CBS Q1 results show online video content deals are driving growth

Jim O'Neil

CBS Chief Les Moonves on Tuesday said digital licensing had a "huge impact" on the network's record first quarter earnings and revenues, its best since the 2006 with Viacom.

"The transformation of CBS's business model continues, and I am extremely pleased that we posted record results," Moonves said. "Our ability to capitalize on the fundamental shifts in our industry has led to the growth of significant new revenue streams."

The company reported earnings of $363 million, or 54 cents per diluted share, up 80 percent compared with $202 million, or 29 cents per diluted share, in the year-ago period. Revenue rose 12 percent, to $3.9 billion.

The increase was led by content licensing and distribution revenues, which were up 39 percent, driven by licensing agreements for digital streaming as well as international and domestic syndication sales.

Advertising revenues increased 5 percent. Wall Street had expected CBS to post earnings of $288 million, with revenue of $3.78 billion.

During the company's earnings call, Sumner Redstone, CBS's executive chairman, said: "We are poised to benefit from all of the strategic actions we've taken--and continue to take--for a long, long time. We have the best content and the right management to ensure success, and as a result, I have never been more confident about our Company's future than I am today."

While the impact of digital licensing deals has been mentioned in past earnings calls, CBS has been making hay better than most.

Deals between CBS's Showtime and Netflix (Nasdaq: NFLX) for older episodes of Dexter and Californication, for example, added some $30 million to the broadcaster's bottom line in the quarter.

Moonves said CBS will continue its relationship with the streaming company, and will take advantage of other opportunities to squeeze revenue from older content by placing it online.

"We are in active conversations with many of the other participants, you know, from the Intels of the world to some of the existing companies like Comcast (Nasdaq: CMCSA)," he said during the Q&A portion of the earnings call.

"What's great about all of this is we're literally talking to everyone who is out there, and when you have the library and the existing content that we do across all these platforms, mostly entertainment, but also some news and sports content, there's opportunities galore out there. So when we first did Netflix, everybody said, 'Do you see anybody else?' And sure enough, Amazon (Nasdaq: AMZN) came along and made a big deal. There are a lot of players out there circling the building, and we will be making some of those deals over the next number of months."

This isn't the first time CBS has celebrated for being on top of the cresting wave of online video.

A year ago, during CBS's Q1 2011 earnings call, Moonves said the company would see "hundreds of millions of new dollars" from its digital deals, a statement that would play a recurring role in earnings calls throughout the year, especially after it sold more content to Netflix as the streamer expanded its business to Latin America and the Caribbean. During that call, EVP and CFO Joseph Ianniello said the deals the network was doing with companies like Netflix and Amazon were high margin, in the range of 50 percent plus.

Later, in December, Moonves told the USB Global Media and Communications Conference that a healthy Netflix is important to the broadcaster.

"We want a healthy Netflix. We're rooting for them. We hope they continue to remain strong," he said, adding that the company has become "much more of a friend than a foe."

CBS has made some big deals with Netflix and Amazon Prime Instant Video, creating a revenue stream for its library content that Moonves said he expects " to continue forever."

"You have not heard the last of these deals," he said.

Truer words were never spoken... and we're likely to hear them again next quarter.--Jim

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