With March Madness following on the heels of a stellar Super Bowl, a month before Tiger Woods‘ return to golf at The Masters, CBS (CBS) is basking in the glow of profitable live big event sports on TV and online.
But 2011 will be a different ball game financially for the media company still anchored in broadcast TV advertising.
March Madness is just the latest in a string of live big event sports CSB is cashing in this year from advertising and access fees on television, online and on mobile devices.
CBS has created a successful strategy for its far-reaching March Madness coverage, the first event of its kind to reach a multi-media parity generating $4.76 per viewer offline and $4.26 per viewer online, according to Advertising Age. CBS expects to generate $37 million in ad revenues from all 64 of its March Madness On Demand, and could top the $619 million in TV advertising and 130 million viewers its NCAA Basketball tournament telecast rendered in 2009, according to WPP’s Kantar Media research. Just as important, CBS will likely have an increased take rate for its $9.99 March Madness iPhone app (AAPL), which is double last year’s price and second in paid sports to Major League Baseball’s $14.99 app.
The more than $200 million in revenues generated by CBS’ Super Bowl telecast last month was a nice balance sheet addition, even though it failed to cash in on all the social media and online buzz primarily around the commercials.
CBS’ live telecast of The Masters was presold to advertisers before Tiger Woods announced his return to golf at the tournament next month. Pricing for the five percent unsold advertising invento! ry and t he ratings will surely get a boost.
The sporting triad will contribute to CBS’ overall strong revenue and earnings rebound in 2010, also supported by economic recovery, good prime time ratings and election year advertising. To be sure, it will be easy for most companies to show improvement over 2009’s financial disaster, especially when combined with aggressive cost cuts.
CBS overall is expected to post 28 percent growth in EBITDA to $2.33 billion in 2010, primarily driven by 60 percent earnings growth in local TV and radio broadcasting, according to Bernstein Research analyst Michael Nathanson. The CBS TV Network is the largest individual business income source, expected to contribute nearly half of all revenues, but only five percent of earnings.
But 2011 will be a different story, when CBS’s total revenue (a mere 0.6 percent) and earnings growth (at 1.4 percent) will flatten out even with the continuing boost from retransmission fees, Nathan predicts. There is no political spending and the state of lucrative sports events is up in the air. After 11 consecutive years, The Masters will return to CBS only if the network coughs up $2.13 billion for a three-year option to keep the NCAA from prematurely exiting their pact after 2010.
Those kinds of big event price tags will get dicey for CBS, the closest thing to a pure broadcast entity and the smallest of the big media companies, which is saddled with more than $8 billion in debt. Although political advertising will add about $50 million to CBS’ 2010 earnings, and hefty retransmission fees will generate $225 million over the next three years, the wild card will be the advertising revenue that comprises more than 70 percent of overall income and relies on volatile old fashioned TV, radio and outdoor.
Needham analyst Laura Martin makes the contrarian argument that it also could be CBS’ defining streng! th, eve n without all the multi-billion dollar sports.
Martin has raised her target price and has a “buy” rating on CBS based on near-term catalysts and the belief that the mass audiences that CBS and other broadcast networks continue to deliver (albeit in numbers smaller than in their heyday) will become more valuable to advertisers as new media’s expanding audiences remain highly fragmented.
She estimates that more than $100 billion in annual ad spending is at stake and that broadcasters such as CBS stand a good chance of protecting from wholesale migration to digital media. “Broadcasters appear least vulnerable to being disrupted by online advertising choices,” Martin writes in her new report on CBS. ”The fact that broadcast TV has continued to grow in the face of the onslaught of online media alternatives and fracturing audiences implies there is something substantively different (and defendable) about broadcast TV.”.
Original post at BNET (owned by CBS).
Disclosure: None
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