CBS Doubles Down on Content, but Can It Ever Catch Up With Disney?

Despite its television success, CBS has a long way to go before it can match Disney's multimedia success and earn the reputation that it thinks it deserves.

Aug 8, 2014 at 1:58PM

Cbs Dome
CBS' series Under the Dome. Source: CBS.

Among major television networks, CBS (NYSE:CBS) has a strong reputation, delivering an impressive performance this year that saw it lead in average viewers and dominate the top 10 shows for key demographic groups. Yet even as CBS delivers on its core business, rival Disney (NYSE:DIS) is much more popular among stock investors, despite ABC's laggard status in broadcast television. With CBS having taken steps to boost its content-production business by divesting itself of noncore businesses, shareholders want to know whether the network's stock can catch up to Disney in the eyes of investors.

CBS: The way it was last quarter 
CBS reported its second-quarter results Thursday afternoon, and investors had to deal with mixed messages on the company's performance. Overall revenue fell more than 5% for the quarter, which helped send net income from continuing operations down by almost 4%. Adjusted earnings per share actually climbed from the year-ago level, though, as a big reduction in share count outweighed the downward pressure on overall income.

Cbs Wikimedia
CBS logo. Source: Wikimedia Commons.

Looking closer at CBS' operations, three of its four business segments saw declines in sales, with its core entertainment division leading the way down. Local-broadcasting revenue also fell, and cable-network sales, which include the key premium service Showtime, inched downward very slightly. CBS' Simon & Schuster publishing unit was the sole bright spot, with a revenue gain of almost 12%, but publishing makes up such a tiny part of the overall business that it was unable to overcome downward pressure from the video-content side of company.

CBS gets more than half of its revenue from advertising, and ad sales fell 7% for the quarter. Revenues from content licensing and distribution fell even more sharply, overcoming gains in affiliate and subscription fees.

How CBS is moving forward
For its part, CBS seemed to dismiss the mixed results. The company noted that the loss of the key NCAA Final Four basketball semifinal game to Turner Broadcasting System in early April this year had a material impact on revenue, but Executive Chairman Sumner Redstone instead emphasized content production as "the cornerstone of our continued success," and CEO Les Moonves touted the company's status as the most-watched network of the summer.

One area where CBS hopes to challenge Disney is with the new Thursday Night Football series, with games during the first half of the fall season moving from the proprietary and little-watched NFL Network to CBS this year thanks to the network's $275 million one-year deal with the National Football League. That will provide an answer to Disney's Monday Night Football programming, and the novelty of having football available on network television on Thursday night could add to CBS' already-strong reputation for Sunday football programming.

Cbs Nfl
CBS will show Thursday Night Football for the first half of the 2014 season. Image source: NFL.

But football isn't the only weapon in CBS' arsenal. The network has worked hard to develop its own stable of programming, with CBS this fall owning four of its five new series for the season and therefore retaining all the potential future licensing potential if they succeed.

Why CBS might never catch up to Disney
With CBS having completed its divestiture of its CBS Outdoor Americas billboard business, the company will focus even more on video content production and distribution. What Disney has that CBS lacks, though, is a broader slate of offerings designed to maximize revenue from that content. CBS can collect licensing revenue from hit shows and characters, but it doesn't have Disney's theme parks to take advantage of popular concepts to draw vacationers. CBS has a film division, but it hasn't made the aggressive moves that Disney has to acquire content-rich studios like Marvel and Lucasfilm and the cross-platform merchandising and licensing opportunities that come with them.

Those competitive disadvantages have forced CBS to resort to more shareholder-friendly actions to keep its valuation high. For this quarter, CBS said it would authorize a $6 billion stock repurchase program, adding to the accretive impact of falling share counts on earnings per share. At the same time, CBS also boosted its dividend by 25%, pushing its payout yield above 1%.

Based on the fact that CBS stock had jumped 4% by midday Friday, shareholders seem confident that the network's moves will put the company back on a solid growth trajectory. But despite its television success, CBS has a long way to go before it can match Disney's multimedia success and earn the reputation that it thinks it deserves.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names.

 

Dan Caplinger owns shares of Walt Disney. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers