CBS TV Stations CEO says that political advertising promises healthy growth in 2006. After that, new businesses and retrans will eventually propel business past the ups and downs of spot advertising.
CBS Television Stations President/CEO Tom Kane knows that the TV station business has matured and that growth in spot advertising will be modest. Yet, he says, CBS remains excited by the business and would consider buying another station if the FCC relaxed its ownership restrictions to allow it.
Why? Other revenue streams are on the way, he says in this interview with TVNewsCheck. Station Web sites, driven by over-the-air promotion, are pulling in more and more users—and revenue—every month. Retrans payments from cable are just a matter of time. And digital multicasting and reselling of broadcast programming over the Internet will also be part of the mix, although CBS is in no hurry to introduce such services.
Buying another station would be a vote of confidence in the business by CBS. But the corporation hardly needs to prove its commitment to local broadcasting. By the FCC’s accounting, the CBS station group is the nation’s largest, reaching nearly 38.5% of the 110.2 million TV homes through its 33 stations in markets ranging from New York (WCBS) to Marquette, Mich. (WJMN). FCC rules cap TV station ownership to a reach of 39%.
Kane, who was promoted to the top station job at CBS last September, has been selling time for TV stations for the better part of four decades, mostly at ABC. (He was GM of ABC’s WABC New York and its WPVI Philadelphia before joining CBS.) So, while he awaits the new revenue, you can bet that he’ll try to capture as much of the old as he can.
What follows is an edited transcript of an interview conducted last Friday as Kane paused during a post-NAB tour of western CBS stations.
CBS station revenue grew 3% in the first quarter. Can you do any better than that?
That was going against the Olympics and not having the Super Bowl. So, without having two main contributors to drive a quarter, I’ll take 3% anytime. We have the Super Bowl next January, by the way.
How about the second quarter?
We will finish higher than that. How much remains to be seen because it depends on political. We have several states where the politicians are active—Pennsylvania, California, New York.
Vic Miller of Bear Stearns, in his analysis, pegged CBS as the top political advertising recipient in 2006 with more than $100 million in revenue.
Yeah, it could be, if it goes according to plan. In a good political year, we are worth more than $100 million.
There’s been a lot of concern about the auto category in light of the troubles that GM and Ford have been having. Some think it will be down for the second quarter.
I don’t think automotive is going to be down in the second quarter. We are running ahead a couple of points right now. I’m talking local and national spot combined.
Any predictions on the whole year?
It’s going to get stronger, the whole year. I don’t know where the quarter wrapped up for the entire industry. It was certainly north of the 3% that we came in at. If you’re NBC, driven by the Olympics, I have to imagine spot was up 6% or something like that. I’m looking for high single digits for my station group in the second quarter, and then as we go into the third and fourth, we anticipate going even higher than that.
So, for the year, the industry could end up where TVB said it would in its forecast last September—up 10% to 12% ?
That forecast, which looked pretty bullish as we were paddling through the first quarter, might make it.
For CBS, which markets are hot and which are not?
California is doing very well. Southern California is stronger than northern. And part of that is due to the political activity. You know, in California, it’s all about issue advertising. That’s almost become a business in and of itself.
As I go around the country, it’s really hit or miss. Detroit and Chicago happen to be very strong right now, and yet Pittsburgh and Baltimore, as you move east, seem to be a little soft. Some markets are inexplicable. Boston, where all the economic indicators are so positive, is having trouble. That’s one of my softest right now. The prognosis is that it will improve. But it has not been good to date.
What is CBS doing on the cost side to keep Wall Street happy?
Number one, we are pretty restrained on our spending. Number two, we are absolutely confident the revenues are going to be there. We will continue to hold back on expenses. We have, since the beginning of this year, made some small adjustments downward. You’ve got to get it before you spend it. That’s what we are trying to do.
There are some things that can be slowed down or delayed if you don’t need them right now. You try to extend the life of things. There is a certain ebb and flow to capital investment.
The big news so far this year was the merger of WB and UPN. That’s left you without an affiliation is some markets, including Boston, Dallas and Miami. So what happens in those markets?
We are blessed in that we are duopolies in all of those markets, which means we have resources and it gives us options. For instance, in Boston, which, by the way, has been independent forever—it was never a UPN—we have reshuffled the deck a bit in a way that should really help us. Dr. Phil will go to 8 o’clock in primetime. Then we will go to a second run of Jeopardy at 9—the station currently airs Wheel and Jeopardy from 8 to 9. We will pull a half-hour news show off our sister station—WBZ—at 9:30, using the same anchor team and production crew that will do a four o’clock on WBZ.
WBFS in Miami is losing its UPN and becoming independent. To fill that void, we will give Oprah a second run at 8 o’clock, which we had picked up for WFOR. Rather than news at 9, we will go with sitcoms for an hour. We think a primetime airing of Oprah will not damage the late afternoon airing on it.
It’s the same kind of deal in Dallas? Oprah will get a second run on KTXA in prime?
Yes, and there will be some news productions on these stations as well. Those plans are just being finalized now. What we have is combined newsrooms. For instance, at WBFS, there are people committed to news. They do morning news there now, Monday through Friday. There has been some history of cross utilization of talent, but by and large the station has its own talent.
We just reported that NBC is spinning off four stations that didn’t fit into its strategic thinking. Is CBS going to be selling any stations? Prices aren’t so bad these days, you know.
Prices aren’t so bad. But we are trying to stay where the cap is. In fact, if the cap were raised, I think that we would increase our stake.
We did sell some stations that did not fit our portfolio over the past two years. We have sold Indianapolis, Columbus and Oklahoma City. In all three of those cities, the buyers were broadcasters who wanted to operate duopolies. They had a more economical way of running the stations, which made them more profitable. The New York Times bought the Oklahoma City station. They will probably do better with that station than we would have operating it as a standalone.
So, those deals are driven by other broadcasters coming to you.
Yes, and remember, we bought a station in Sacramento. We bought KMAX from Sinclair, which gave us a duopoly [with KOVR] in the market. It was a very successful UPN and I think it will be a more successful CW station in the fall. They do five hours of live local news each morning. And they do it very well. By combining that with a traditional CBS station that has a news department that was, perhaps, underperforming, we think we have some real opportunity there. As soon as Indianapolis, Columbus and Oklahoma looked like they were going, we were able to jump on Sacramento and still stay under the cap.
Tell me about the CW and what you think it will do for you.
You had two networks with programming assets, but not enough programming assets to make a real go of it. Combining the two of them and getting these companies to work with one another makes them a player. Both went for a diverse, young audience and with certain programs on certain nights they were both successful. Nobody else quite fits that paradigm. I think Fox is a little bit older and CBS, ABC and NBC are beyond that. I think CW is going to carve a very interesting niche for itself and do very well. I think the sum will be greater than its parts.
That’s the theory.
It is, and I believe it. I’ve drunk the Kool-Aid.
NBC and Fox have worked out deals with their affiliates on the repurposing—downloading and streaming of network programming over the Internet. Where is CBS on this?
We are still trying to figure it out. It strikes me that they have entered into agreements without knowing how well or how poorly all the pieces fit. I’m not knocking them. It just seems to me a little bit early. We’ve been pretty true to the affiliates and I think we will be down the road. Don’t forget: our stations go along for the ride too and we have a lot of stations. I would envision more partnerships with our affiliates—as soon as we figure it out. You’re not seeing us take the wild leaps as you have just seen with ABC. We don’t know how successful all these platforms are going to be. There’s going to be a lot of hunting and pecking going on as we all try to figure it out.
It seems that broadcasters are finally starting to take their Web sites seriously.
TV stations, especially those with news, have a terrific ability to drive people to their Web sites [and] it has dawned on us that we have to get into this game a lot bigger. Our station group over the past two years has relaunched all of its Web sites and we will launch CW Web sites as soon as we have our arms around what we can do with them creatively.
All of the stations will be in the Web business. We have begun to generate significant revenue. It’s a huge growth industry and we know we can participate in it because we have some things that are unique to us, not the least of which is local news video. We now know that we have to extend our relationship with the advertiser beyond the over-the-air component.
Do you have people dedicated to selling the Web?
We do. We put in some national sales people over the last two years once the new Web sites were designed and implemented. Now, most of the stations have people devoted expressly to that Web and they are selling the Web site exclusively. That’s been a shift. Originally, all the sales people got into it and the Web sites were sold in conjunction with the over-the-air campaigns.
What’s CBS strategy for multicasting? NBC and its affiliates are off and running with NBC Weather Plus.
They are very public with the model, but I don’t know what it’s doing. I don’t know how effective it is. Nielsen can’t confirm to me that there is anything there yet. We are looking at everything, but to commit to something right nowÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â¦. We will use this digital tier to our advantage, but we are not going to rush into anything just so we can throw a flag on the beach and say we were first. You don’t have to be first. You have to be the best.
Earlier you said that CBS would buy more stations if it were not for the station ownership cap. Why would you want to invest more in what is basically a no-growth business?
But there is growth, although you may peak and valley more often than you used to in the old days. We will have a robust year this year. By the end of the year, we will look back and say, “That was a heck of a ride.” In ’07, there is no doubt about it: you will have a political shortfall. But the other core advertisers will still be there slugging it out.
The hope is that if a category dries up as political will in ’07, we will offset it with some other businesses and before you know it will we be talking about ’08 and we will all be smiling again.
What we also want to do is participate in the fragmentation of the business. The first thing we did was go after retrans consent. That’s moving along well. We are getting paid for our signals for the first time. We will show growth through the retrans consent fees.
And then we count on the additional platforms. Nobody believes how well the Web is doing until they look back on it and see that growth in the revenue. We’ve had growth 18 months in a row in uniques and page views and in all of the other measurements. That will grow.
Don’t forget. TV is still a magnificent platform. If I am going to go to the Web, I want a nice chariot to ride in on. TV stations provide it.