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Timing of Streaming Deals Impact CBS Q2 Bottom Line

2 Aug, 2012 By: Erik Gruenwedel

Accounting of SVOD license agreements in the previous quarter negatively impact Q2 results

CBS Corp.’s entertainment segment reported second-quarter (ended June 30) operating income of $385 million, down nearly 4% from operating income of $400 million during the previous-year period.

The entertainment unit, which includes CBS Television Network, CBS Television Studios, CBS Studios International, CBS Television Distribution, CBS Films and CBS Interactive, generated revenue of $1.7 billion, down 7% from revenue of more than $1.84 billion last year.

Notably, last year’s second-quarter revenue benefitted from CBS’ initial forays into content licensing deals with subscription video-on-demand services spearheaded by Netflix. By comparison, similar SVOD content deals, which now include Amazon Prime, occurred in the first quarter, which ended March 31.

Indeed, CEO Les Moonves attributed the entire difference in revenue between the quarters ($120 million) to the accounting of SVOD license agreements, syndication sale of “Frasier,” and ad sales from the semifinals of the “NCAA Division I Men’s Basketball Championship,” which aired during the first quarter of 2012 versus the second quarter of 2011.

CBS has bolstered recent fiscal quarters with aggressive license deals with Netflix generating significant incremental revenue and bragging rights for Moonves.

In a call with analysts, the CEO said CBS would be upping its current library offering (about 7%) to Netflix going forward to include, for the first time, past seasons of “CSI: Miami,” among others. He said information on what types of CBS programming works on SVOD and what doesn’t remains preliminary. He said the “Star Trek” franchise works “exceedingly” well.

“The [license] renewal [with Netflix] is already pre-ordained,” he said. “The bottom line is we will get more money for this.”

When asked if he would license streaming content to Apple TV similar to what Hulu Plus recently did, Moonves reiterated a longstanding belief that SVOD provides incremental — not replacement — revenue.

“It depends what the terms are. It depends what we get paid for. It depends on what effect Apple TV would have on either our advertising, our syndication or our retransmissions — which are the three main buckets of revenue for our content,” Moonves said. “If it fits in well like Netflix did and Amazon did, we’re happy to discuss it. If they’re using our content to build a business, we’re not quite as favorable to that. The devil is in the details.”

Finally, the CEO said he wasn’t losing any sleep over the continued rollout of Aereo in Manhattan, adding he remained confident litigation efforts against the SVOD service that allows users to watch digital transmissions of primetime broadcasts on connected portable media devices would prevail.

“It’s not something I lose sleep over for even five minutes,” Moonves said. “We will always get paid for our content.”

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