CBS’s Surprising Success, in Spite of Sagging Ratings

The most shocking surprise in the world of entertainment lately; has been the success of old-line broadcaster CBS (NYSE: CBS.A). “America’s Most Watched Network” has been achieving impressive revenue growth lately, despite falling ratings.

CBS’s revenues grew by $340 million during the first quarter of 2016, and by $490 million in the year between March 2015 and March 2016. For the record; CBS reported revenues of $13.74 billion in March 2015 that grew to $13.89 billion in December 2015 and $14.23 billion on March 31, 2016.

Every Show on CBS’s Line Up has Falling Ratings

The revenue growth is impressive, because the network has been struggling with some serious drops in ratings. Every scripted CBS series; that was renewed from the 2014-2015 to 2015-2016 season suffered a serious decline in ratings, data from TV Series Finale indicates.

What’s more disturbing is that the biggest drops were among the 18-49 age demographic, that advertisers like most. The network’s top comedy; The Big Bang Theory, lost 13.69% of its 18 to 49 year old viewers, and 5.75% of all its viewers. The top drama; NCIS lost 9.7% of its 18-49 viewership, and 3.75% of its total viewers.

Other highly-rated series fared far worse another drama; Criminal Minds, lost 16.75% of its 18 to 49 year-old viewers, and 12.6% of all its viewers. The action series Scorpion; one of the network’s highest profile projects, lost 23.35% (nearly one quarter) of its aged 18 to 49 viewers, and 12.06% of the overall audience.

Another marquee project; NCIS: New Orleans lost 15.98% of its 18 to 49 aged viewers, and 14.96% of the complete audience. The other NCIS spinoff; NCIS: Los Angeles) lost 17.55% of its 18 to 49 audience, and 6.98% of its viewers. Another high-profile drama Elementary lost 25.19% of its’ 18 to 49 year old watchers, and 22.66% of its audience.

CBS’s Ratings, its Worse than You Think

What should really worry CBS is that only one renewed show; the Tom Selleck vehicle; Blue Bloods, lost less than 5% of its 18 to 49 viewers. Blue Bloods lost 4.01% of its 18 to 49 year old viewers and 6.96% of all its viewers.

Only two series; NCIS and Blue Bloods, lost less than 10% of their 18 to 49 year old viewers. To make matters worse only one series; NCIS, lost less than 5% of its total viewership.

The scariest number here; is that not one renewed show in CBS’s prime time line up achieved a ratings increase from last season. Every renewed series lost ratings and four series; CSI: Cyber, Elementary, Person of Interest, The Odd Couple and Mom, lost more than a quarter of their 18 to 49 year old viewers.

These numbers could be particularly bad; because one reason why the 18 to 49 year old audience is falling off, is that large numbers of TV viewers are turning 50. The audience is aging and younger viewers are not tuning in.

Reality TV Ratings Collapse

Even the very popular reality shows are not faring that well. Every single reality show renewed from last year, lost ratings. Survivor Cambodia saw its 18 to 49 year old demographic drop by 8.8%, and Survivor: Kaoh Rong lost 8.9% of its viewers in that age group. The fall edition of The Amazing Race lost 5.56% of its 18 to 49 viewers; and the spring version lost 10.54% of its viewers in that group.

Another reality show; Undercover Boss lost 13.65% of its total viewership, and 6.79% of its 18 to 49 demographic. Survivor and The Amazing Race managed to do well with the total audience. Survivor: Cambodia’s total viewership only fell by 3.47%, Kaoh Rong’s audience dropped by 4.14%. The fall Amazing Race lost 1.88% of its viewers and the spring version lost 3.17%.

The “big success” was CBS’s flagship news show 60 Minutes; which lost 1.38% of its total viewership, and 2.16% of its 18 to 49 year old watchers. The pathetic aspect of this is that we have to call limiting losses a success. All these numbers make me wonder how long CBS can keep making money from advertising.

CBS has less Income but More Cash

The big question value investors will have is CBS making money? The answer is yes, but that might not last for much longer because CBS lost nearly half its income over the past year.

Back in March 2015 CBS reported a net income of $2.885 billion that fell to $1.492 billion in first quarter 2016. This calls CBS’s profit margin of 12.29% into series questions. I also have wonder how long the network will be able to maintain its 1.08% dividend yield; and a 3.124 earnings per share figure, with shrinking income.

Some other numbers did improve at CBS, the free cash flow rose from $400 million in March 2015 to $990 million in March 2016. Cash from operations grew from $1.91 billion in March 2015 to $2.005 billion in March 2016, in other words it nearly numbered. CBS is generating more cash probably from digital sales of its series.

It looks as if CBS could become a value investment because its cash is growing. Unfortunately that cash growth, like the revenue growth is not adding additional float yet. The company only had $411 million in cash and short-term investments at the end of first quarter 2016. That was a noticeable increase over first quarter 2015 when CBS had $331 million in the bank.

CBS’s New Business Model is Paying Off

These numbers indicate that CBS’s new business model of using its broadcast network to drive sales of digital content –its shows – is paying off. The network has not yet had any breakout hits on the order of House of Cards or The Walking Dead but it is making money.

There could be bigger things to come; because CBS is getting real serious about generating digital revenue. CEO Les Moonves showed off a teaser trailer for the new Star Trek series in New York on May 18. That show will premiere on the broadcast network in January before moving to digital channel; CBS All Access, for its’ regular run.

Only the logo is seen in the trailer, but fans are promised “new crews, new villains, new heroes and new worlds.” One has to wonder if this buzz and hype will generate enough interest to create a big revenue boost from the new Star Trek.

Many of you will wonder if CBS is a good investment right now? I would say it is a good buy and hold play because the company is positioned for solid revenue and cash growth over the next few years even though its broadcast network is shrinking. CBS is one company that might have the resources; and savvy leadership, needed to make the transition from broadcaster to digital programmer.