Moonves: We'll Get Paid for DVR Viewers

CBS CEO Puts Faith in Commercial Ratings as Ad Revenue Slips

By Published on .

NEW YORK ( -- CBS Corp. CEO Leslie Moonves threw down the gauntlet today, stating that next year advertisers would start paying for viewers who watched ads on their digital video recorders.
CBs chief Leslie Moonves saw ad revenue drop this quarter, prompting him to tell marketers that they'll have to pay for DVR viewers.
CBs chief Leslie Moonves saw ad revenue drop this quarter, prompting him to tell marketers that they'll have to pay for DVR viewers. Credit: AP

During the last upfront, networks had asked to be paid for viewers watching shows played back on DVRs, but agencies refused, arguing that the time delay either made their commercials worthless or that most people fast forwarded through the spots. The advent of Nielsen Media Research's new commercial ratings, starting in December, will allow networks and agencies to see precisely who is watching the ads, with the expectation that the networks will get paid this time around.

'It is inevitable'
"In terms of DVRs, we think it is inevitable that they're going to have to start counting DVR usage as part of ratings, and I think everybody in the world -- even the advertising community -- is acknowledging that this year they were able to exclude it," Mr. Moonves told analysts on a conference call to report the company's third-quarter results. "But next year there is no way that's going to happen. So once again, we think as technology advances, as Nielsen advances, as recording advances, the strong broadcast networks are going to be even stronger."

The importance of getting paid for those additional eyeballs was underlined by CBS' performance this quarter. Ad sales at the CBS network dropped $30 million for the third quarter, said Fred Reynolds, CBS Corp.'s exec VP-chief financial officer. Around $15 million in lost sales were attributed to the absence of the "Primetime Emmys" broadcast, while the rest of the decline was due to softer scatter pricing in July and August, the company said. The closing of netlet UPN, which was merged with Time Warner's WB in the CW, also cost CBS Corp. $24 million in the quarter.

Year-round scatter
When asked about the potential move of advertisers from an upfront buying cycle to a year-round scatter market, Mr. Moonves said scatter pricing was broadly stronger, adding that Johnson & Johnson, one major advertiser that had sat out the upfront, was "jumping back in a large way." The upfront selling season is the period in the spring when TV networks sell about 80% of their ad inventory ahead of the fall season. The remaining ad inventory is sold on a week-to-week or as-needed basis, and is known as scatter. Depending on the demand for the scatter market, that airtime can be priced at quite a premium.

Merrill Lynch analyst Jessica Reif Cohen, however, was disappointed in CBS' ad performance, writing in a report this morning that "Advertising revenues fell 3%, which was worse than our expectation of 1% growth. Even accounting for the impact of declining UPN revenue, this suggests advertising revenue at CBS Network fell close to 2% in the quarter (assuming revenue growth at the stations of low single digits)."

Waiting for the next YouTube
With a lot of cash sitting in the bank, analysts tried to draw CBS Corp. out on what potential acquisitions it might make. The company just acquired a small stake in online ad services company Spot Runner, and Mr. Moonves added that while CBS Corp. wouldn't be making a YouTube-size deal, it was actively looking for the "next YouTube." Mr. Moonves said the company expected to generate hundreds of millions of dollars from digital distribution of its content in 2007. The company has streamed 2 million episodes of its shows this season on platforms such as Google Video, Apple's iTunes, and AOL.

Overall, TV revenue was flat for the quarter at $2.2 billion, outdoor revenue grew by 9% to $536.2 million and radio declined by 6% to $508 million. Weakness in the radio ad market, programming changes and the loss of Howard Stern to satellite radio hurt the division, which let 100 staffers go during the period. The company is selling 29 radio stations in eight markets for a total of $570 million.

While often overlooked, CBS Corp.'s book imprint, Simon & Schuster, had a positive quarter, lifted by the strong performance of Bob Woodward's "State of Denial," which helped boost revenue by 2% in the publishing segment to $197.4 million.

CBS Corp. reported net profits of $317 million, down from $708.5 million a year earlier; overall revenue was more or less flat, at $3.378 billion from $3.372 billion in the year-ago quarter.
Most Popular
In this article: