December 8, 2023

Bold Play by CBS Fortifies Broadcasters

But in one area, CBS and Mr. Moonves have led to a shake-up in the broadcast world that could be labeled revolutionary: the issue of compensation for retransmission rights. Before almost anyone else in the business, Mr. Moonves effectively pushed for distributors to pay fees to the broadcast channels just as they do to cable networks.

The result has been a windfall for all the broadcasters and a crucial lifeline as audiences continue to shrink.

“One of the things people misjudged about CBS was the growth potential,” Mr. Moonves said in an interview. “We were considered a low-growth company: how are they going to grow this business? This was one of our keys. We were going to get paid for retransmission, and that’s how we were going to grow.”

The most recent fight — a high-noon showdown between CBS and Time Warner Cable — ended this week the way all recent confrontations between big broadcasters and cable operators have ended, with the cable operator pulling out a checkbook instead of a gun.

The fight was longer — 32 days — and nastier than either side expected. The network had never before seen its stations go dark in a fee dispute. The two sides traded blows in full-page newspaper ads, and Time Warner Cable even offered some subscribers free antennas. (Time Warner Cable executives declined to comment.)

In the final deal, the cable provider will pay CBS a hefty increase in fees for the right to retransmit the signals of its stations in big cities like New York, Los Angeles and Dallas — a reported rise to $2 per subscriber over the next five years, more than double the network’s previous deal with Time Warner Cable.

At the same time, CBS rejected demands that it give up the opportunity to sell separately its content to digital outlets like Amazon and Netflix, insuring another bountiful revenue stream, likely to be worth hundreds of millions a year.

CBS projects that by 2017 it will take in $1 billion annually in retransmission payments. David Bank, an analyst with RBC Capital markets, said that the figure could easily go to $2 billion.

To further underscore the advantage for CBS, the company’s stock price shot up 6 percent in the first two days after the settlement. (The CBS network, along with the company’s television production arm, interactive division and a half-share of the CW network, made up about 55 percent of total revenue.)

“I just knew how valuable our content would be,” said Mr. Moonves, who last year received total compensation of $62.2 million, making him the country’s highest-paid media executive. “People kept saying cable is a better business because they have a dual revenue stream. I felt strongly we should be as well.”

Mr. Moonves credits Chase Carey, the chief operating officer from News Corporation, and the acquisition of NBC by Comcast, the nation’s biggest cable operator, for the move toward big fee increases for broadcasters. But Mr. Banks says that CBS has been the unquestioned leader.

“I do think the other broadcasters have a pretty big debt to pay to Les,” he said.

One longtime rival network executive, who asked not to be named, said, “If anyone was going to break the code on retransmission it was going to be Les and CBS.”

Their success is a culmination of a long campaign, which Mr. Moonves began in 2005. At that point, CBS had no cash compensation from cable operators. Viacom, then CBS’s corporate owner, had decided to split its television assets, sequestering its lucrative cable networks, like MTV and Nickelodeon, from CBS, then considered a low-to-no-growth burden on its stock price.

The plan to demand cash won Mr. Moonves a chorus of derision from cable executives, who had long pledged almost a blood oath never to pay broadcasters cash as compensation for retransmission rights. At one industry gathering, a senior cable executive, whom Mr. Moonves preferred not to name, approached him, angry, shaking his finger at him, telling him he would never get a penny for retransmission rights.

“They resisted it,” Mr. Moonves said. “There were a lot of people saying the same old thing: you’re a network, you should not get paid.”

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Netflix Dominates Speculation Over Emmy Awards

Two programs created for that Internet streaming service, the drama “House of Cards” and the comedy “Arrested Development,” are leading contenders for best actor or best program nominations that formerly were the province of shows produced for broadcast and cable networks. And if they are nominated, it would be the first time that slots in the most avidly pursued categories went to programs not specifically produced for the medium of television.

The reaction to this development inside the traditional television business has been largely muted, with many executives suggesting that only the quality of the work is important. But to some, this is a moment reminiscent of the days when cable channels like HBO first began to challenge the dominance of broadcast networks like ABC.

John Landgraf, the chairman of the cable network FX, who has been critical of Netflix’s practice of not disclosing how many people are watching its programs, acknowledged that “House of Cards” seems likely to grab one of the six nominations for best drama, potentially knocking out one of his network’s strong candidates, like “Justified” or “The Americans.”

Mr. Landgraf said that FX aggressively pursues Emmy nominations, but he added, “It would be the height of bad sportsmanship to seek to keep a show out because it comes from a different distribution system.”

Another senior broadcast network executive said, “It’s hard to say anything about the Netflix thing because we only sound defensive or whiny.” The executive insisted on anonymity because of a reluctance to criticize the inclusion of streaming services publicly.

More than anything else, Netflix’s arrival in the Emmy mix is disquieting to some broadcast and cable executives because it is probably only the beginning.

Though there is little evidence than winning Emmys drives up viewership (just ask Tina Fey about “30 Rock”), creators and networks still see them as validation. Netflix clearly does; it campaigned ardently for nominations this year, which including planting lawn signs in Los Angeles neighborhoods presumed to be dense with members of the Academy of Television Arts and Sciences.

With everyone from Amazon to YouTube to Condé Nast having announced rosters of planned programs this spring, the prospect of a glut of new nominees is on the horizon. Already the number of eligible dramas under consideration has leapt to 105, from 87 last year. One academy member said this year’s nominating ballot “was mind-boggling; it was like an SAT test.”

John Leverence, the academy’s senior vice president for awards, said of the proliferation, “I think this is a parallel situation to what happened with cable 20 years ago.”

In 1988 the academy opened its doors to cable entries, and within a few years, led by “The Sopranos,” cable networks had slowly eroded the hegemony broadcast networks had enjoyed at the Emmys, leading to cable domination in certain categories, especially drama.

Mr. Leverence recalled how the series creator Steven Bochco argued that he faced limitations on content in his drama “NYPD Blue” that “The Sopranos” never had to deal with.

“The Bochco argument was very compelling,” Mr. Leverence said. “It was so compelling, he made poor Dennis Franz take his pants off.” Laughing at the memory, he added, “Nobody liked that solution.”

The issue of freedom versus limits persists. Yet Preston Beckman, who was the top program scheduler at NBC and later at Fox, said that the inclusion of Netflix and other streaming sites “is a big deal, but not a game changer.”

Since pay cable channels already are included in the Emmys, “what does it matter if two shows from some other source are included?” he said. “The issue isn’t so much these streaming sites as the fact that you have five entities that are constrained in terms of what they can put on the air and need to attract as large an audience as possible.”

Mr. Leverence said the Emmys “are about excellence.” But he agreed that the mix of shows is important to the academy, which is eager to generate strong ratings for its annual awards broadcast.

After attracting more than 16 million viewers in 2006 — coincidentally, the last time broadcast shows won both best drama (“24”) and best comedy (“The Office”) — the show has not surpassed 13.5 million viewers and has fallen below 13 million three times. Last year, it hit a record low among the viewers most prized by broadcast advertisers, those between the ages of 18 and 49.

Mr. Leverence acknowledged that the awards show risks losing viewers “when they are not going to have any rooting interest” because the nominated shows were seen only through streaming services or Web sites. One potential answer would be to expand the number of nominees in the categories with hordes of eligible entrants.

Four years ago, the academy expanded nominees in the two major categories to six from five. Mr. Leverence said that academy rules are fluid and that some other adjustments might be made.

The film industry, in search of a way to include movies that attracted big crowds after “The Dark Knight” was snubbed in 2009, expanded the number of best picture nominees to 10 the next year. Mr. Leverence said his awards committee has had some discussion about expanding the pool of nominees. But, he said, “There is always a hesitation about award inflation.”

Similarly, he said that another suggestion — separating categories either by traditional distribution versus Internet or advertiser-supported channels versus subscription services like Netflix — would threaten to devalue the trophy.

“Tiering is degrading,” he said. “The best should be the best.”

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Media Decoder Blog: Ratings Shortfall at Nickelodeon Hurts Viacom Revenue

1:34 p.m. | Updated Hampered by ratings shortfalls at Nickelodeon and an unfavorable film release schedule, Viacom on Thursday reported a 16 percent decrease in revenue in the fourth quarter of 2012, a somewhat steeper drop than analysts anticipated.

But the company’s profits came in slightly ahead of expectations, and the chief executive, Philippe Dauman, pleased Wall Street with positive news about progress at Nickelodeon and Viacom’s other cable networks.

Mr. Dauman said the company was making an “unprecedented investment in content” that was paying off for Nickelodeon. The dramatic ratings declines that began to be visible in late 2011 are moderating, and new shows are premiering. Mr. Dauman said the ratings momentum “confirms our view that our significant and sustained investment in fresh, original content is working, and will continue to drive future ratings growth and revenue improvement.”

Viacom reported revenue in the fourth quarter of 2012, its fiscal first quarter, of $3.3 billion, down from $3.95 billion in the same quarter a year ago. Analysts had forecast $3.48 billion in revenue.

Profits rose to $470 million, or 92 cents a share, compared with $212 million, or 38 cents a share, in the same quarter a year ago. But the year-ago quarter was hurt by a settlement with the original shareholders of Harmonix Music Systems, the makers of the “Rock Band” video game series. After adjustments, Viacom earned 91 cents a share in the quarter, a penny higher than analysts had predicted, from $1.06 in the same quarter a year ago.

The damage done by Nickelodeon’s ratings drop was evident in the total revenues for Viacom’s cable networks, by far the biggest part of its business. Revenue dipped 2 percent at the networks overall, largely because advertising revenue decreased 6 percent, even as affiliate fees paid by cable and satellite distributors grew.

Mr. Dauman said on a conference call with analysts that the “lingering effects of the ratings softness” at Nickelodeon masked growth elsewhere at the cable networks. Excluding its children’s channels, Viacom’s networks group “returned to positive ad growth in the quarter,” he said.

David Bank, a media analyst for RBC Capital Markets, said Nickelodeon’s ratings for the last few months were showing recovery after a rocky 2012. “All they need to do is continue to deliver the audience they are already delivering — without growth — and the year-over-year comparisons virtually assure growth,” he said.

Nickelodeon will pitch a slate of new animated and live-action series to advertisers at a presentation in late February. One of the areas of focus is preschool programming — the idea being that very young viewers will stick with Nickelodeon throughout their childhood.

Mr. Dauman says Viacom has found that its viewers of all ages want more new shows, and they want more episodes of those shows on “faster cycles,” so it has sped up the development and production processes at Nickelodeon and elsewhere.

Mr. Dauman spent some time on Thursday’s earnings call praising MTV, another one of its flagship networks, which he said had started to answer the question “What comes after ‘Jersey Shore?’” That infamous reality show had its series finale earlier this winter.

“‘Jersey Shore’ was a game-changing hit,” he said, “but it also precipitated an overemphasis on one night,” which was Thursday. MTV is trying to spread its new shows — “Catfish,” “Washington Heights,” “Buckwild” — across the weekly schedule.

Viacom’s film studio, Paramount, saw revenue drop 37 percent in the quarter, to $975 million. The company attributed this to the fact that its films in the quarter weren’t as successful as year-ago hits like “Mission: Impossible – Ghost Protocol” and “Puss in Boots.” The company also had one fewer release in the home video marketplace this time around.

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Harry Potter Helps Time Warner Profit

NEW YORK (AP) — A little magic from Harry Potter lifted Time Warner’s third-quarter earnings sharply on Wednesday, as the final movie about the boy wizard’s adventures led to record results at the media conglomerate’s film division.

“Harry Potter and the Deathly Hallows: Part 2” has made $1.3 billion in ticket revenues worldwide since its July debut, and the home video release on Nov. 11 will likely be one of the biggest of the year.

Combined with Time Warner’s syndication of the TV show “Big Bang Theory,” the movie drove Warner Bros. to its strongest quarter ever, said John Martin, Time Warner’s finance chief, in a conference call. Besides Warner Bros., Time Warner owns HBO, CNN, Time and People magazines and a slew of other media properties.

Although the results surpassed Wall Street’s expectations, investors sent Time Warner’s stock down more than 2 percent Wednesday amid a broader market uptick. Equity analyst Tuna Amobi with SP Capital IQ said investors may be concerned that it was Time Warner’s film division, and not its cable networks business, that carried the quarter.

“Any time you have the film studio driving results, it’s not a comfortable trend on Wall Street,” he said. “It’s a volatile business and it can just as much go south the next quarter.”

The success of the “Harry Potter” blockbuster may have already been priced into Time Warner’s stock price. That said, Amobi called the stock’s retreat a buying opportunity and said investors might be overlooking what’s expected to be an “extremely strong” fourth quarter.

Time Warner Inc. posted net income of $822 million, or 78 cents per share in the July-September period, up 57 percent from $522 million, or 46 cents per share, a year earlier. Adjusted earnings were 79 cents per share.

Revenue rose 11 percent to $7.07 billion from $6.38 billion. Time Warner said this was the highest quarterly growth rate since the third quarter of 2007.

Analysts had expected slightly lower adjusted earnings of 75 cents per share on revenue of $6.97 billion, according to FactSet.

CEO Jeff Bewkes called the quarter “terrific” and said the results show that the company’s focus on investing in “great content” and ways to deliver it is paying off. The company lifted its guidance for the full year, though it did not give specific numbers.

Time Warner, which is based in New York, said it expects its full-year adjusted earnings to rise by a percentage in the high-teens from $2.41 per share in 2010. In August, the company said adjusted earnings for the year should grow by “at least low teens.”

Analysts are predicting $2.78 a share, an increase of 15 percent.

Time Warner’s filmed entertainment segment, Warner Bros., accounted for $3.3 billion of the quarter’s revenue — an increase of 19 percent thanks to “Harry Potter” and higher TV license fees.

Time Warner’s networks segment, which includes HBO, CNN, TBS and other channels, saw its revenue grew 7 percent to $3.21 billion, helped by both higher subscription and higher advertising revenue.

Shows that include “Big Bang Theory,” ”Mike Molly” and “Two and a Half Men” did well, the company said, along with the new series “2 Broke Girls” and “Person of Interest.”

Time Inc., the publishing segment that includes magazines from People to Real Simple to Fortune, saw its revenue fall 1 percent to $889 million due to lower subscription and ad revenue.

Though “Deathly Hallows” was the final movie in the Harry Potter series, the company plans to make more money from the boy wizard and friends.

“While this was the last film in the series, the Harry Potter franchise will endure in a variety of ways for a long time,” Bewkes said. As just one example, next spring we’ll opening the Making of Harry Potter attraction at our studio outside London coinciding with the 2012 London Olympics.”

Time Warner’s shares slid 83 cents, or 2.5 percent, to $33.01 in afternoon trading. The stock is still up about 2.6 percent year-to-date, compared with a 2.3 percent decline for the Standard Poor’s 500 index over the same period.

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Ads and Fees Lift Viacom to a 37% Increase in Profit

The company’s net earnings of $574 million, or 97 cents a share, were up from $420 million, or 69 cents a share, in the same quarter last year. The company reported revenues of $3.77 billion, up from $3.27 billion.

Like the other major media companies that reported second-quarter earnings that exceeded expectations this week, Viacom credited a sturdy television advertising market, solid revenues from subscriber fees and emerging revenues from digital distributors like Netflix.

“We have always thrived on competition in the distribution arena, and there’s now more competition than there has ever been, and it’s growing,” said Philippe Dauman, the chief executive of Viacom. He added that there was increasing competition for digital distribution in international markets as well as in the United States.

Media companies like Viacom are increasingly accepting online distributors like Netflix, Amazon and Hulu as new bidders for their content — especially for the old content in their libraries that does not compete directly with what is currently on their television channels. Viacom already has licensing deals with Netflix and Hulu, and Mr. Dauman said Friday that discussions were under way with other potential licensees.

“As a result of these new deals, we have set a new higher base for our affiliate revenues this year and we expect to continue to increase those revenues from this higher base at a high single- to low double-digit annual rate every year for the foreseeable future,” Mr. Dauman said on a conference call with analysts.

In the quarter, Viacom’s cable networks had revenues of $2.39 billion, up 16 percent versus the same quarter last year, in large part because of the strength in advertising.

Mr. Dauman singled out several scripted television series for praise, like TV Land’s “Happily Divorced” and VH1’s “Single Ladies,” and he noted that the ratings at MTV had increased year-over-year even though new episodes of “Jersey Shore,” the channel’s biggest show, were not televised in the United States in the quarter. (Both this year and last year, the series skipped the spring quarter.)

Profit growth was up sharply in the cable division, but down in the Paramount filmed entertainment division, largely because of the “timing and mix of theatrical releases,” the company said in its earnings statement. Still, revenues for filmed entertainment were up 13 percent, to $1.4 billion.

Looking ahead, Mr. Dauman acknowledged that Viacom was preparing for an end to its film distribution deal with DreamWorks Animation, which started in 2006 and is expected to end in 2012. Last month, Viacom said it would start its own animation division. “We are proceeding on the operating assumption that we will not be extending the DreamWorks Animation deal beyond next year,” Mr. Dauman said Friday.

Asked about perceived friction with the DreamWorks chief executive Jeffrey Katzenberg, Mr. Dauman dismissed it: “The relationship is very good,” he said, “and the only issue is what DreamWorks Animation wants to do strategically as this deal expires, and how that fits in with our own strategic objectives.”

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Cable Advertising Helps Time Warner Top Forecast

Time Warner, the media company, posted better-than-expected quarterly results on Wednesday, with revenue rising 6 percent alongside a surge in advertising sales at its cable TV networks.

Time Warner, which owns cable networks like CNN and TBS, as well as magazines and a movie studio, is the latest media company to benefit from the strength of the advertising market. CBS, Viacom and Discovery Communications have all reported exceptionally strong results this quarter.

“I love the advertising numbers,” said Laura Martin, an analyst with Needham Capital. “It was an excellent number — really, they did a good job.”

For the first quarter, Time Warner reported net income of $651 million, or 59 cents a share. This compared with net income of $725 million, or 62 cents a share, in the quarter a year ago.

First-quarter adjusted earnings of 58 cents a share came in 2 cents above analyst expectations.

The decline in profit was largely because of higher programming costs, specifically those related to its deal with CBS to share coverage of the NCAA basketball tournament, which carries costly rights fees.

But the flip side is that the deal helped drive a big jump in advertising sales at its cable networks at a time when corporations appear willing to spend more on national campaigns, particularly when it comes to so-called event programming.

Overall revenue rose 6 percent to $6.7 billion, the media company said. Analysts had expected the New York company to post revenue of $6.44 billion, according to Thomson Reuters.

Stronger TV ad sales were the major contributor to revenue growth. At its cable networks, ad sales rose by 48 percent.

In its movie division, revenue dropped 3 percent to $2.6 billion, partly due to several big hits that came out during the quarter a year ago, including “Sherlock Holmes” and “The Blind Side.”

In publishing, home to Time, Fortune and Sports Illustrated, revenue was basically steady at $798 million.

The company also repeated earlier forecasts that its 2011 earnings would be up from those in 2010 by “the low teens” in percentage growth.

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