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Streaming Helps CBS Up Entertainment Income 97%

2 Aug, 2011 By: Erik Gruenwedel

Aggressive content license deals with Netflix help boost entertainment revenue 10%

Media companies on the fence regarding licensing content to Netflix might take chief content officer Ted Serandos’ call next time.

CBS Corp. Aug. 2 said new licensing agreement for the digital streaming of select library titles contributed to its entertainment division increasing second-quarter (ended June 30) operating income to $440 million, nearly double the $223 million operating profit during the previous-year period.

Entertainment revenue, which includes CBS Television Network, CBS Television Studios, CBS Studios International, CBS Television Distribution, CBS Films and CBS Interactive, reached $1.84 billion, compared with revenue of $1.67 billion last year.

More importantly, digital revenue from Netflix’s subscription-based video-on-demand service does not include recently announced expanded agreements with Netflix for Latin America, the Caribbean and Mexico, and, separately, Amazon Prime.

“[These deals] are just another example how we are capitalizing on our content by selling it to new distributors without taking away from established revenue streams,” said CEO Les Moonves in a call with analysts. “New entrants are coming into the marketplace all the time, and we will look to negotiate additional prudent online distribution deals going forward.”

Moonves, who hinted additional digital content deals could include satellite TV operator Dish Network Corp., Apple TV, Google and Microsoft, lauded the fact the streaming deals with Netflix and Amazon only dealt with shows no longer being broadcast.

“We have three ‘CSI’ [programs] that are now on the air and aren’t part of these Netflix deals or the Amazon deals,” he said. “One day they will come off the air, and we will get a lot of money for them in those platforms.”

Anthony DiClemente, entertainment analyst with Barclays Capital in New York, wondered if CBS would switch from a fixed fee basis to a per-use or per-subscriber based license agreement.

CFO Joseph Ianniello said the streaming deals are structured based on the third-party service’s subscriber base, growth potential and streaming market status.

“The negotiations will evolve as the businesses evolve,” he said. “We get our value one way or another.”

Moonves added that with Netflix and Amazon relatively new to SVOD, he said it was important that Amazon, in particular, pay up front for the content.

“We would rather take the money at this point,” Moonves said. “We think that’s a much better business model and let them grow their subs and go from there.”

Meanwhile, Showtime Networks (which includes Showtime, The Movie Channel and Flix) increased monthly subscriptions 6 million to a total of 70 million people due to higher cable, direct broadcast satellite and telco subscriptions.

Ianniello said foreign home entertainment sales – both physical and digital — of Showtime programming increased as well.

“[This] once again demonstrates the value of owning content,” Ianniello said.

CBS Sports Network subscriptions increased 8 million to 44 million compared with the prior year, resulting from increased cable subs, driven by the company’s 10-year carriage agreement with Comcast entered into in 2010 and higher direct broadcast satellite subscriptions.


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