CBS Corporation (CBS)’s Toughened Stand Spells Trouble for Affiliates

CBS Corporation (NYSE:CBS) set an example for its affiliates through tough decision making in the matter of extracting pay-TV charges from them. From the information passed on to investors, it is clear that the broadcaster intends to squeeze revenue of $2 billion which will be inclusive of the charges paid by affiliate stations.

To prove how serious it is, the broadcasting giant relieved one of its affiliate stations in Indianapolis of its membership owing to a disagreement over fees. Obviously it was the television station which is owned by LIN Media LLC that suffered the most from this stance and the repercussions extended far beyond its ability to acquire programming. Bereft of its affiliation with CBS Corporation (NYSE:CBS), the station will now have to direct its efforts to find other programs to telecast at night and shell out a substantial amount of its revenue in the process.

CBS Corporation (CBS)

Another aftermath of this decision was the significant reduction in acquisition price that LIN Media LLC was supposed to receive from Media General which was to the tune of $1.6 billion. Courtesy of its split from CBS Corporation (NYSE:CBS), Media General downgraded the amount by 7% which translates to roughly about a $100 million. Thus, what was supposed to have been the biggest merger in case of TV-station was closed at a much lower level.

Courtesy of this casualty, experts related to the industry feel that now the process of hiking of fees levied by broadcasters on affiliate TV-stations will gather speed and soon the amount will have risen to 50% as opposed to the 45% that is being paid now. For TV stations this spells lesser profits and this in turn is likely to have a bearing on investors holding their shares.

As a Wells Fargo analyst, Marci Ryvicker, puts it –

“One of the big investor concerns has been that over time, the broadcast networks will squeeze station groups and request more and more from them in terms of program fees. And so the fantastic margins that these stations are getting on retransmission-consent revenue, which is the monthly fee they get from the cable guys, will go down.”

But in the process, CBS Corporation (NYSE:CBS) will get what it wants and that was exactly its intention when it decided to pull up a single TV-station over a fee dispute.

This article has been written by Vinita Basu.

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