For CBS Corp., it wasn’t video that killed the radio star -- but a severe downturn in local advertising.
The New York-based broadcasting company, controlled by billionaire Sumner Redstone, said Thursday that it planned to sell 50 radio stations in a dozen mid-size markets as ad revenue continued to slide in a weak economy. The company’s once-mighty radio division continued to produce static and a drag on the company’s earnings.
Revenue rose barely 1% to $3.4 billion for the second quarter ended June 30, CBS said. Operating income declined 15% to $637 million, and net income grew only 1.1% to $408.4 million, compared with $404 million in the same quarter last year, the company said.
Despite anemic revenue growth and a decline in operating income, CBS squeezed out a slight increase in net earnings per share because of a gain from the sale of its stake in the Sundance Channel as well as having fewer shares outstanding compared with the year-ago year-earlier period. CBS beat Wall Street’s expectations with earnings of 61 cents a share; analysts polled by Thomson Financial had expected 52 cents a share.
CBS said operating income in 2008 would be essentially flat compared with last year -- a signal that the media giant now expects weakness to continue in its core businesses. Previously, the company projected operating income for the year would rise 3% to 5%.
“CBS, like all media companies, is facing stiff head winds from an advertising downturn,” said Leland Westerfield, a broadcast analyst with BMO Capital Markets Corp. “Top line, advertising revenue was soft across all of its major business units, and especially so in radio.”
The company is particularly vulnerable to economic turbulence. CBS derives more than 70% of its revenue from advertising, which is a high-margin business but one that must ride the waves of the economy.
Industrywide, local TV and radio stations -- units that traditionally are CBS’ top performers -- have been hit hard by the advertising slowdown.
“We are clearly challenged by the economic conditions affecting many industries, particularly as it pertains to our local businesses,” Chief Executive Leslie Moonves told analysts in an early morning conference call. “The economy is tough right now.”
CBS shares closed down 52 cents to $16.36.
Its large television unit produced $2.2 billion in revenue, up 2% from the second quarter of 2007, while operating income slid 12% to $446.8 million from a year earlier. Although television revenue rose because of higher affiliate and TV license fees, including the foreign sales of its popular “CSI: Crime Scene Investigation” franchise, it nonetheless was not enough to overcome the slide in TV advertising sales, which slipped 6%.
Outdoor advertising revenue climbed 8% to $598.1 million. International sales were up 18%, benefiting from the weak dollar and the acquisition of a South American billboard company. Operating income fell 20% to $92.4 million.
Radio continued to lag, with revenue falling 10% to $416.4 million, compared with $463.4 million for the year-earlier period. On a same-station basis, revenue was down 9%. Operating income declined 16% to $150.7 million.
Just two years ago, CBS Radio boasted nearly 180 radio stations. It has since shed about 40 stations, and with the planned sale of 50 more, the company would cut its holdings to about 90 stations. Included on its roster are Los Angeles powerhouse AM stations KNX 1070 and KFWB 980.
Analyst Tom Taylor said CBS might look to sell stations in such markets as Sacramento, Riverside and Las Vegas to focus on big-market stations that produce greater revenue. The loss of Howard Stern, who defected to satellite radio, continues to be felt, he said.
“But this is kind of the wrong time and the wrong place for a sale,” said Taylor, news editor for Radio-Info.com, which covers the radio industry.
“The market has changed dramatically during the last two years, and they might not get the same attractive multiples that they got a couple of years ago. Financing is tougher. But they probably know that.”