Last week, CBS reported total revenue of $3.81 billion for the second quarter, a 10% increase over Q2 2018s revenue of $3.47 billion. The company saw growth across all revenue streams, including 13% growth in affiliate and subscription fees, 12% growth in content licensing and distribution revenue, and 7% growth in advertising revenue. The companys direct-to-consumer OTT services, CBS All Access and Showtime, contributed to the revenue growth in the affiliate and subscription fee category. CBS has a goal of 25 million direct-to-consumer subscribers by 2022.
CBS delivered another outstanding quarter as we continue to execute on our long-term growth strategy, which is to invest in our premium content and direct-to-consumer streaming services, said Joe Ianniello, President and Acting Chief Executive Officer, CBS Corporation, in an August 8 news release.
Other highlights for the quarter include:
- Operating income increased 5% to $695 million, up from $659 million in Q2 2018.
- Adjusted operating income increased 1% to $702 million, up from $694 million in Q2 2018. Increases were driven by revenue growth which was offset by higher costs as the company invested in content and the expansion of direct-to-consumer streaming services.
- Corporate expenses dropped by $5 million due to lower executive compensation costs.
- Net earnings for the quarter were $440 million, a 10% increase from $400 million, year-over-year.
- Adjusted net earnings for the quarter were $435 million, a 2% increase from $427 million, year-over-year.
- Diluted earnings per share were $1.17, an 11% increase over $1.05 for Q2 2018.
- Adjusted diluted earnings per share were $1.16, a 4% increase over $1.12 for Q2 2018.
The companys entertainment segment yielded $2.74 billion, or 72% of total revenue. Cable networks, publishing and local media contributed the balance of the revenue. Entertainment revenues for the quarter increased by 14% due to CBS Televisions broadcast of the national semifinals and championship game of the NCAA tournament, and a 22% growth in affiliate and subscription revenues, including subscriber growth of CBS All Access. In the cable network business segment, a 2% increase in revenue is partially attributed to growth in the Showtime streaming subscription service.
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Five days after the earnings report, CBS and Viacom issued a news release announcing their intention to merge in an all-stock transaction. Combined, the companies are expected to generate more than $28 billion in revenue annually. Viacom and CBS were merged previously, but broke up in 2006.
The new company will be called ViacomCBS Inc. and will include more than 140,000 TV episodes and 3,600 films, as well as MTV, Showtime, Nickelodeon, BET, the CW and other brands. Bob Bakish, president and CEO of Viacom will be the president and CEO of the combined company.
Today marks an important day for CBS and Viacom, as we unite our complementary assets and capabilities and become one of only a few companies with the breadth and depth of content and reach to shape the future of our industry. Our unique ability to produce premium and popular content for global audiences at scale – for our own platforms and for our partners around the world – will enable us to maximize our business for today, while positioning us to lead for years to come. As we look to the future, I couldnt be more excited about the opportunities ahead for the combined company and all of our stakeholders – including consumers, the creative community, commercial partners, employees and,
of course, our shareholders, said Bakish in an August 13 news release.
Joe Ianniello, president and acting CEO of CBS, will become the chairman and CEO of CBS. He will oversee all CBS-branded assets.
This merger brings an exciting new set of opportunities to both companies. At CBS, we have outstanding momentum right now – creatively and operationally – and Viacoms portfolio will
help accelerate that progress. I look forward to all we will do together as we build on our ongoing success. And personally, I am pleased to remain focused on CBSs top priority – continuing our transformation into a global, multiplatform, premium content company, Ianniello said.
The merger will give the combined company the largest share of the U.S. TV audience. Both company boards unanimously approved the deal which is subject to the standard regulatory approvals and closing conditions. The merger is expected to close by the end of the calendar year.
Why merge? To accelerate the companies direct-to-consumer strategies, enhance distribution and advertising opportunities, and create a large-scale, leading producer and licensor of premium content to third-party platforms around the world.
A previous marriage between Viacom and CBS didnt work, but their break-up didnt stick either. In the current entertainment climate, this is a good time to try a reunion. With direct-to-consumer streaming services like Netflix and Hulu as strong competitors, and new services like Disney+ and HBO Max coming soon, Viacom and CBS have more leverage and resources as a combined entity than as individual companies. Plus theyve had more than a dozen years to learn from their past mistakes. Well be following this closely to see what the companies do differently this time around.