One of the last acts that ex-CEO of Viacom, Mel Karmazin did before he left the company to take up the reins at Sirius Satellite Radio, back in 2004, was to predict double digit advertising growth for the business.
A few months later as radio advertising revenues began to collapse, he had departed and the best run company in media went into a downward spiral, writing off a massive $18 billion of goodwill from its books, largely because of CBS owned radio stations. It wasn’t much later that CBS was separated in a spin out to shareholders which stabilized the rest of Viacom, and this week CBS pulled the same act once more, taking over $14 billion off its goodwill, in an impairment charge. The company’s balance sheet holds just a further $8.8 billion in goodwill, which is pretty much the upper limit on any further non-cash impairments.
The charge means that CBS reported a net loss of $12.5 billion for the quarter compared with net income of $343 million last year and drags its loss for the year so far up to $11.8 billion.
This time it is the TV business which is the primary loser, reporting an operating loss of $7.6 billion, after allocating $7.9 billion of that impairment to TV broadcasting. The company felt oblige to perform an impairment test due to market conditions and more changes could be on their way to the balance sheets of other companies reporting in the sector.
Our view is that the market conditions it is talking about are the fact that TV and radio advertising have been losing market share to online for years, AND that now there is a US recession, and this will become dramatically more evident ‘ but it is mostly about a long term trend,
What CBS calls Television OIBDA (operating income before depreciation and amortization) fell 15% to $414 million due to lower advertising sales. However because this was offset by dramatically improved syndication for its CSI franchise, and that was up $168 million, that fall can be assumed to be far worse.
Radio was the second casualty with an operating loss of $3.2 billion after its own impairment of $3.3 billion. OIBDA before impairment charges fell 18% to $139 million. Finally, Outdoor advertising reported an operating loss of $2.8 billion, after an impairment of $2.9 billion and OIBDA decreased 26% to $114 million.
The whole sorry story was lower primetime ratings and losing primetime hours to the presidential election. In total, over the nine months, advertising sales fell by a colossal $504 million.
The only sparkling jewels in all of this was more syndication of the CSI TV franchise and online advertising (including CNET) in its Other Revenues section, which was up 31% to $187 million.
CBS was one of the first US broadcasting networks to embrace online, and yet still it is rooted firmly in broadcasting revenues, and gives a temperature reading to broadcasters everywhere in the Western economies, which have been too slow to embrace online.
Last quarter online advertising in the US fell in revenues terms for the first time since records began, so it looks as if CBS will continue to have a rough ride until well after this recession.