CBS earnings fall 14.6% on lower sales

CBS Corp. on Tuesday posted a 14.6% decline in fourth-quarter earnings -- another wrinkle in an already tough season as the company’s flagship CBS broadcast network seeks to reverse a prime-time ratings slide.

CBS reported net income of $286.2 million, or 42 cents a share, for the quarter ended Dec. 31. That was a drop from $335 million, or 43 cents a share, during the same period in 2006. Revenue fell 3% to $3.76 billion from $3.88 billion.

The New York-based broadcaster, which is highly dependent on advertising revenue, suffered from ongoing weakness in its radio division, and tougher comparisons to the fourth quarter of 2006, when its stations benefited from political spending. Revenue also was lower because of the divestiture of nine TV stations and 39 radio stations.

Company executives conceded that they faced challenges, including the threat of a recession that could damp advertising. The three-month writers strike left CBS with few original episodes of some of its biggest hits, exacerbating its prime-time ratings woes.

CBS has suffered a 16% decline in viewership this season, a steeper drop than the other major networks. This month, Fox surpassed CBS as the most-watched TV network.

However, CBS executives told Wall Street analysts that the strike did not have a negative financial effect. Revenue at the CBS TV network was flat during the fourth quarter.

CBS said the writers strike came with a silver lining, however, by allowing the company to save $60 million to $75 million in production costs. CBS also will save money by eliminating “more than 50%” of its contracts with writers and producers, Chief Executive Leslie Moonves said. It terminated 15 of those contracts in January.

CBS plans to buy fewer scripts and pilots this year, Moonves said, providing further savings. He predicted that the strike would usher in lasting changes to the industry.

“There’s been a lot of wasted spending,” Moonves said. “I think pilots are vastly overrated. It’s all about episode No. 20, not episode No. 1.”

Anthony DiClemente, a media analyst with Lehman Bros., said all broadcast networks must adapt their businesses as they continued to watch their viewers flee to cable TV channels, broadband entertainment and social networking sites on the Internet.

“Is it harder to create hits in this environment? Maybe it is,” DiClemente said. “Their bread and butter has been these crime dramas, but they are expensive to produce.”

CBS said earnings should grow this year 3% to 5%. The company expects to be buoyed by political spending at its local TV and radio stations. Analysts project that CBS could take in as much as $250 million from political candidates and advocacy groups this year.

“But if you strip out the political spending, what you have is a decline in their core television advertising business in 2008,” DiClemente said.

Laura Martin, a media analyst with Soleil Media Metrics, said the effect of the writers strike would be better known in late March and April. That’s when networks will know how many of their viewers return along with original episodes.

“It is our belief that the writers strike accelerated the structural trend away from television viewing and toward the Internet and video-on-demand offerings through cable,” Martin said.

However, one influential advertising buyer said the strike wasn’t entirely to blame for the lower ratings for TV broadcasters, with the exception of Fox.

“The ratings were already down significantly before the strike occurred,” said Rino Scanzoni of GroupM, an umbrella company of advertising buying firms. “It’s been a dismal year in prime time, and it’s become a challenging environment for everybody.”

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meg.james@latimes.com