CBS Corporation (NYSE:CBS) Will Continue to Expand its Cable Networks Because of Their ShowTime

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By Thomas Copeland on September 18, 2014 Financial

Due to the success of ShowTime networks, CBS Corporation’s (NYSE:CBS) cable operations have seen tremendous growth in the recent few years. Shows like Homeland, Dexter etc. have become a major hit and the new programs like Ray Donovan, Masters of Sex etc. have also done well in their premiere shows. ShowTime networks are distributed and are premium channels on a commercial level. They mostly generate their earnings from associate fees of distributed networks.

In 2013, there was a contribution of 14% to the overall earnings of CBS (NYSE:CBS) by the ShowTime segment and to EBITDA, it was about 21%. ShowTime’s main focus is original programming and its continued interest in it will lead to a great profit in business of cable networks in upcoming years.

CBS’ (NYSE:CBS) Cable operations’ overview

CBS’ (NYSE:CBS) cable operations cover a wide range of networks including ShowTime networks, CBS sports and Smithsonian networks. ShowTime networks cover a wide range of premium TV channels including ShowTime, The Movie Channel and Flix. To gain access to the programs offered by these premium channels, the subscribers pay monthly additional premiums in the U.S. For example, to get access to the ShowTime channel the customers of Comcast (NASDAQ:CMCSA) have to pay an additional $10.

The programming of CBS Corporation’s (NYSE:CBS) sports network is based especially on athletics and college sports. The subscribers’ rate for the ShowTime networks has grown tremendously in recent years. According to an estimate the subscribers’ rate has grown from 54.8 million (2007) to 76 million (2013). Due to this growth in the customer base, a rise in the earnings of cable networks has been observed; from $1.16 billion (2007) to $2.07 billion (2013).

Why is the growth so rapid?

The demand of ShowTime is the main cause of this rapid growth in cable networks. Reality shows and classical movies aired by Flix differentiate it from other channels, whose focus is airing only the latest movies; this makes the Flix more appealing. ShowTime network came up with Ray Donovan and Masters of Sex which were the two hits. However, in the season 2 the ratings went down to 33% and 6% for Masters of Sex and Ray Donovan respectively.

ShowTime has been airing another super-hit series Homeland for the past few years. In the first season, it had an average of 4.23 million viewers weekly. In 2012 when the second season was aired, the number of average viewers weekly went up to 5.9 million. The increment was about 37% between two seasons. Last year when the third season was aired, the number of viewers went up and it became the first ever show to cross an average of 7 million viewers weekly.

Considering the above factors, we believe that CBS (NYSE:CBS) networks will continue to grow to satisfy the demands of good content. According to an estimate, by the end of the forecast period the cable networks’ earnings will grow to $3 billion and for EBITDA it will grow to $1.5 billion by the end of 2021.