CBS: Harbinger for Bad ‘Local’ Forecast?

Even Les Moonves, ever the optimist, could not sugarcoat the dismal performance of CBS’ local businesses last week. Preferring to gloss over plunging revenues in radio, TV stations and outdoor that drove a 52 percent profit decline for fourth quarter, CBS Corp.’s president and CEO instead talked up the businesses that are nonadvertising supported, including unspecified fees from retransmission consent.

The biggest hit to CBS’ local businesses came in fourth quarter when the bottom fell out of the ad market. Radio, TV and outdoor all posted double-digit declines; even interactive revenue rose only 1 percent. But, according to Moonves, it’s only a matter of time before things get better. “We believe most of what we’re feeling is cyclical—not secular issues—that will improve when the economy turns around,” he said.

Due to weak ad sales and a handful of radio station divestitures, radio declined 18 percent to $366.7 million, adding up to a 12 percent drop to $1.5 billion for 2008. Since early ’08, CBS has been trying to trim its radio portfolio to stations in the largest markets, but so far, with the economy as weak as it is, the company has only managed to sell a handful of the 50 it wants to unload.

Although CBS doesn’t break out TV station revenue, Wachovia estimated the station group was down 25 percent in fourth quarter, despite a $60 million boost in political dollars.

Barclays Capital forecast that the inertia is likely to carry over into first quarter with revenue expected to fall 20 percent.

Outdoor, including domestic and international business, dropped 15 percent to $526.4 million. But because outdoor had strong gains in the first half,  the segment was down only 1 percent in 2008 to $2.17 billion. On the whole, outdoor is faring better than its local counterparts. “Outdoor isn’t down nearly to the extent of radio and TV,” said Fred Reynolds, chief financial officer at CBS. “Occupancy is about the same, but pricing is down. Pricing power went to the buyer.”

CBS isn’t the only company reeling from the effects of the economy on local media. Young Broadcasting recently filed for bankruptcy, joining Tribune. Combined local and national revenue from E. W. Scripps’ TV stations was down 26.9 percent in fourth quarter. Radio One, which also reported earnings last week, estimated it is pacing to be down 31 percent for first quarter and 50 percent for second quarter. “Our contacts tell us that the radio industry is pacing below fourth quarter in almost every market,” reported Wachovia.

To offset an anemic economy, CBS, like other media firms, has slashed more than $220 million from its costs and staff, about 70 percent from local segments. Scripps also cut pay by 3 to 5 percent, froze pension plans, and suspended 401K matches. Media General last week ordered employees take 10 unpaid days off.

With conditions so bleak, companies are shy about providing guidance. Moonves would only say he believed the second half of the year would improve, in part, because the effect of cost cutting would kick in.

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