Les Moonves Talks Up Scatter, Upfront in CBS Corp.'s Q1 Earnings Call | Adweek
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Les Is More

CBS boss Moonves makes one last pitch before network upfront
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Sumner Redstone isn’t exactly a giddy man, but this week one could detect an unmistakable ring of joy in the media mogul’s voice as he introduced his network TV chief.

Kicking off CBS Corp.’s first-quarter earnings call, the Viacom chairman made a glowing reference to the CBS president and CEO. “Let’s hear from my good friend, a man I rightfully and faithfully call a genius, Les Moonves,” Redstone said.

Moonves was characteristically ebullient, talking up CBS Television’s rock-ribbed prime-time schedule, upcoming pilot slate, and the strength of the advertising market in general. “Prime-time scatter in the second quarter is up over 40 percent over last year’s upfront, continuing the 40 percent gains we had through the first quarter,” Moonves said. “So between the strength of our programming, our development, and the marketplace, we expect to see solid double-digit increases when we sell next year’s schedule a few weeks from now.”

Moonves has been promising double-digit CPM hikes since midwinter, when he began telling investors that his sales team would shatter the 10 percent threshold. Many observers believe CBS' growth may be as high as 14 percent or 15 percent—and the network may just have the muscle to make the numbers work.

While Moonves isn’t offering any hard projections, he recently said that CBS isn’t going to take “no” for an answer. Speaking at the Deutsche Bank Media and Telecom conference in early March, Moonves vowed that “there will be a substantial increase, or we’ll sell nothing. . . . We’ll sell it all in scatter.”

The quarterly earnings certainly reinforce Moonves’ bravado. Adjusted operating income at the CBS broadcast flagship, as well as its studios and distribution unit, more than doubled to $230 million. Q1 advertising revenue dipped 4 percent to $2.29 billion, down from $2.38 billion during the same period a year ago.

Much of that ad drain can be chalked up to comparisons with 2010, when CBS hosted the Super Bowl. (That alone accounts for a discrepancy of some $205.2 million in ad revenue.) The network also took in fewer ad dollars with its NCAA Men’s Basketball tournament, as this year marked the first time it shared revenue with new partner Turner Sports.

While the joint custody arrangement cut into CBS’ ad take, it also removed a good deal of the burden of the cost of producing March Madness. “Given our greatly reduced cost, the tournament was profitable for us for the first time in many years,” Moonves said. “This new deal has successfully taken the risk out of our financial exposure in this marquee franchise without taking away our upside.”

CBS chief financial officer Joseph Ianniello also had encouraging words for investors. “The key takeaway for Q2 is that the momentum is continuing,” he said. “The scatter market remains strong, [which is] a very positive sign heading into this year’s upfront. Q2 option cancellations remain historically low, given the strength of our schedule and the robust scatter market.”

In a Q&A session immediately following the earnings presentation, Ianniello downplayed the potential impact the NFL lockout could have on the upfront. “The upfront marketplace really sort of excludes the NFL,” Ianniello said. “It’s sold sort of year-round.”

There’s a big chunk of change in the balance; according to Kantar Media, CBS’ 2010-11 NFL package generated a whopping $953 million in ad dollars. That said, the network is guardedly optimistic that both sides will come to a resolution before any permanent damage is done.

“If there isn’t [a deal made] before the upfront, I think it might actually help the victor,” Ianniello said. “In other words, we expect to be a leader or the leader in the upfront marketplace in terms of growth, in terms of dollars taken in. And if they haven’t placed the NFL dollars at that point, we expect to get a piece, a better piece of the pie.”

Incumbent advertisers actually have begun making NFL buys, despite the very real threat to the 2011-12 campaign.

Moonves capped the call with a final observation about the springtime bazaar. “If the upfront dollars are where they should be, obviously, you’ll sell more of it,” Moonves said. “As you’re sitting here with 40 percent increases going on in scatter, you know when people are buying in June. They’re going to be looking at that.

“I think advertisers that didn’t buy it at the upfront last year are kicking themselves because they are paying substantially more today than they were yesterday,” Moonves concluded. “How much will we sell? It’ll depend on how much they want to pay. We have sold over the last five years anywhere from 65 percent to 80 percent. So it will be somewhere in that range.”

Bet on the high end of that range. According to Barclays Capital analyst Anthony DiClemente, CBS not only should move 80 percent of its inventory, but at CPM hikes of as much as 12 percent. That translates to an overall haul of $3.01 billion, which would set an all-time upfront record for CBS or any other network for that matter.

Pleased as he sounded with the state of things, Moonves opted for understatement to wrap up the call: “Any way you look at it, we’re in very, very good shape,” he said.