Will Falling NFL Ratings Destroy CBS?

CBS (NYSE: CBS.A) is facing an interesting dilemma; its’ cash cow NFL football is losing ratings like crazy, and one of its most popular “programs” – the Presidential election – just went off the air for four years.

To make matters worse CBS’s biggest breakout “star;” Donald J. Trump, has made his last exclusive appearance on the broadcast network, and moved on to a new gig in Washington D.C. That leaves CBS in pretty sorry shape ratings wise even though its’ financial numbers look pretty good.

CBS’s Incredibly Shrinking Ratings

Currently CBS broadcasts 25 primetime series. Only three of them; 60 Minutes, NCIS: Los Angeles and Hawaii Five-O, had ratings that increased between Fall 2015 and Fall 2016.

Disturbingly the biggest ratings increase was for flagship newsmagazine 60 Minutes, data provided by TV Series Finale indicates. That show saw its ratings increase by 17.8% between 2015 and 2016. It saw an even bigger rise in the all-important 18 to 49 demographic.

cbs-miptv-mipcom-cannes-glow-exhibitions-1-941x519

The problem with that is almost the ratings increase can be attributed to one man; Donald, who probably won’t be available for interviews anytime soon. Now that the election is over; and Trump is busy in government, that show’s ratings are sure to drop.

What should frighten CBS and its’ investors is that ratings for every single one of CBS’s comedies; all but two of its dramas, and all but one of its unscripted shows fell between 2015 and 2016. What’s worse is that almost all the ratings drops came with double digit percentages.

Here’s a sample of what CBS is facing:

  • NCIS ratings drop: -10.14% overall, -13.35% in 18-49.

 

  • Criminal Minds ratings drop: -11.27% overall, -11.96% in 18-49.

 

  • Life in Pieces ratings drop: -30.45% overall, -30.49% in 18-49.

 cbs_televisioncity02

  • NCIS: New Orleans ratings drop: -25.94% overall, -21.94% in 18-49.

 

  • Scorpion ratings drop: -24% overall, -26.23% in 18-49.

 

  • The Odd Couple ratings drop: -30.42% overall, -25.35% in 18-49.

 

  • Code Black ratings drop: -19.45%, -22.44% in 18-49.

 

If these numbers are correct, CBS lost around 20% of its viewers over the past year. Some of the data indicates that the average CBS series suffered a 20% ratings decline.

Two Entire Generations are Tuning out CBS

Both new series like Code Black and established ratings getters like NCIS experienced the drop. What should scare CBS more is that in most cases, the ratings loss was higher among the 18-49 demographic that advertisers covet. For example that reliable warhorse of a reality show Survivor saw its overall viewership fall by 3.35%; but it lost almost nine percent (-8.93%) of its 18 to 49 year-old viewers in a 12 month period.

cbsstudio52

It looks as if two entire generations; the 18-35 year-old Millennials and the 35-50 year-old Generation Xers, are tuning out network TV; or at least  CBS. One has to wonder how long the company can survive with older viewers dying off, and younger couch potatoes tuning out.

NFL Ratings go Down the Drain

Now to make things worse for CBS, the ratings for its most reliable ratings-getting program the National Football League (NFL) are tanking too.

The ratings for the average NFL game fell by 11% between 2015 and 2016, The Washington Post reported. Around 19.1 million people watched the average NFL game on CBS last year, but only 16.7 million watched the average NFL game this season.

The reasons for the NFL’s ratings drop are unclear; but a decision to stream the league’s Thursday night games on Twitter (NYSE: TWTR) certainly did not help. A related problem is that games are simply too long; the average NFL game now takes three hours and 12 minutes to complete, but it contains just 11 minutes of actual football, The Washington Post reported.

The length of games might be driving away many of the NFL’s working-class fans. Note to NFL: many of your fans need to get up and go to work early in the morning. They cannot stay up to midnight simply to watch football.

img_4554_rev1-e1437498532922

To that we can add the destructive effects of lousy play, including boring games and action on the field that is reminiscent of some second-rate college game. Even some of the NFL’s announcers are griping about the awful stuff happening down on the field.

The situation is now so bad that the NFL is actually looking for ways to speed up games; increase action, and hopefully cut the number of commercials, The Washington Post reported. Some other improvements might include cut the number of replays and replay reviews, eliminate halftime and cut the number of timeouts. Unfortunately that might be too little too late.

Why is CBS’s Revenue Growing?

The oddest aspect of our little story is that revenues at CBS Corporation (NYSE: CBS) have actually grown in recent months. Data provided by Ycharts indicates that CBS’s revenue grew by $140 million during third quarter 2016.

The network reported revenues of $14.3 billion in June 2016 and $14.44 billion on September 30, 2016. Its revenues also grew by $780 million between September 2015 and September 2016.

This sounds great until we figure in political advertising buys. Just the spending in this year’s presidential campaign alone was enough to skew CBS’s revenue figures.

cbs_thismorning_studio57_01-1

By October 28, 2016, Hillary Clinton’s campaign and its Super-PAC (political action committee) allies had raised $1.068 billion, and spent $897.70 million, Bloomberg Politics reported. Donald Trump’s campaign and its Super-PAC friends had raised $512.20 million and spent $429.50 million.

Since a lot of that cash was spent on advertising, it will have an effect upon the revenues of companies like CBS. That means we might see a huge revenue increase at CBS in fourth quarter 2016, followed by a big drop in first quarter 2017.

Donald Trump might just be the perfect TV star, he works for free, ratings go up when he appears and he buys large amounts of advertising. One has to wonder what CBS is going to do without him.

Is CBS Making Money?

Now we come to the big question is CBS actually making money? For now the answer is yes, the network is making a little money off its operations, but that might quickly change.

CBS reported a net income of $1.635 billion on September 30, but its financial numbers reveal very little float. On that CBS reported a free cash flow of just $9 million, $179 million in cash and short term investments and $2.077 billion in cash and short-term investments.

The company is making a little profit by limiting its TV production and taking few risks. Its shows are bland dramas featuring aging stars and a few clichéd comedies. It has basically thrown in the towel in production; and is concentrating on just filling airtime to sell advertising. That means it will have hard time competing with Netflix (NASDAQ: NFLX) and Amazon’s (NASDAQ: AMZN) cutting edge offerings.

It looks as if CBS is operating on a very narrow margin so all it would take is one or two money losing seasons of TV; or a drop in advertising revenue, to send it spinning off into the death spiral. That means even the end of the presidential campaign might be capable of sending CBS over the edge.

All this makes CBS a very lousy investment because the income it generates for investors in the form a 1.07% dividend yield on November 14, 2016, the 18¢ dividend paid on September 7, 2016, and the 29.55% return on equity might disappear at any time. The only people who should buy CBS stock are those looking for something to short because this company might soon collapse along with its ratings.