The world of entertainment relies on uncontrollable intangibles, such as advertising revenues and Nielsen ratings. With such squishy data, it can be hard to find a solid pick, even among legacy companies such as CBS (CBS). The trick is to keep the base audience happy while finding new ones. It seems that CBS has done just that.
On one hand, the corporation has locked in a 10-year extension on its rights to broadcast the Grammy Awards through 2021. With many viewers, especially the younger generations, turning to the Internet over TV, the Grammy Awards, like the Super Bowl, remains one of the last draws. And for broadcasters, it’s one of the last big earners.
Despite the economic downturn TV ad spending will likely rise 3.3 percent in 2011, according to ad-buying firm Intergroup, with TV spending hitting a 34 percent of total ad buys for the year.
On the other hand, CBS has finalized a deal with Amazon (AMZN) that has analysts standing up to cheer. The new deal means that Amazon will add 2,000 episodes to grow the total number of its content-on-demand Prime service offerings to more than 8,000 movies and television shows. Prime launched in February.
Amazon will offer full seasons for 18 popular CBS television series, including "The Tudors," "Numb3rs," "Medium," the complete "Star Trek" franchise, "Frasier" and "Cheers." Starting this summer, dozens of CBS shows will also become available to Amazon Instant Video customers.
Higher and more stable
Morgan Stanley recently lifted its price target on CBS to $33 from the stock’s current monthly average trade in the high $20s specifically because of deals in the works like the one with Amazon.
“CBS continues to benefit from company-specific growth drivers beyond advertising (structural cost reductions, content library monetization, growing re-transmission fees, etc), driving a higher and more stable earnings level over time,” the bank’s analysts said in a recent note.
CBS’s second quarter earnings call is set for Aug. 2.
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