Wall Street analysts not worried about slow start for CBS

By Joe Flint

Oct. 18, 2012 12 AM PT

CBS is off to a slow start this season but not all Wall Street analysts are ready to hit the panic button yet.

So far, CBS is down 10% in viewers and almost 20% in adults 18-49, the demographic advertisers covet and one that the network was expected to win this season.

CBS launched only four new shows this year and while two dramas -- “Vegas” and “Elementary” -- are holding their own, the comedy “Partners” is not doing well and the plug has already been pulled on the other new drama, “Made in Jersey.”

Though only NBC has anything to boast about this season, CBS’s stock performance is more tied to how its lineup is doing than competing networks’. That’s because ABC, NBC and Fox are part of much larger media conglomerates and are not as dependent on broadcast TV as CBS, which also owns radio stations, a couple of cable channels including Showtime and a large outdoor advertising business.

The disappointing start for CBS has some analysts worried that the network will have to provide advertisers with additional commercials to make up for ratings shortfalls. Typically, when an advertiser buys time on TV, it gets a ratings guarantee. If the network fails to deliver on what was promised, it provides additional inventory to make up for it. These are known in the industry as “make-goods.”

RBC Capital Markets analyst David Banks said in a Thursday report that while CBS’s prime time ratings are soft, the impact on the company’s bottom line will not be great. Of the $4 billion the CBS network makes in advertising, only half is from prime time, Banks said. Of that $2 billion, Banks estimates that only $200 million or 1% of CBS’s total revenue is at risk from a “high single-digit ratings decline.”

J.P. Morgan noted that even if CBS does have to offer make-goods, “that can easily be
met with inventory from promo spots and on the digital platform.”

CBS has the Super Bowl, and while the ads in the game itself go for a premium, the hours and hours of pre-game programming can also be used for make-goods.

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Follow Joe Flint on Twitter @JBFlint.