CBS Is Reaching for a New Hit, but the Early Numbers Fall Short

October 19
By BILL CARTER and GERALDINE FABRIKANT

Last spring, Leslie Moonves, chief executive of the CBS Corporation, delivered what several executives there described as a strong message to his programming troops: find us another hit, fast.

That urgency was something of a departure for CBS, where executives pride themselves on qualities like steadiness and stability and on an overall approach of rebuilding the network “brick by brick,” as Mr. Moonves frequently puts it.

That deliberate approach has served the company well and has helped to offset bouts of bad news. CBS has had its share of that this year, with the forced departure of the radio division’s biggest star, Don Imus, and the disappointing ratings for the network’s high-profile news anchor, Katie Couric.

This fall, CBS, which has been the top network in total viewers for the last five seasons and has enjoyed success with a procession of broad-based entertainment shows like police dramas and family sitcoms, looked to answer Mr. Moonves’s programming challenge with what it called more daring shows.

The first ratings returns for the network were noticeably weak, though the picture has brightened more recently. The new reality series “Kid Nation,” which attracted bad publicity as questions were raised about how the featured children had been treated, mostly fizzled from the start.

A new drama, “Cane,” which billed itself as a Hispanic version of “The Sopranos,” has been less than stellar. A new comedy, “The Big Bang Theory,” has fared better, but “Viva Laughlin,” a casino drama in which the actors break into song, received a withering assault from critics, and expectations from outsiders have not been high.

Despite the weak start and the company’s struggles on Wall Street — some analysts have downgraded CBS’s stock, which has fallen 5.6 percent this year — Mr. Moonves himself remains sanguine.

“I would say that a few analysts are missing an important part of our story,” Mr. Moonves said. “I’m not concerned about the state of CBS. I’m a bit concerned about the state of network television generally. But I think it’s idiotic to draw conclusions too early. I’ve been in television for 27 years. I know you can’t read the tea leaves in a couple of weeks.”

CBS’s chairman, Sumner M. Redstone, apparently feels the same way. Last week, Mr. Moonves signed a rich deal to head CBS through 2011. The new contract lowers his salary to $3.5 million, from $5.9 million, and ties a greater percentage of his compensation to the performance of the network’s stock. That performance does not depend exclusively on network ratings.

Still, a ratings slide at the network could have more of an effect on CBS than it might at some of its media rivals, like the News Corporation, Time Warner or Walt Disney. Since CBS and Viacom split in December 2005, CBS no longer has the same portfolio of other highly valued assets, like cable channels, which can offset stumbles at flagship networks.

When CBS was spun off from Viacom, it was expected to be a slow-growth business, especially when compared with the other Viacom assets, like the MTV cable networks.

“We knew the CBS side would be a dividend-paying company and would return cash or value to shareholders,” said Fred Reynolds, the company’s chief financial officer.

Many analysts have given Mr. Moonves and Mr. Reynolds high marks for selling assets, like the company’s theme park business and some small radio and television stations, that netted almost a billion dollars. And CBS’s numbers are mostly positive: for the first six months of this year, CBS brought in about $1.2 billion in operating income on about $7 billion in revenue. Mr. Moonves pointed to CBS’s outdoor advertising business, which he said “is doing great and generating about $2 billion a year.” CBS’s radio division, Mr. Moonves acknowledged, “is not a growth business right now but generates nearly a billion dollars of profit, and we expect it to grow in ’08.”

The most significant potential upside for CBS may depend on how well Mr. Moonves pulls off a bold stroke: getting cash out of cable operators for carrying the network’s stations, in what is known as retransmission consent. In the past, companies like CBS have been able to get paid for their networks only by raising fees for cable channels they own.

In a previous interview, Mr. Moonves said, “If we stay as good as we are now, and we have the N.F.L. and N.C.A.A. basketball and we have David Letterman and ‘CSI’ and ‘Survivor,’ they’re going to pay for it.”

Cable operators, which carry the signals of broadcast stations to customers, have publicly promised not to pay outright for networks, although they have paid by granting bigger fees for sibling cable channels.

But aside from Showtime, which as a pay channel does not receive fees from cable operators, CBS has no big cable channel. And yet CBS has had some success in getting direct cash payments for its broadcast retransmission rights.

Neither side has announced the specific terms of the deals, because the cable operators still do not want to say publicly that they are paying broadcasters for the rights. But CBS said 18 cable systems, including eight of the top 25, had agreed to the deals. It did not name the operators.

Hugh Jackman, left, and Lloyd Owen in the new series “Viva Laughlin,” which got a poor reception from most critics.

Still, the nation’s five largest cable operators — Comcast, Time Warner, Charter, Cox and Cablevision, which account for 51 million subscribers, 63 percent of the nation’s total — have not signed agreements, according to a person with knowledge of the relationships who asked not to be identified because he was not authorized to speak on the record.

Craig Moffett, a cable analyst at Sanford Bernstein, said “it is one thing to wring big fees” out of small cable operators, but “if CBS goes dark on Comcast, CBS’s distribution would plummet overnight. Comcast may end up paying something, but it is hard to see how it is all that material.”

Leland Westerfield, a media analyst at BMO Capital Markets, said he expects Mr. Moonves to be successful in getting fees from the big cable operators. “There are no costs against them, so that it is pure revenue,” he said.

The retransmission fees remain one of the company’s big hopes. And the prime-time lineup, which accounts for only a fraction of the company’s total revenue, is still the highest-profile part of the network.

Even as the early ratings looked shaky, Mr. Moonves and other CBS executives suggested the numbers would change when viewers came back to old favorites. And indeed, the outlook for CBS’s core of longer-running shows has improved in the last week. Several shows, including “NCIS,” “Criminal Minds” and “CSI: New York,” have posted their best results of the season.

The new wrinkle is the Nielsen rating system, which allows networks to adjust ratings after a week to account for the playback of recorded shows. That has brightened a somewhat scary initial impression.

CBS’s first-week rating, which was down 13 percent under the old system, came back to be down just 8 percent with the recorded viewing factored in. That was worse than Fox and NBC, but slightly better than ABC.

Still, CBS has yet to provide the transformative new hit that Mr. Moonves has been seeking. Both “Survivor” and the “CSI” franchise are in their eighth seasons, which is usually cause for some alarm, although they are both holding up in ratings this year. The shows introduced last fall, like the drama “Shark,” have shown no signs yet of emerging as the new “CSI.”

CBS does have Showtime, which Mr. Moonves says is “hitting its stride” as a programming rival to HBO. But the premium channel is not yet a cash generator in a league with the bigger cable channels. CBS’s biggest television asset at the moment is the CW Network, which is partially owned by Time Warner. The CW’s early performance this season has been mostly dismal.

Steve Sternberg, the executive vice president for audience analysis for Magna Global, said of CBS: “They have no reason to be worried yet. They’re still competitive with anybody.”

“CBS’s thing is stability,” he added. “CBS doesn’t have the seasonal ups and downs the other networks do.”

Mr. Moonves, not surprisingly, agrees.

“Everybody has underestimated CBS from Day 1, and they’re still underestimating us,” he said. “Everybody wants to write us off, but we’re doing fine.”


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