Now that Rupert Murdoch’s 21st Century Fox has moved away from buying fellow media giant Time Warner, CBS will no longer mull the acquisition of the grand dame of cable news, CNN.
That’s the word from the broadcaster’s Q2 earnings call, which was mixed with bullishness in the wake of Aereo’s defeat and positive news with Netflix.
CNN had been poised for the block when the mega-merger was still on the table, considering the conflict of interest in having FOX News and Time Warner-owned CNN in the same portfolio. CBS CEO Les Moonves told investors this week that any acquisition was "obviously not going to happen now" that 21st Century Fox has withdrawn its $80 billion bid in cash and shares for the fellow media giant — but added that a deal also never made it to the serious negotiation stage.
"We thought about it, we talked about it,” he said. “The numbers they were throwing around were sort of silly and we wouldn't have looked at it on that basis."
Fox and Time Warner together would have consolidated two film studios and several cable and broadcast networks, including Time Warner-owned premium channel HBO. But Time Warner CEO Jeffrey Bewkes turned down the offer in a move that the Street didn’t like: In the wake of the 16 July offer, Time Warner’s share price went up by 20%; but it dropped by 10% after Fox withdrew the offer on 5 August.
Fox’s share price in contrast fell by 9% after the offer was made, which Murdoch pointed to in pulling the plug. “Time Warner management and its board refused to engage with us to explore an offer which was highly compelling,” Murdoch said, adding that investor reaction “undervalues our stock and makes the bid unattractive to Fox shareholders.”
Obviously regulatory hurdles would have been a looming obstacle as well; though the approval of the Comcast-NBCUniversal deal in 2012 points to an openness to Big Media consolidation on the part of US antitrust authorities.
CBS meanwhile reported slight shortfalls in its earnings for the quarter, including revenue of $3.19 billion (down from $3.37 billion) and profit that came in at $439 million (down from $472 million). But going forward, Moonves noted that the combination of Thursday Night Football debuting on the network this autumn and "a frenzy of political spending this fall" is set to boost ad revenue, as is a new tactic to move to C7 Nielsen ratings, which measure viewing seven days after broadcast.
"For the first time, C7 was a major part of our upfront negotiations, including a number of breakthrough deals with key agencies,” Moonves said. “This will significantly drive our advertising revenue going forward since more of our viewers will be counted and monetised.” As much as 75% of its commercials will be sold off of C7 audience metrics from now on, he said.
Aereo’s slap-down by the Supreme Court in June also bodes well for CBS, he said, calling the streaming service a "distraction" that took up "a lot of attention for a service that virtually nobody was using." Aereo provided local affiliate feeds via the Internet for $8 per month, but failed to pay retransmission fees. The Supreme Court found that as such, it gave consumers digital access to content without permission, in violation of the Copyright Act. Aereo has applied for a licence to operate as a cable company, but appears dead in the water: On 1 August, US District Court Judge Alison Nathan denied a request by the company for an "emergency" broadcast retransmission licence to stay alive.
Aereo may have been a no-go for digital distribution of CBS content but the network has renewed a programming deal with Netflix, and Moonves highlighted the expansion of its TV everywhere strategy for premium network Showtime. Showtime Anytime "was a little behind HBO Go, but we've caught up,” he said. “We're now in most of the country."
Beyond the executive boosterism, the positive outlook was made clear on the stock market level: CBS doubled its share repurchase program to $6 billion and said it would increase its cash dividend to 15 cents per share, up from 12 cents previously.
CBS shares were down 1% ahead of the earnings report, but bounced back afterwards to come in at 1% up. For the year, the stock price is off 10% but that’s far from worrying considering that the stock is up 460% over the past five years.