CBS Is Hurt by Soft Ad Sales

CBS Corp.’s eye looked a little bleary to investors Thursday as the broadcaster posted disappointing results, then frustrated stockholders by refusing to tip its hand on how it would spend $3 billion in cash.

Results were especially soft for its core broadcasting businesses, at which TV ad sales were flat and the radio division is still smarting from the loss of shock jock Howard Stern to satellite radio.

CBS’ bedrock TV business saw no big series finales in the second quarter, lower syndication sales and unexpected softness in the prices it received for excess commercial spots.

CBS shares slipped 79 cents, or 2.9%, to $26.36. That came despite reporting a nearly 4% rise in second-quarter profit to $781.7 million, or $1.02 a share, thanks to one-time gains.

Some investors have been hoping CBS would reward shareholders by using some of its cash to launch a major share buy-back program or boost its dividend again.

For their part, CBS executives told analysts that they would put off announcing any plans pending the sale of 30 to 40 radio stations.

“Wall Street investors love instant gratification,” said Anthony DiClemente, media analyst for Lehman Bros. “But just because we are not seeing a buyback or a larger dividend now doesn’t mean that we won’t see one later in the year.”

According to analysts, some investors are concerned CBS will use some of that cash to go on a spending spree. CBS is planning to enter the movie-making business, although executives on Thursday sought to allay concerns by describing the venture as low risk.

During a conference call with analysts, Chief Executive Leslie Moonves said that the company’s premium cable channel, Showtime, spent hundreds of millions of dollars a year buying movies from studios.

As a hedge, Moonves wants CBS to produce “four to six movies per year,” each costing “$10 million to $40 to $50 million tops.”

He insisted that the company wouldn’t make a big bet in motion pictures, particularly since Wall Street has long been spooked by the volatility of the film business.

“We have figured out a way to get into the movie business literally risk-free,” Moonves said. “We are not going to get into it in a big way. We are not going to have large studio overhead.”

Several analysts noted the move signals Moonves’ desire to diversify the company. Three-quarters of CBS’ revenue comes from advertising sales.

Relying so heavily on one revenue source raises questions about the media mogul Sumner Redstone’s decision to split CBS off from Viacom Inc. at the beginning of the year.

Post break-up, Viacom is now the home of such operations as Paramount Pictures and the MTV networks.

“This goes to why we never liked the break-up of Viacom -- it made CBS very vulnerable to a slowing economy,” said Michael Nathanson, senior analyst for Sanford C. Bernstein.

Merrill Lynch media analyst Jessica Reif Cohen agreed.

“CBS is trying to get into the film business and it might do more with cable networks,” Reif Cohen said. “And at the end of the day, CBS will probably look a lot like the old Viacom.”

The higher second-quarter profit came largely as a result of one-time gains -- a tax benefit of $129 million and the $1.24-billion sale of Paramount Parks. Revenue fell 1% to $3.48 billion, below Wall Street expectations.

TV revenue fell 1% to $2.3 billion, with operating income dropping 3%, to $491.9 million, partially due to $24 million in costs to close the UPN television network.

Chief Financial Officer Fredric Reynolds noted that the company took in less revenue for sales of DVDs because it no longer distributes its own discs after splitting with Viacom.

In radio, revenue dropped 8% to $519.1 million, with operating income plummeting 20% to $219.6 million.

“The radio marketplace is tough right now,” Moonves said.

CBS’ bright spot was outdoor advertising, where revenue rose 7%, to $534.4 million, and operating income jumped 32%, to $107.9 million.