Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Yes TV is Dying, CBS makes Less Money

Broadcast television is dying before our dies and nobody is paying attention. America’s last remaining standalone TV network CBS Corp (NYSE: CBS) is making less money as the TV season begins.

For instance, CBS reported a quarterly gross profit of $1.217 billion on 30 September 2019. The gross profit was down from $1.3 billion on 30 June 2019 and $1.341 billion on 30 September 2018.

Furthermore, Stockrow reports CBS had a $1.217 billion quarterly revenue on 30 September 2019. The quarterly revenue was down from $1.3 billion on 30 June 2019, and $1.341 billion on 30 September 2018.

Why CBS is merging with Viacom

Notably, CBS reported a quarterly operating income of $477 million on 30 September 2019. The quarterly operating income fell from $674 million on 30 June 2019 and $552 million on 30 September 2018. Plus, CBS’s net income fell from $488 million on September 30, 2018, to $440 million on 30 June 2019, and $319 million on 30 September 2019.

Overall, CBS is making less money than it was last year. Hence it is easy to see CBS is merging with Viacom (NYSE: VIAB). The once great TV network is making far less money and struggling to stay relevant.

Broadcast network television could no longer be a viable business. Yet nobody is noticing this once great institution’s public death.

Why Network TV is dying nobody is watching it

Network TV is dying because nobody is watching it. For instance, the most popular network TV show in week eight of the 2019-2020 TV season was CBS’s NCIS.

NCIS had 11.573 million viewers in Week Eight of the 2019-2020 television season, TV Series Finale estimates. That sounds impressive until you compare television ratings to the US population.

The US population was 329.065 million in November 2019, Worldometers estimates. Thus, I calculate roughly 3.5% of the US population watched the supposedly mostly popular network show. For the record, 3.5% of the US population is 11.52 million.

CBS’s true problem, though, is younger viewers. TV Series Finale estimates only 1.15 million people between 18 and 49 watched NCIS in Week Eight. In addition, NCIS’s 18 to 49 viewership fell by -6.09% between Week 2018 and Week Eight 2019. In contrast, NCIS’s overall viewership fell by 4.36% between 2018 and 2019.

The NCIS ratings show CBS’s dilemma network TV’s audience is vanishing before our eyes. Streaming video is killing network TV faster than anybody could have predicted.

Has Streaming Video killed Network TV?

Dramatically, the most talked about new TV series this fall is The Mandalorian; a Disney+ action show about a minor Star Wars character.

For instance, there have been dozens of articles and podcasts about The Mandalorian but few about CBS shows. In addition, Parrot Analytics estimates The Mandalorian attracted 57 million demand expressions, The Hollywood Reporter notes. Notably, The Mandalorian was the third most popular streaming show.

Moreover, the most popular streaming show; Netflix’s (NASDAQ: NFLX) Stranger Things, attracted 101.6 million demand expressions, Parrot Analytics estimates.  Thus, Stranger Things’ audience could be 10 times bigger than NCIS’s viewership. Plus The Mandalorians viewership could be over five times larger than NCIS’s.

Hence, Netflix, Hulu, and Disney+ are America’s new big three TV networks. Therefore, CBS (NYSE: CBS) and Viacom’s only hope for survival is some hit shows on CBS All Access. Both NCIS and CBS’s once mighty broadcast network are irrelevant in today’s entertainment universe.

Can CBS Make Money?

CBS’s greatest broadcast problem is that social media and the internet are eating its advertising revenue.

For instance, the largest social media company; Facebook (NASDAQ: FB); reported $16.6 billion in advertising revenue for 2nd Quarter 2019, Business Insider reports.  Moreover, Facebook’s ad revenue grew by 28% between 2nd Quarter 2018 and 2nd Quarter 2019.

In contrast, CBS reported total quarterly revenues of $3.809 billion on 30 June 2019. Those revenues fell to $3.295 billion on 30 September 2019.

No, the Election will not Save Broadcast TV

Furthermore, politicians; some of TV’s most loyal advertisers, are redirecting their dollars to the digital world.

Supporters of President Donald J. Trump (R-New York); and the Republican National Committee, spent over $33 million on Facebook and Google; Alphabet (NASDAQ: GOOG), ads between summer 2018 and November 2019, CNN claims. In response, a Democratic entity called PACRONYM plans to spend $75 million on digital advertising.

Meanwhile, the Trump campaign spent $7.5 million on traditional television, Kantar Media/CMAG estimates. Thus, Republican TV spending is around one fifth the size of the digital ad investment.

Therefore, I predict the 2020 election season will not be a windfall for broadcast television. Instead, Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Facebook will reap the political advertising profits next year.

Is CBS a Good Investment?

The contrarians will wonder if CBS (NYSE: CBS) is a good investment because the data is against it.

Mr. Market seems neutral on the matter. CBS’s share price was $40.40 on 26 November 2019. On 20 November 2018, CBS’s share price was $39.36. Thus, CBS’s stock has stayed at close to the same price for over a year.

CBS still pays off for investors, however. CBS delivered an 18₵ dividend on 9 September 2019. However, reports CBS’s dividends have not grown in a year. Meanwhile, Viacom (NYSE: VIAB) paid a 20₵ dividend on 13 September 2019.

CBS still pays off for investors, however. CBS delivered an 18₵ dividend on 9 September 2019. However, reports CBS’s dividends have not grown in a year. Meanwhile, Viacom (NYSE: VIAB) paid a 20₵ dividend on 13 September 2019.

Thus, a combined CBS/Viacom could pay a dividend of 38₵. Plus, Viacom could get the money for the dividend by producing shows and movies for streaming video at Paramount Studios and CBS.

Notably, CBS owns a major science fiction franchise: Star Trek. However, CBS’s efforts to mine Star Trek for programming have been timid. For example, CBS’s next big streaming video offering is Star Trek: Picard, chronicling the adventures of retirement age Star Trek: The Next Generation characters.

Obviously, CBS and Paramount have work to do. However, the raw material for making a lot of money with streaming video is there at Viacom/CBS. Hence, CBS/Viacom could be a value investment in streaming video someday.

However, CBS will need to shed itself of the TV network to make money at some point. Hence, I expect CBS/Viacom will spin the broadcast network off into a separate company soon.

I think broadcast television is in such sorry shape that jettisoning the TV network could be the only way to save CBS.