CBS is on track to receive by 2020 more than $2 billion a year from broadcast retransmission licensing fees from pay-TV operators, as well as "reverse compensation" fees from broadcast stations for the rights to air its programming. CBS Corp. CEO Les Moonves disclosed the figures during the programmer's second quarter earnings call with media analysts.
"We had previously said we'd get to $1 billion by 2017. We will now surpass that target next year in 2016. These are dollars that fall right to the bottom line," Moonves said, according to a Seeking Alpha transcript of the earnings call.
The chief executive cited a recent CBS broadcast retransmission deal with AT&T U-verse (NYSE: T), as well as just-signed reverse compensation agreements with station group owners Sinclair and Nexstar, as bolstering his expectations. Overall, CBS' revenue from retrans and reverse compensation grew 40 percent year-over-year in the second quarter.
The programming conglomerate said it expects further growth from these revenue streams, with 10 percent of its pay-TV distribution coming up for renewal in the latter half of 2015.
The fast rise of broadcast retransmission fees has been of particular concern to pay-TV operators, who will pay $9.8 billion in retrans fees by 2020, according to SNL Kagan. Individually, and through groups including the American Cable Association, pay-TV operators have petitioned the FCC to step in and curb the growth of these fees.
Meanwhile, Moonves and CBS have been among the most vocal proponents of expanding broadcast retransmission compensation, noting the huge size of the CBS broadcast audience relative to leading cable programming outlets.
While touting CBS' retrans and reverse-compensation wins, Moonves also assured investors that the CBS network, as well as sibling cable networks including Showtime, won't get left out of the primary tier for upcoming subscription streaming services from companies like Apple (NASDAQ: AAPL), as well as "skinny bundle" products being developed by incumbent pay-TV operators.
"I assure you that CBS is a must-have for each of them," Moonves said. "This is especially important with any kind of skinny bundle that comes along, and they are coming along. These new bundles will increasingly pay us higher rates more in line with the large audiences who watch our content."
"Unlike many of its media peers, CBS is relatively sheltered from skinny pkg sub losses, with the network included in all basic tiers, and a likely partner for most OTT providers," Jefferies analysts said in a note to investors after CBS released its quarterly earnings.
Moonves spoke on a day in which media stocks were taking a beating, with investors concerned overall about the fate of programming networks in a pay-TV ecosystem that is threatened by unbundling.
However, CBS' cable operation fared better than most. Led by Showtime, the unit saw its operating income increase by 3.3 percent in the second quarter to $220 million on revenue of $615 million, up 19.2 percent year over year. A big driver was the May 2 Mayweather-Pacquiao pay-per-view boxing match on Showtime, which generated more than $600 million in sales. This more than offset increases in programming acquisition and production costs.
As for CBS' efforts in the OTT sphere, including CBS All Access and its new Showtime OTT service, the company didn't provide any subscriber numbers. But company executives described interest among customers as "significant."
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