Ups and Downs of the CBS

Background of CBS

Second only to the British Broadcasting corporation (BBC) in terms of size globally, CBS is an award-winning American commercial mass media company. Given the shape of its logo, it is sometimes referred to as the “Eye Network” and also as the “Tiffany Network” due to the excellent quality of programming across its platforms during the fifties as the company broadcasted from the Tiffany & Co Building. CBS has humble beginnings dating back to 1928 when William S. Paly acquired a number of radio stations (16 in total,) which were then held by the United Independent Broadcasters Inc. (UIBI). Having put these radio stations into one conglomerate, he then named the establishment Columbia Broadcasting Corporation (CBC), which has now become CBS, in short. The trademark name CBC was officially registered in 1974 and the full name, Columbia Broadcasting Corporation, went out of use. CBS was bought by Westinghouse Electric Corporation in 1995, but kept the name. In 2000, Viacom took control of CBS and split the company into 2 entities: the CBS Corporation and the CBS TV Network. Summer Redstone presently runs National Amusements the company though.

The Road to Success

CBS’ journey to success has been long and can, today, pride itself in being at the very top of the enterprise.  The company’s revenue of US$3.91 billion posted in Q4 of 2013 was an increase of 6% on the US$3.70 billion recorded in the fourth quarter of the year before. Content writing and allotment proceeds were the primary drivers of this growth, raking in a 28% rise. The big performances by these units were in themselves boosted by increases in domestic and foreign licensing of the company’s TV programmes. In addition, a 7% growth in revenues generated from affiliate and subscription charges, were, mainly, a reflection of rising cable partner charges, retransmission profits, and charges from the company’s partner TV stations. Revenues from advertising stayed fairly at 2012 levels, with a 4% rise of revenues balanced by local broadcasting bringing in low revenues in terms of political advertising.

Revenues

For Q4 of the previous year, CBS posted US$793 million in operating income, representing a 9% increase on the US$726 million record in the year before (2012). The company also recorded US$927 million for adjusted OIBDA for the same period of 2103, which is a 7% growth as compared to the US$866 million posted for Q4 in 2012. The growth in operating income and OIBDA were pushed by higher revenues. However, the company’s commitment to investing in TV content and higher stock-based payment to its stockholders (attributed to rising CBS stock prices) meant that generated revenues were equipoised by increased in investment spending. With adjusted net earnings from ongoing operations coming in at US$477 million for Q4 of 2013 or a per diluted share (PSD) of US$0.78, compared to the $414 million, or the US$.64 PSD of the year before, CBS had a strong year. In addition, ongoing operations recorded a reported net earnings of US$465 million for Q4 of 2013 or a PSD of $0.76, representing an increase from 2012 Q4 figures of US$403 million or US$0.62 PSD. These increases are attributable to CBS’ currently running share buyback programme and are a reflection of growth in operating income and lower weighted average shares outstanding.

Sources of revenue

Not included in adjusted net earnings from ongoing operations and adjusted OIBDA are reorganization fees of US$20 million (with a $12 million, net of tax) for Q4 of 2013 and a 2012 Q4 figure of $19 million (plus a $11 million, net of tax), basically for the restructuring and termination of some specific business operations, in addition to early contract termination expenses.

CBS’ Q4 earnings were driven by higher television programming licensing charges and demand for the network’s cable shows. This capped a year in which the value of the network’s content was a hot topic of national debate.  Q4 of 2013 witnessed a 19% increase in net income for CBS with all of its major units including cable network, TV entertainment and publishing reporting higher revenues. These numbers are testament to CBS’s ability to put in consistently stellar performances year-on-year since the birth of modern commerce: even more so in 2013. A US$0.78 of adjusted earnings per share (EPS) exceeded analysts’ projection of US$0.76. The company’s entertainment group, which comprises its digital properties, the CBS TV Studios and the CBS network, cumulatively reported an increase in revenue by 11% to US$2.2 billion. Sales from advertising and television programming licensing for streaming and syndication were the main catalyst behind the growth according to CBS. CBS also reported a 4% increase in advertising sales.

Future Outlook

CBS witnessed an 8.4% increase in revenue to US$15.2 billion with a corresponding net income increase of 19% to US$1.9 billion in 2013.  The cable network division, which is responsible for Smithsonian Networks, CBS Sports Network and Showtime, reported a jump in revenue to US$477 million representing a 7% increase.  This strong performance was attributed to higher charges from pay TV providers and licensing of original series from Showtime. Industry analysts believe that CBS’ additional value comes from quality content via digital sales of the network’s programming in addition to syndication agreements both domestically and internationally. The upshot of this is that the company relied less on sales from advertising.

New book releases from its publishing division also boosted revenues as Simon & Schuster, publisher under CBS, raked in US$225 million (5% increase) coupled with releases of best-selling novels including Doris Kearns Goodwin’s “The Bully Pulpit” and Rush Limbaugh’s “Rush Revere and the Brave Pilgrims”.

Conclusion

Given the humble beginnings of CBS, the success story it has become can only be applauded. Through shrewd investments, quality programming and diversification, the company has placed itself in a strong positions to compete with the big boys in the entertainment business for the foreseeable future. The future only looks bright. The expectations of industry’s analysts are that the company is going to have an even bigger year in 2014 as compared to 2013.