I'm just going to say it: I find CSI: Crime Scene Investigation and all of its spinoffs unwatchable. Fortunately for CBS (NYSE: CBS), the company's health depends on neither my criticism nor my wallet.
CBS runs on advertising. Roughly 62% of its 2009 revenue came from third parties who dumped truckloads of money in the network's lap to advertise their products. Another 24% came from content licensing and distribution, and the rest from affiliate and subscription fees.
A weak economic environment and a strike by the Writer's Guild of America cost CBS roughly $1.07 billion in revenue -- 7% of its total haul -- in 2008 and 2009 combined. Yet the stock lost a massively disproportionate 85% of its value over this period. When a company's operating income is $2 billion, I guess you don't need to be Gary Sinise to know that 7% can still have quite an impact on the bottom line. But that still doesn't fully explain the drop.
The market murdered CBS shares because there was simply no telling when advertising would pick up again. Auto and big pharma ads all but disappeared. If a 7% drop could devastate operating income by some $750 million, what would happen if the future saw even further decay?
Fortunately, life has returned to the economy and to advertising rates. The annual upfront presentations, in which advertisers buy ad time in advance of the new season, yielded 9% increases for CBS. Since the premieres of the fall TV season, ad rates have leapt 30% at CBS. This likely explains why the stock has improved from its $5 low to $15.90.
If you're like me, and you prefer more diversity in both your portfolio and televised entertainment, you'd do well to look at Walt Disney (NYSE: DIS), Liberty Media Interactive (Nasdaq: LINTA), and Time Warner (NYSE: TWX). Check out each company's revenue exposure from advertising:
|
Company |
% of Revenue From Ads |
|---|---|
|
CBS |
62% |
|
Disney |
18% |
|
Time Warner |
20% |
|
Liberty Media |
0% |
CBS's stock performance seems strongly tied to advertisers' confidence in the economy. Since those advertisers depend on consumer spending, investors should keep an eye on things like the Consumer Confidence Index, consumer spending, and GDP growth to staying ahead of the CBS curve. These numbers are well worth watching -- even if you think CBS's programming isn't.
