CBS reports third-quarter profit; advertisers 'knocking down the doors,' Moonves says

CBS Corp., which owns the most-watched TV network, released earnings this afternoon that revealed glimmers of hope that the recession's grip on the advertising market finally might be easing.

Higher syndicated rerun sales of its television shows, including "Criminal Minds," "Medium" and "Ghost Whisperer," and an increase in TV ad revenue helped the broadcaster swing to a profit for the quarter that ended Sept. 30.  CBS reported net income of $207.6 million compared with a loss of $12.46 billion in the third quarter of 2008, when the company wrote down the value of its TV and radio stations. 

Revenue of $3.35 billion for the quarter was flat compared with the year-earlier period.

"There is no question that we are seeing strong evidence of a recovery right now," CBS Chief Executive Leslie Moonves said during a conference call with analysts Thursday afternoon. "Obviously nothing going forward is certain, and we must be mindful that the economy is still somewhat volatile."

Still, the CBS chief was bullish, saying he expects CBS' TV advertising revenue to grow this quarter and into 2010. During the third quarter, however, the company's radio and billboard division generated lower sales, further demonstrating that among media companies, local advertising has been hardest hit by the recession.

The heart of the company, the CBS television network, has gotten off to a solid start for the new fall prime-time season, and that has helped drive demand for commercial time, Moonves said.  Last summer, when CBS sold the bulk of its commercial inventory for this season, the economy was weak, consumers were wary and advertisers were holding back spending. Consequently, CBS did not sell as much network advertising time in advance of the season as it has done in previous years.

But holding back commercial inventory several months ago is now paying off. The company is commanding dramatically higher prices -- about 25% more -- for its commercial time than it did just a few months ago, Moonves said during the conference call. There is so much demand for commercial time, he noted, that CBS is jettisoning promotional spots to make way for paying customers.

"They are knocking down the doors," Moonves said. "There is a great deal of demand for our spots. Some of the other networks are not in the same position. So we are a very good buy."

CBS' total audience has grown 1% this season; it has been averaging 12 million viewers a night in prime-time. Although CBS' prime-time audience is down 6% among ages18 to 49 -- the demographic most prized by advertisers -- two other networks have seen even steeper declines. ABC's 18- to 49-year-old audience has fallen 9% this season and NBC's is off 13%.  Fox, which has had the strongest start of the broadcast networks, is up 16%.

-- Meg James

Photo of Leslie Moonves by Justin Sullivan / Getty Images

Networks preparing to battle cable and maybe their own affiliates over retransmission consent

In the search for new revenue streams, the broadcast networks are going to their affiliates with their hands held out or their guns drawn, depending on one's viewpoint.

Specifically, if their affiliates are getting money from cable and satellite operators in return for carrying their signal, the networks want a cut. Today, the CEO of Belo Corp., which owns a handful of ABC affiliates, said that Walt Disney-owned network had approached them about receiving a portion of any revenue it is getting from cable and satellite operators. Belo CEO Dunia Shive declined to say how much ABC was asking for but said it wasn't "100%." Well that's nice of them. The news was first reported by TVNewsCheck, a well-regarded industry website. Belo currently gets more than $40 million annually from cable operators for their signals.

The industry lingo for payments from a cable or satellite operator for a broadcaster's TV signal is "retransmission consent." Yes, that phrase will make your eyes glaze over, but it's actually a very important issue for broadcasters and cable operators. In a nutshell, broadcasters want cable operators to pay them to carry their feeds just like they already pay cable channels such as ESPN and TNT. Cable operators have always argued that since broadcast signals are available free over the air, why should they pay.

But momentum seems to be swinging toward the broadcasters on this one. Whenever one of these battles reaches a stalemate and a cable operator stops carrying a broadcaster, the public outcry is usually vented toward the distributor, not the program supplier.

Quincy Smith and his sneakers are leaving CBS

Quincy Smith, the fast-talking, sneakers-loving new-media chief of old media giant CBS Corp. is leaving to start his own Silicon Valley consulting firm.

Smith, the chief executive of CBS Interactive, was seen as primarily a deal-maker. The company lately has moved away from buying to building its assets. Neil Ashe, president of CBS Interactive, will inherit the top spot but not Smith's title.

There have been rumors for months that Smith was a short-timer at CBS. He had signed a three-year deal with CBS in 2006. The announcement, which came just after All Things Digital popped the news, goes out of its way to make clear that Smith's Nikes are still welcome inside the company's Black Rock headquarters. He is staying in his current post as chief executive of CBS Interactive through the rest of the year and will continue to advise the company after he is gone as part of a multi-year consulting deal.

Smith joined CBS in 2006 and engineered a series of acquisitions, culminating in the $1.8-billion purchase of the Internet tech portal CNET. Some analysts have argued that CBS overpaid for CNET.

CBS Chief Executive Leslie Moonves heaped praise on Smith for his time at CBS. "Quincy helped put CBS Interactive on the map, and we are now a top 10 presence. ... His entrepreneurial spirit and his passion for the business have helped this company attract some of the most creative minds working in digital media."

-- Joe Flint

Photo: Quincy Smith. Credit: CBS

Cure for the Redstone overhang: Sell Viacom and CBS stock!

Usually when the chairman of a company dumps nearly $1 billion in stock, share prices tumble off a cliff.

But apparently not when it's Sumner Redstone.

Wall Street has dubbed the phenomenon the "Redstone Overhang." For the past year, investors have been cautious about Viacom Inc. and CBS Corp. stock after learning that Redstone's privately held company, National Amusements Inc., was in violation of bank covenants and struggling to pay its $1.6-billion debt. That caused a wave of jitters because National Amusements is the controlling shareholder of Viacom and CBS. Investors were worried that if National had been forced into bankruptcy, Viacom and CBS might suffer collateral damage.

But last week, the 86-year-old mogul -- who late last year vowed he had no intention of selling more CBS and Viacom stock -- said he would sell all of his common B shares of the media companies to pay down National Amusement's debt.

Investors cheered, and the stock of CBS and Viacom began to climb.

A week ago, the day before it was disclosed that National was selling more stock, Viacom B shares closed at $28.70  Today, they ended trading at $29.51 -- near the 52-week high. 

CBS stock has experienced a more dramatic bounce.  A week ago, CBS B shares closed at $12.15. Today the shares closed at $13.82.  That's more than three times the price fetched earlier in the year when CBS was trading for a meager $4 a share. 

In a regulatory filing this afternoon, Viacom said that National Amusements had completed its sale of 21.3 million Viacom B shares for $602.3 million.

CBS separately said Redstone had unloaded 28.6 million CBS B shares to generate $343.7 million. 

The $946 million raised in the stock sales will not entirely go toward paying debt. Commissions and taxes also must be paid. Still, the rising share prices during the last six months gave Redstone room to maneuver.  He was able to sell nonvoting stock to substantially pay down National's debt -- and preserve his empire and controlling stakes in Viacom and CBS by holding onto his voting A shares.

-- Meg James  

Photo: Sumner Redstone. Credit: AP Photo/Matt Sayles

Related Stories:

Redstone's financial picture brightens

Media mogul Sumner Redstone to sell nearly $1 billion in stock, maintains empire

Sumner Redstone's family-controlled firm, National Amusements Inc., this morning said it was selling nearly $1 billion in stock in CBS Corp. and Viacom Inc. to help retire the enormous debt that once threatened to upend the 86-year-old mogul's media empire -- and his legacy.

National Amusements plans to sell about $600 million in Viacom shares and $345 million in CBS stock as well as some other "non-core assets," according to a statement from Redstone's Dedham, Mass., firm. The company did not identify what those additional assets might be, although a person close to the situation said that those include theaters outside of New England and New York.

"NAI will be in a position to pay off all of its existing creditors in full," the company said in the statement. The firm has $1.46 billion in debt and faces a $500-million payment by the end of this month.

Even with the stock sale, Redstone will maintain his controlling interest in both CBS and Viacom. He will primarily sell the nonvoting B shares of the two companies.  Redstone  is also planning to keep National Amusements' theaters in the United Kingdom, Brazil and its "core theater assets" in the United States.

Until recently, Redstone had planned to unload most of the firm's movie theaters.  But recent dramatic gains in the value of CBS and Viacom stock allowed him to come up with the money without dismantling his empire. Viacom shares have doubled in value since March, and CBS shares have tripled in value during the same period. Those gains allowed Redstone to preserve the company's most significant holdings. 

"As a result of our actions, National Amusements will be out of debt with its existing creditors and will still control its most important assets," Redstone said in the statement.

-- Meg James

Related:

Sumner Redstone to unload 35 theaters including L.A.'s Bridge to help pay down debt (3:13 PM today)

Sumner Redstone's financial picture brightens (Today's print edition)

Photo: Sumner Redstone. Credit: Alberto E. Rodriguez / Getty Images

CBS' Nancy Tellem is in talks to step down from post

A shake-up is in the works at CBS as CEO Leslie Moonves' longtime Hollywood lieutenant, Nancy Tellem, is looking to give up her day-to-day job to take on a more strategic role at the company.

As president of the CBS Television Studios Entertainment Group, Tellem has oversight of both the network's entertainment programming and its production arm as well as the partnership in the struggling CW Network. She has been talking to Moonves for the last several months about easing out of her current job in favor of a broader role that would allow her to become something of a troubleshooter for the company focusing on content and distribution challenges.

Currently, much of that is dealt with by CBS Interactive chief Quincy Smith, but he himself is often the subject of rumors about leaving the company. The New York-based Smith also does not have the programming experience of Tellem.

Whether she will get her wish remains to be seen, but she has long ties to Moonves, going back more than 20 years when both were at Lorimar Television and, later, Warner Bros., and he would likely rather keep her at the company than cut her loose entirely. She joined Moonves at CBS in 1997 and ran business affairs before being promoted to entertainment chief of the network. She is one of the so-called Moonves mafia along with CBS Entertainment President Nina Tassler, scheduling guru Kelly Kahl and CBS Television Studios chief David Stapf. News of Tellem's discussions to leave were first reported by Deadline.

Although Tellem is one of the highest-ranking executives at CBS, she has not been seen as a successor to Moonves. She is as low profile as he is flashy and has never been a fan of the spotlight, preferring to stay in the background and focus on deals, something that runs in her family. Her husband is sports agent Arn Tellem.

Also, her experience is more programming than Wall Street.  Of course, that was the case with Moonves as well, who was primarily seen as a Hollywood guy before becoming the face of the company after Mel Karmazin left then-CBS-parent Viacom in 2004 and CBS was split off into a separate company about 18 months later.

While Tellem wasn't Moonves heir-apparent, it does beg the question of who is. Fred Reynolds, the well-regarded CFO, left CBS earlier this year and was replaced by Joe Ianniello, who is on the rise but probably still a little too green to be seen as a successor. Moonves just turned 60 this week. Like an NFL franchise, you never know when your starting quarterback might go down. Disney has a strong bench with executives such as Disney-ABC Media Networks Co-Chairs Anne Sweeney and George Bodenheimer, CFO Tom Staggs and newly anointed studio chief Rich Ross. At Time Warner, underneath CEO Jeff Bewkes is Turner Broadcasting President Phil Kent as well as several in Hollywood including TV chief Bruce Rosenblum.

If Tellem does exit her current role, she's not expected to be replaced at least in the near-term. Instead, Tassler and Stapf would report directly to Moonves, who has been spending more time out here as of late with his wife, Julie Chen, who last month had their first child.

-- Joe Flint

Photo: Nancy Tellem. Credit: CBS

CBS's Quincy Smith wants to make case against Hulu

Don't look for CBS to join Disney, News Corp. and NBC in Hulu anytime soon.

CBS Interactive Chief Executive Officer Quincy Smith criticized Hulu in an e-mail he sent to staffers that naturally somehow found its way to the blog TechCrunch. The e-mail doesn't really say a whole lot that's new as CBS' decision to steer its content and money clear of the online video site speaks loud enough.

Nonetheless, leaked e-mails often reveal a lot more candor than canned statements, and that is what makes this one interesting as Smith sounds like he'd like to start a public relations offensive against Hulu.

In the e-mail Smith wrote: "We should think about how hard it would be to prove that some ratings declines are a result of reckless Hulu streams." He then added that would help make the case for TV Everywhere, the Time Warner and Comcast Corp. initiative that CBS has signed on to that will require consumers to prove ("authenticate" is the word the industry uses)  that they already subscribe to a cable or satellite service before being able to watch content online for free. Hulu requires no such authentication from its users.

There are two schools of thought on online viewing. On the one hand, anything that takes viewers away from their TV sets and the ads that go with them is bad for the business. However, online platforms also can be strong promotional devices for the networks. The real challenge will be figuring out maximizing revenue and whether advertising or advertising and some sort of subscription model is the way to go.

Though CBS may be anti-Hulu, which offers lots of shows and limited commercials, it does stream some of its own shows on its CBS.com and its TV.com site. 

CBS confirmed that memo being circulated is indeed Smith's e-mail. What will be more interesting is what CBS does to whoever leaked the e-mail. On that topic, CBS declined comment.

-- Joe Flint

Though the audience grew this year, all still is not well in Emmyland

That CBS' telecast of the Emmy Awards managed to end three years of ratings declines against a huge football match on NBC is something of a minor miracle.

According to preliminary numbers from Nielsen, the Emmys averaged 13.3 million viewers, an 8% gain from last year's telecast on ABC, which was the lowest-rated on record. The broadcast was also up 11% among viewers ages 18 to 49 and 9% among adults ages 25 to 54. Not bad, considering that NBC's coverage of the Dallas Cowboys vs. New York Giants match drew 22 million viewers.

CBS' accomplishment aside, all is not well in Emmyland. Next year's awards are on NBC (the show rotates among the networks each year), which means the Peacock will likely push the broadcast back to August so it doesn't interfere with its NFL coverage. That could mean lower ratings. The last time NBC had the show and ran it in August, viewership fell by almost 2.5 million viewers compared with the previous year. A case can be made that NBC and the Emmys might be better off airing the awards on a Monday in September than on a Sunday in August.

Furthermore, the TV deal that the Academy of Television Arts and Sciences has with ABC, NBC, CBS and Fox — in which each shells out about $7 million a year for broadcast rights to the show — expires after next year's broadcast. There is some debate about whether the show would do better if it had a permanent home instead of bouncing from network to network. ABC is the home of the Oscars and CBS has been successful with the Grammys and Tonys. A case can be made that stability might help buffer against viewer erosion.

Of course, that has been tried before. Fox had the Emmys for six years, from 1987 to 1992, and ABC also had the award show exclusively briefly in the 1990s.

The problem in the past has been that if one network has the awards on a permanent basis, the other networks will go after them guns-a-blazin'. HBO attempted to make a run for the award show in 2002, and the other networks said if they did, then good luck getting stars to show up. At the time, a CBS spokesman said their network would "no longer participate in the Emmys in any way, shape or form."

"Watch how fast all the others make an extraordinary effort to knock it down," says Tom O'Neil, our resident award expert whose blog Gold Derby is on our sister site The Envelope. 

Isn't that already happening? Rival networks no longer lay down against the Emmy Awards. NBC has football and, while it's true that ESPN used to have football on Sunday night, it was not as big a threat because it was on cable and the NFL is giving NBC better games than it gave ESPN. HBO ran its lineup last night that included "Entourage" and "Curb Your Enthusiasm," while AMC ran a new episode of "Mad Men."

"There was an honor among thieves; those days are gone," observed one network executive. 

O'Neil suggests that, instead of finding one home, the academy should open the bidding to everyone. There would probably be a lot of interest from some cable networks for the awards. While they have the money, odds are the ratings would take a big hit if the show ended up rotating around a bunch of cable networks and broadcast networks. O'Neil argues that award shows should not be judged by their ratings performance, but without a large enough audience, then advertising dollars fade. And without ad dollars, there goes the show.

— Joe Flint

Photo: Neil Patrick Harris. Credit: Kevin Winter / Getty Images.

Dan Rather's attorneys can depose Sumner Redstone, New York judge rules

A New York state Supreme Court judge Monday ruled that Dan Rather’s attorneys can depose Viacom Chairman Sumner Redstone in the veteran anchor’s lawsuit against CBS, saying repeatedly that he wants to see the case move forward to trial.

More than two years after Rather sued his former employer, claiming breach of contract and fraud, the longtime CBS newsman and his former employer are still disputing document procurement and discovery. During an often-testy afternoon hearing, Justice Ira Gammerman seemed impatient with the back-and-forth, dismissing efforts by Rather’s attorneys to obtain more documents from CBS related to the lobbying efforts of Viacom, its former parent company. But he also shot down CBS’ attempt to block Rather from subpoenaing Redstone, urging both parties to schedule the Viacom chief’s deposition as soon as possible.

“Let’s get this case moving,” Gammerman said.

Rather’s attorneys are seeking to depose at least 11 other witnesses, including former White House official Dan Bartlett, former Defense Secretary and Viacom board member William Cohen, and Bill Burkett, the former National Guard member who provided Rather with documents he used in a controversial 2004 story that claimed that then-President Bush used political influence to avoid military service. Martin Gold, Rather’s lead attorney, said he expected to be ready for trial by the end of December or January.

After the hearing, James Quinn, an attorney for CBS, said he remains confident that the case will be thrown out before then by the state Appellate division, which has yet to rule on CBS’ efforts to dismiss the suit.

-- Matea Gold

CBS CEO Leslie Moonves at Bank of America-Merrill Lynch Media Conference

CBS CEO Leslie Moonves is being interviewed at the Bank of America/Merrill Lynch media conference by analyst Jessica Reif of Merrill Lynch. Here's the skinny.

He says, "I don't foresee us doing anything major in terms of an acquisition," when asked whether the company might look at Internet properties or other media deals. 

On advertising, Moonves says CBS sold about 65% of its commercial inventory for the fall TV season, which is 10% to 15% less than usual, but says the scatter market is very strong. He thinks fourth-quarter scatter this year will be higher than last year.

On Jay Leno's move, he says what NBC is doing is just a "different way of playing the game." He's being gentle. Earlier this year, his boss Sumner Redstone said CBS would crush Leno.

It is too early to tell how many political ad dollars there will be in 2010, Moonves says. He does note that CBS does better in nonpresidential election years. "It will be very interesting to see the political climate and how it affects us," he said.

On the local station business, Moonves says Tribune (The Times' parent company) is "a big question mark." Thanks, Leslie.

Reif is asking about Showtime and how meaningful it will be to CBS's bottom line. Moonves ducks. He says Showtime is up 1.5 million subscribers but won't talk dollars. "Showtime is doing great," he says, adding "costs will be coming down" since it is not buying big movie packages anymore from Paramount and other studios.

"We always buck the trends," Moonves says about Showtime being up in subscribers and CBS doing better in ratings.

Reif is trying to grill him about their contracts with cable and satellite operators, but Moonves says it is about the programming. "I really believe from the bottom of my soul you put on good shows and they will come."

Reif pushes on contracts. She asks: "Is there something going on besides the programming that would drive your subs?" Moonves says no.

CBS's first theatrical comes out in January with Jennifer Lopez, and in March it has Harrison Ford movie. Moonves says they have their own domestic distribution.

"These are real movies, Jessica," Moonves says. "Harrison Ford is a big star where I come from," he says The movies cost under $40 million. "You won't see this division doing `Transformers.' "

Now on to CW. Reif calls "Gossip Girl" a huge hit. Don't know how we're defining huge, but anyway. 

Moonves says CBS will not sell all its radio stations. "There is still value in radio," he says. However, he wants to unload a lot more stations and really focus in the Top 10 markets. He also says there are no plans to sell outdoor holdings.

Reif asks what investment community is missing on CNET deal. Moonves says he is very pleased with CNET (CBS paid about $1.8 billion for it). "There is no way we would have been a player without making an investment like that," he says.

Time for the balance sheet. Reif asks about buybacks and dividends. "We want to see where we're at," he says. He won't say whether CBS will buyback shares or increase dividend (which was cut earlier this year). 

Moonves says CBS took in over $30 million in revenue from NCAA March Madness online. That deal is coming up in a few years. CBS has the Super Bowl this year too. Moonves says the pricing is very good, but he won't cough up details.

"Life is beautiful," Moonves says in conclusion.

-- Joe Flint

Photo: Leslie Moonves: Credit: John Paul Filo / CBS