CBS -- Putting the "Eye" in Internet August 2, 1999
Media jack-of-all-trades CBS Corp. (NYSE: CBS) has the look of a winner in its eye. Thanks to the popularity of shows such as Everybody Loves Raymond and 60 Minutes II, the Tiffany Network is on top of the TV world once again, taking the prime time network ratings crown for the season ending in May for the first time in five years. This morning, the company said the renewed strength in its TV operations resulted in year-over-year net revenue growth of 13% for the second quarter, producing operating income in line with the mean analysts' estimate of $0.11 per share.
Operating cash flow, or EBITDA (earnings before interest, taxes, depreciation and amortization), rose a total of 55% in the period to $427 million. Helped by strong revenue growth and lower operating and programming costs, the company's namesake TV network reported an 81% jump in operating cash flow. That performance overshadowed the respective 40% and 34% cash flow advances at the company's cable unit (which includes The Nashville Network and Country Music Television) and its majority-owned Infinity Broadcasting Corp. (NYSE: INF) radio business.
With its core media properties throwing off cash flow and its share price on the rise, CBS has a bit more freedom to focus on making investments and convert itself into a prime time online player. Supplementing its holdings in Sportsline USA (Nasdaq: SPLN) and MarketWatch.com (Nasdaq: MKTW), the company announced investments in e-commerce storefront storeRunner.com, online business service firm office.com, search site Switchboard.com, and the middle-aged targeted ThirdAge.com during the quarter.
All of these investments were done in typical CBS fashion, with the company taking big chunks of equity in return for name brand promotion. Similar promotion-for-equity swaps are in the works with online entertainment portal hollywood.com, online pharmacy Rx.com, and Medscape Inc., which will produce a new CBS-branded consumer health site at CBS.Medscape.com.
Any way you cut it, CBS and cyberspace appear to fit together like David Letterman and Paul Shaffer. Few firms can offer Web start-ups more promotional outlets than CBS, which boasts its reinvigorated TV audience, the coast-to-coast Infinity radio network, and the roadside billboards of recent Infinity acquisition Outdoor Systems. And while its investments won't add immediately to the EBITDA line, diverting some of its cash flow onto the Web now could pay off big for CBS down the road in terms of future growth from online eyeballs. With its old-line businesses now performing better than most anyone expected, investors should keep their eyes out for more Web moves by CBS in the months ahead.
Brian Graney (TMF Panic) (TMF Panic)