We've Got Hollywood Covered

‘Retrans’ Is at Last the Future of CBS — 20 Years Too Late

Even with the windfall of new revenues from cable operators, the Eye won’t likely match the scale its rivals have achieved

After almost 20 years of haplessly blazing a golden trail for its rivals, CBS, under onetime-TV-actor–turn-CEO Leslie Moonves, is finally cashing in to the tune of hundreds of millions of dollars on the future of broadcast television — “retransmission consent” fees.

And yet, even with a windfall of $250 million a year in new revenues from cable operators CBS won't likely ever match the scale its rivals have achieved.

Ironically, by exploiting CBS’ nearly two-decades-old vision of “retrans,” rivals ABC, Fox and NBC built multi-billion-dollar cable empires that dwarf the entire worth of CBS, which also owns Showtime, sprawling radio and outdoor advertising businesses and publisher Simon & Schuster.

Indeed, at about $10 billion, CBS’ value is less than that of some individual networks that are part of those cable empires (see chart).

That’s not to say the Eye won’t remain a sparkle in the eyes of investors — particularly its controlling shareholder, the irrepressible Sumner Redstone. Especially if it funnels massive sums of the newfound riches their way.

And that's what Moonves is signaling.

"Before the end of the year, we're going to determine what to do with our cash," Moonves told analysts earlier this month, "whether it involves paying down further debt, whether it involves returning money to our shareholders in the form of increased dividends or share repurchase.

At the same time, Moonves has a reliable pool of profits to reinvest into multi-platform programming that may also fatten CBS' bottom line.

The only ones who may not be so happy are pay-TV customers.

Just as higher retail prices are being imposed in almost every other media segment, consumers now also likely will be called upon to foot most of the tab for that almost fabled second stream of income long sought by broadcast television to break the dependence on advertising, until now the lynchpin of free over-the-air TV.

Many consumers have never quite understood “retransmission consent.” Many might have thought it something best filed under the category of “too-much-information.”

In fact, the concept is simple — consent by local TV broadcasters to allow a cable operator to retransmit its signal to pay-TV customers — for a fee or, as it were, other valuable consideration.  And as the owner of local TV stations, CBS led the fight in Congress for adoption of retrans in the Cable Act of 1992, arguing that popular network programming was the biggest draw on pay-TV services.

The problem was that cable operators balked at paying broadcasters for “free” TV signals. So the majors came up with another ploy — distribution for their upstart cable channels. Thus was born FX at Fox, ESPN2 at ABC and America’s Talking, the precursor to MSNBC, at NBC.

The only loser among the Big 4 was CBS. It not only dropped demands for cash, it never got around to launching cable channels to barter for cable carriage.

Well, not exactly. For the brief few years that CBS was combined with cable giant Viacom, it did capture some of the financial value that came from being a sibling of cable networks such as MTV, Nickelodeon and BET.

That all changed when Redstone moved five years ago to separate Viacom and CBS. Moonves began a concerted campaign of industry jawboning to extract cash payments from cable operators.

He first negotiated payments from the smaller operators. Then last year came deals with Time Warner Cable, the nation’s second largest operator, and Cablevision, a major operator in greater New York City.

Earlier this month, Moonves reached an unprecedented decade-long deal with Comcast, the nation’s largest cable operator. The pact included expanded distribution for CBS College Sports Network and the Smithsonian Channel, CBS' belated entries into the cable network business. More of CBS-owned programming also will be available on demand and online.

Analysts estimate that the Comcast deal alone could generate revenues in 2012 of $75 million.

“We are now well on our way to delivering on our goal of north of $250 million in annual revenue from retrans in 2012,” Moonves told analysts during a conference call to discuss Q2 earnings. “We have established that CBS will be paid for retrans, something that I've been talking about for years and is a significant part of the future of our Company … we now have a dual revenue stream base for CBS going forward.”

Given his success now with  CBS' 20-year-old business strategy, perhaps Moonves ought consider returning some of the network's old TV shows to the air. Surely, there are rich Nielsen ratings to be mined from, say, the 1970s detective series "Cannon" — especially the episodes guest-starring the little-known tough-guy actor Leslie Moonves.