highly targeted audiences at premium CPMs,” he said. “And as we move forward, they will play a key role in our subscription strategy as well, becoming more and more integrated with CBS All Access and becoming a key component of our international OTT strategy.”
Moonves also presides over a flourishing program licensing business. Basically a Hollywood guy, he produces as much of the programming as he can for CBS and his other outlets and then sells and resells it to all comers, foreign and domestic. Licensing explains the continued existence of The CW, the company’s secondary broadcast network.
What’s interesting is that CBS’s growth has come organically. Perhaps constrained by the Redstones (Shari and her ailing father Sumner before), Moonves has not been a party to mergers or major acquisitions. Many thought that Time Warner would have been a good fit.
Given his M&A aversion, it should come as no surprise that he is vehemently resisting the forced marriage with Viacom.
I can fault Moonves for having no strategic vision for broadcasting. This stems, I suppose, from his refusal to get on board with ATSC 3.0 as most rank-and-file broadcasters have.
Neither Moonves nor any of his minions have clearly articulated a reason why, but I suspect it’s because he, like some others, sees it as a retrans killer. The improved reception that 3.0 promises will lead to more cord-cutting, and more cord-cutting will lead to less retrans revenue.
Moonves also has no idea what to do with the no-growth CBS stations. On that earnings call, his only comment about them was that they should do well this year because of political. Ho, hum.
But if he doesn’t have a strategic vision for broadcasting, he has a strategic use. That is, as a platform for introducing new TV programs that he can license and for spinning off OTT streaming services.
The businesses “are next-generation extensions of the biggest and most far-reaching media platform in the world, the CBS Television Network,” he told the securities analysts.
“Whether you’re launching a hit show or a direct-to-consumer service, having the power of the most viewers in media is a clear competitive advantage.”
Moonves also has no feel for the rest of the broadcasting, particularly the CBS affiliates upon which much of his revenue now relies.
Of the Big Four, only Fox has a worse reputation for grinding affiliates. Two years ago at an investors’ conference, he said he intended to claw back two-thirds of the retrans that CBS affiliates collect through reverse comp. He seems to be determined to keep that promise and further justify his enormous salary, among the largest in the land.
The fate of CBS — and Moonves — is now in the hands of the Delaware Chancery Court. It will sort out the corporate bylaws and decide who is running the show. And if the ruling goes against Moonves, it’s hard to see how he keeps his job. When you strike at a king, the saying goes, you must kill him. Same goes for queens.
That would be unfortunate for CBS, its shareholders and its affiliates.
Even as they carp about CBS’s reverse comp demands, the affiliates have to admit that Moonves knows how to run a broadcast network, which he has essentially been doing since 1995 when he was first bought in as head of entertainment.
Under Moonves, it’s been a steady, if not spectacular, performer. He’s got the TV news with the best pedigree, he’s got the NFL and the Masters and he’s got a legitimate claim to being No. 1 in prime. He’s usually tops in tops in total viewers, if not 18-49s. This past season, CBS had 15 of the top 30 most-watched broadcast shows, with 14 averaging over 10 million viewers a week, more than any other network.
And somehow or other, he is going to convince all those media planners and buyers in Carnegie Hall to pay him more upfront for a CBS spot than they did last year.
He is the successor to Bill Paley that Paley himself was never able to find.
That deserves a big round of applause.