UPDATED at 3:20PM PT with executive comment. CBS reported a mixed third quarter, with revenue inching up 3% on affiliate and subscription fee growth but key profit measures declining due to inopportune timing of domestic licensing deals and fewer political ads.
Wall Street has hammered CBS stock during the past few months. It dropped almost 3% today to close at $54.65, near a 52-week low. It has declined more than $11 since August 1.
Revenues for the quarter reached $3.17 billion, up from $3.08 billion for the prior-year period. Affiliate and subscription fee revenues were up 52%, led by Showtime’s distribution of the Floyd Mayweather-Conor McGregor pay-per-view boxing match, 27% higher retrans revenue and fees from CBS local TV affiliates and digital growth, including subscription service CBS All Access. Content licensing and distribution revenues declined 22%, mainly due to the timing of domestic television licensing sales, and ad revenue dropped 5% due to lower political ad sales.
Operating income fell 2% to $707 million, including lower-margin revenues from the Mayweather-McGregor bout in August, compared with $721 million for the third quarter of 2016, which included a larger volume of higher-margin political advertising and television licensing sales. Net earnings from continuing operations declined 10% to $418 million and net earnings for the third quarter of 2017 were $592 million, up from $478 million for the same quarter last year.
The net earnings figure included a non-cash gain of $100 million, or 25 cents per diluted share, in discontinued operations to increase the carrying value of CBS Radio to the value indicated by the stock valuation of Entercom Communications, which acquired the CBS Radio portfolio. On an adjusted basis, net earnings for the third quarter of 2017 dipped 4% to $450 million from $467 million.
In addition to radio, another asset potentially on the chopping block is Television City, the fabled lot next door to retail haven The Grove that could be worth as much as $900 million, according to a recent Los Angeles Times report. “It’s on very valuable real estate,” Moonves said. “We received an offer from someone in the neighborhood. It could be that the money could be used elsewhere. Those discussions are in the very preliminary stages.”
Much more than playing real estate agent, Moonves used the hour-long conference call with analysts to repeatedly emphasize the fact that CBS should not be thought of as a beleaguered old-media company. (He also used the occasion to break programming news, revealing that a reboot of The Twilight Zone is heading to All Access.)
CBS is now producing 65 shows for 11 different networks and streaming services through its in-house studio unit, executives said–double the amount of five years ago. That increased ownership stake in programming, plus net growth in subscriptions and a strong competitive position, asset mix and strategic direction give it distinct advantages, Moonves said.
“You should not think of us the way you think of other media companies,” Moonves stressed. “Cord-cutting is an opportunity here at CBS.” In addition to All Access and a 24-hour online news service, a new sports OTT venture called CBS Sports HQ is set to launch in the coming months.
Advertising now accounts for just 40% of total revenue, but the company is monetizing its content across a wider array of platforms and unlocking new revenue from delayed-viewing measurement and skinny-bundle carriage deals.
Asked about the NFL, which is enduring a rocky season amid major player injuries, protests and broadsides from the White House, Moonves conceded, “There’s been a lot going on.” Even so, he added, “The product is still the best thing on television. All the networks that have it are happy they do.”
Despite scattered complaints from the likes of Papa John’s, Moonves insisted advertisers had not changed their view of the league “one iota.”
Thursday night games, which CBS has aired since 2013, have injected “a lot of product” into the marketplace, Moonves conceded. But they have delivered healthy ratings and helped CBS launch new shows, leading Moonves to predict that “everyone is going to take another look” when the one-year rights deal expires again in two months.
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