CBS Corporation (CBS) has overcome secular challenges in the television broadcast industry by finding new ways to monetize content, from retransmission fees from cable systems to developing new shows with digital partners, and is seeing high profit margins on these new revenue streams, says James Marsh, Managing Director and Senior Research Analyst at Piper Jaffray & Co.
“CBS, I think, has done a particularly good job taking share from other broadcast networks, and they have also shifted their strategy and moved away from just ad-based television business to making sure that they are monetizing their content and all these different windows. They are kind of the poster child for an evolving television broadcast business,” Marsh said.
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CBS has been able to extract fees from cable systems, called retransmission content fees, and has also been successful in selling its content into new digital windows such as Netflix and Amazon, Marsh says. Additionally, CBS saw success in the summer with the launch of a new show with Amazon, and has seen high profit margins on each new revenue stream.
“The CBS management team has done an outstanding job basically creating new revenue streams, and whether it’s the retransmission content fees that we talked about, whether it’s syndicating old reruns that didn’t have much value but are valuable to an Amazon or a Netflix or doing creative things like we mentioned with ‘Under the Dome,’” Marsh said. “The compelling thing about all these new revenue streams are their extremely high profit margins. The retransmission consent fees are effectively 100% incremental margin…it really has helped the EBITDA growth story there, and management there I think has just been very disciplined about just returning cash to shareholders, and the investors like it. The stock has been a good performer; we think it’s going to continue.”
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