For CBS the Web, not Imus, is the news

CBS Corp. grabbed headlines late last week, but not the ones it had intended.

The broadcaster had hoped to signal its rapid evolution from an old-media titan into a powerful Internet player with the announcement Thursday that it was creating its own “online network” in partnership with some of the biggest names in the business, including Microsoft Corp., Comcast Corp. and Yahoo Inc.

But the unveiling of its latest venture, known within CBS as Rolling Thunder, came a few hours before the company sacked its 66-year-old radio shock jock, Don Imus. Its Internet news was buried by the media storm over the racist and sexist comments Imus made about the Rutgers University women’s basketball team.

The unfortunate timing underscores the plight of CBS Chief Executive Leslie Moonves. The veteran entertainment executive is striving to transform his company into a cool and relevant digital darling but continues to be hamstrung by the fading fortunes of his old workhorses, CBS Radio and the CBS broadcast network.

“This Imus thing will blow over, but they have bigger issues to resolve,” said independent media analyst Harold Vogel. “The fact that Imus was their biggest star highlights how weak radio is. More people are listening to their iPods, satellite radio or just doing something else.”

That’s precisely why CBS charged ahead with Rolling Thunder, said Quincy Smith, president of CBS Interactive.

“We are moving aggressively into the Internet because that’s where the future is,” Smith said. “It’s very forward-looking. It’s not a defensive strategy, and we need those younger audiences.”

CBS is more exposed to shifts in viewer behavior and ratings downturns than it was before January 2006, when its controlling shareholder, Viacom Inc. Chairman Sumner Redstone, split the broadcast assets of CBS from his cable TV holdings by separating them into two publicly traded companies. Unlike more diversified media rivals such as Rupert Murdoch’s News Corp. and Walt Disney Co., CBS last year derived about 80% of its $14.3 billion in revenue from its television and radio operations.

Those two divisions, heavily reliant on advertising dollars, made up nearly 95% of the company’s profit in 2006.

“Les has a very traditional set of assets, and he is working hard to breathe new life into them -- to re-create the company,” said Merrill Lynch media analyst Jessica Reif Cohen.

CBS shares are up 27% from a year ago, in large part because of the company’s strong balance sheet, several dividend increases and speculation that the company eventually might go private in a leveraged buyout.

Radio has long been a drag on the company’s earnings. Last year, profit at the division, one of the nation’s largest chains of stations, was down 12%. CBS executives cut programming expenses and sales commissions and sold 39 stations to lift the bottom line.

The loss of Imus doesn’t help that cause, although not because his program was all that profitable. Bear Stearns estimated that “Imus in the Morning” generated between $15 million and $17 million in revenue a year. Profit amounted to about $2 million a year, according to people familiar with its finances. That is a minute portion of the more than $780 million in profit CBS Radio made last year.

However, the talk show host had three to four years remaining on his five-year contract, Bear Stearns said in its report, adding that a payout to settle the balance could ding the company’s earnings. CBS has not said how it planned to deal with Imus’ contract, which is worth about $10 million a year, according to published reports.

The Imus scandal came at a time of internal turmoil at CBS Radio. Its bottom line has yet to recover from the loss of its biggest star, Howard Stern, who switched to satellite radio a year ago seeking artistic freedom after regulators imposed fines for indecent remarks. Late last month, CBS said it would replace the head of its underperforming radio division, Joel Hollander, with Dan Mason, a former president of the group.

Merrill’s Reif Cohen concluded that the Imus scandal served only as “an additional distraction” for management.

But the radio division is not Moonves’ only headache. Just as worrisome is a decline in prime-time ratings for the company’s flagship asset, the CBS television network. That could be costly for CBS as it heads into the all-important “upfront” advertising sales period in May and June, when broadcast networks typically sell as much as 80% of their commercial spots for the coming season.

“Our key area of concern is on the CBS network heading into the upfront season,” Bank of America broadcast analyst Jonathan Jacoby wrote Thursday in a report on CBS. He estimated that CBS’ ratings declines could cost the company as much as $300 million a year in pretax earnings.

CBS continues to have the largest audience of any TV network. Its prime-time viewership is up 1% for the season in part because of the popularity of the biggest TV event of the year, the Super Bowl, which CBS broadcast in February. But with sports out of the mix, CBS is down 4% in total prime-time viewers this season from last year, and has dropped 8% among 18- to 49-year-old viewers, the group most sought by advertisers.

CBS has seen its ratings fall on Thursday night, TV’s most lucrative. Advertisers, primarily Hollywood movie studios, car companies and retailers, pay a premium to try to influence weekend spending.

CBS was hurt this season when rival ABC moved its hot hospital drama, “Grey’s Anatomy,” to Thursday night, putting it head to head with CBS’ juggernaut “CSI: Crime Scene Investigation.” Meanwhile, ratings for another CBS star, “Survivor,” have softened, and shifting “Without a Trace” from Thursday to Sunday has also hurt. Its time-period replacement, “Shark,” hasn’t pulled in as many young viewers.

“The network’s ratings have not been great,” Reif Cohen said.

This has been Moonves’ challenge since 1995, when he took the helm at what was then a moribund network with older-skewing shows such as “Murder, She Wrote” and “Touched by an Angel.” Over the last decade, Moonves has steadily rebuilt CBS, bringing in younger viewers with shows such as “Survivor,” the “CSI” franchise and “Two and a Half Men.”

Reif Cohen believes that CBS has the opportunity to transform itself into a new-media company because of its strong balance sheet, its shows and the determination of Moonves.

There are some silver linings. The company’s outdoor advertising division and its premium cable TV channel, Showtime, are performing well, as is its TV syndication arm, which distributes “Entertainment Tonight,” “Oprah” and reruns of “Everybody Loves Raymond.”

CBS also has taken steps to diversify its portfolio and revenue, first buying the digital cable channel College Sports Television Networks a year ago and, in recent months, announcing plans to start a small feature film unit and a music label. Moonves also hired Smith, a former investment banker with Allen & Co., to lead the company’s charge into the digital frontier.

CBS’ announcement Thursday that it would create an advertiser-supported programming service for the Web was aimed at demonstrating the company’s ability to adapt to changing times. It was meant to show that its programming was strong enough to survive independently from an online video joint venture formed in March by rivals News Corp., owner of the Fox TV network, and NBC Universal.

CBS said it had lined up deals with such online distributors as AOL, Microsoft, CNet Networks, Comcast, Joost, Bebo and Brightcove. It’s all about being on sites that are heavily trafficked by younger consumers.

“Over the past year, the world has learned that you don’t win by telling everybody where they should go, you win by being where everyone else is,” Smith said. “It’s all about transitioning from being a content company to being an audience company.”

During the last year, CBS has attracted an online audience for clips of its late-night stars, David Letterman and Craig Ferguson, and its original series from Showtime. Its stab at creating its own portal, called Innertube, hasn’t worked as well, although it has attracted a small but loyal audience, Smith said.

“We’ve turned Innertube into Outertube,” Smith said. “The whole job of Rolling Thunder is to get the content out to more than just the core audience of CBS.”

Media analyst Vogel agreed.

“The audience is more fragmented than it has ever been,” he said. “Their challenge is how do they get this programming that they have onto the new technologies -- the iPods, the YouTubes and cellphones?”

And all the while keeping its core businesses healthy.

meg.james@latimes.com