UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2014 | ||
OR | ||
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to | ||
Commission File Number 001-09553
CBS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE (State or other jurisdiction of incorporation or organization) | 04-2949533 (I.R.S. Employer Identification Number) | |
51 W. 52nd Street New York, NY 10019 (212) 975-4321 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) |
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |||
Class A Common Stock, $0.001 par value | New York Stock Exchange | |||
Class B Common Stock, $0.001 par value | New York Stock Exchange | |||
7.625% Senior Debentures due 2016 | NYSE MKT | |||
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act of 1933). Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, or smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x
As of June 30, 2014, which was the last business day of the registrant's most recently completed second fiscal quarter, the market value of the shares of CBS Corporation Class A Common Stock, $0.001 par value ("Class A Common Stock"), held by non-affiliates was approximately $489,547,031 (based upon the closing price of $62.10 per share as reported by the New York Stock Exchange on that date) and the market value of the shares of CBS Corporation Class B Common Stock, $0.001 par value ("Class B Common Stock"), held by non-affiliates was approximately $32,274,761,558 (based upon the closing price of $62.14 per share as reported by the New York Stock Exchange on that date); and the aggregate market value of the shares of both Class A Common Stock and Class B Common Stock held by non-affiliates was $32,764,308,589.
As of February 10, 2015, 37,826,904 shares of Class A Common Stock and 459,445,346 shares of Class B Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of CBS Corporation's Notice of 2015 Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the "Proxy Statement") (Portion of Item 5; Part III).
PART I
Item 1. Business.
CBS Corporation (together with its consolidated subsidiaries unless the context otherwise requires, the “Company” or “CBS Corp.”) is a mass media company with operations in the following segments:
• | ENTERTAINMENT: The Entertainment segment is composed of the CBS® Television Network; CBS Television Studios; CBS Global Distribution Group (composed of CBS Studios International and CBS Television Distribution); CBS Interactive®; and CBS Films®. |
• | CABLE NETWORKS: The Cable Networks segment is composed of Showtime Networks, which operates the the Company’s premium subscription program services, Showtime®, The Movie Channel®, and Flix®; CBS Sports Network®, the Company’s cable network focused on college athletics and other sports; and Smithsonian Networks™, a venture between Showtime Networks and Smithsonian Institution, which operates Smithsonian Channel™, a basic cable program service. |
• | PUBLISHING: The Publishing segment is composed of Simon & Schuster, which publishes and distributes consumer books under imprints such as Simon & Schuster®, Pocket Books®, Scribner® and Atria Books®. |
• | LOCAL BROADCASTING: The Local Broadcasting segment is composed of CBS Television Stations, the Company’s 30 owned broadcast television stations; and CBS Radio®, through which the Company owns and operates 117 radio stations in 26 United States (“U.S.”) markets. |
For the year ended December 31, 2014, contributions to the Company’s consolidated revenues from its segments were as follows: Entertainment 60%, Cable Networks 16%, Publishing 6% and Local Broadcasting 20%. The Company generated approximately 13% of its total revenues from international regions in 2014. For the year ended December 31, 2014, approximately 52% and 13% of total international revenues of approximately $1.79 billion were generated in Europe and Canada, respectively.
The Company operates businesses which span the media and entertainment industries, including the CBS Television Network, cable networks, content production and distribution, television and radio stations, Internet-based businesses, and consumer publishing. The Company’s principal strategy is to create and acquire premium content that is widely accepted by audiences, and to generate both advertising and non‑advertising revenues from the distribution of this content on multiple media platforms and to various geographic locations. The Company is increasing its investment in both Company-owned and acquired premium content to enhance its opportunities for revenue growth, which include exhibiting its content on digital and other platforms through licensing and subscription services; expanding the distribution of its content internationally; and securing compensation from multichannel video programming distributors (“MVPDs”), including cable, direct broadcast satellite (“DBS”), telephone company, and other distributors, for authorizing the MVPDs’ carriage of the Company’s owned television stations (also known as “retransmission fees”) and cable networks, and securing compensation from television stations affiliated with the CBS Television Network (“station affiliation fees” also known as “reverse compensation”). The Company also seeks to grow its advertising revenues by monetizing all content viewership as industry measurements evolve to reflect viewers’ changing habits.
On April 2, 2014, CBS Outdoor Americas Inc. (“Outdoor Americas”), which was previously a subsidiary of the Company and has been renamed Outfront Media Inc., completed an initial public offering through which it sold approximately 19%, of its common stock and, on July 16, 2014, the Company disposed of its approximately 81% ownership of Outdoor Americas through a tax-free split-off. During 2013, the Company completed the sale of its outdoor advertising business in Europe (“Outdoor Europe”). Outdoor Americas and Outdoor Europe have been presented as discontinued operations in the Company’s consolidated financial statements for all periods presented.
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The Company competes with many different entities and media in various markets worldwide. In addition to competition in each of its businesses, the Company competes for opportunities in the entertainment business with other diversified entertainment companies such as The Walt Disney Company, NBCUniversal Media, LLC, Twenty-First Century Fox, Inc., Time Warner Inc., Cumulus Media Inc. and iHeartMedia, Inc.
As of December 31, 2014, National Amusements, Inc. (“NAI”), a closely held corporation that owns and operates approximately 945 movie screens in the U.S., the United Kingdom (“U.K.”) and South America and manages 4 movie screens in South America, directly or indirectly owned approximately 79.6% of the Company’s voting Class A Common Stock, and approximately 7.8% of the Company’s Class A Common Stock and Class B Common Stock on a combined basis. Owners of the Company’s Class A Common Stock are entitled to one vote per share. The Company’s Class B Common Stock does not have voting rights. NAI is not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Sumner M. Redstone, the controlling shareholder of NAI, is the Executive Chairman of the Board of Directors and Founder of the Company.
The Company was organized in Delaware in 1986. The Company’s principal offices are located at 51 W. 52nd Street, New York, New York 10019. Its telephone number is (212) 975-4321 and its Website address is www.cbscorporation.com.
CBS CORP. BUSINESS SEGMENTS
Entertainment (60%, 62% and 60% of the Company's consolidated revenues in 2014, 2013 and 2012, respectively, and 45%, 53% and 50% of the Company's consolidated operating income in 2014, 2013 and 2012, respectively)
The Entertainment segment consists of the CBS Television Network; CBS Television Studios and CBS Global Distribution Group (composed of CBS Studios International and CBS Television Distribution), the Company’s television production and syndication operations; CBS Interactive, the Company’s online content networks for information and entertainment; and CBS Films, the Company’s producer and distributor of theatrical motion pictures.
Television Network. The CBS Television Network through CBS Entertainment™, CBS News® and CBS Sports® distributes a comprehensive schedule of news and public affairs broadcasts, sports and entertainment programming to more than 200 domestic affiliates reaching throughout the U.S., including 16 of the Company’s owned and operated television stations, and to affiliated stations in certain U.S. territories.
The CBS Television Network primarily derives revenues from the sale of advertising time for its network broadcasts. A significant portion of the advertising spots sold for the network’s non-sports programming occurs annually generally during May through July in the industry’s upfront advertising market for the upcoming television broadcast season, which runs for one year generally commencing in mid-September. Advertisers purchase the remaining advertising spots closer to the broadcast of the related programming in the scatter advertising market. Overall advertising revenue for the network is also impacted by audience ratings for its programming. The Company offers dynamic advertising insertions for the CBS Television Network's on demand programming, which allow the Company to change advertisements at any time within such programming and offer advertisers greater audience reach. In addition, the CBS Television Network’s revenues include station affiliation fees.
CBS Entertainment is responsible for acquiring or developing and scheduling the entertainment programming presented on the CBS Television Network, which includes primetime comedy and drama series, reality‑based programming, specials, children’s programs, daytime dramas, game shows and late-night programs. CBS News operates a worldwide news organization, providing the CBS Television Network and the CBS Radio Network™ with regularly scheduled news and public affairs broadcasts, including 60 Minutes, 48 Hours Mystery, CBS Evening News with Scott Pelley, CBS This Morning, CBS Sunday Morning and Face the Nation as well as special reports. CBS News also provides CBS Newspath®, a television news syndication service that offers daily news coverage, sports highlights and news features to the CBS Television Network affiliates and other subscribers worldwide. CBS Sports broadcasts include The NFL Today, certain games from the NCAA Division I Men’s Basketball Tournament, the PGA Golf Tour, Masters Tournament and PGA Championship, regular-season college football and basketball games on network
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television, in addition to the NFL’s American Football Conference (AFC) regular-season, post-season divisional playoff and championship games. CBS broadcast the AFC in the 2014 season and has rights to broadcast the AFC through the 2022 season, including certain National Football Conference regular season games and the Super Bowls in 2016, 2019 and 2022. In February 2014, the Company announced an agreement with the NFL to produce and broadcast Thursday Night Football for the 2014 season, which, in January 2015, was extended for the 2015 season. CBS Television Network content also is exhibited via the Internet, including through CBS.com, CBS All Access™, a digital subscription streaming service, which the Company launched in October 2014, and CBSN, a live streaming digital advertiser-supported news network available 24 hours a day, seven days a week, which the Company launched in November 2014.
The CW, a broadcast network and the Company’s 50/50 joint venture with Warner Bros. Entertainment, airs programming, including, The Vampire Diaries, Jane the Virgin, Reign and America’s Next Top Model. Eight of the Company’s owned television stations are affiliates of The CW. Certain of The CW’s programming is streamed on video-on-demand services owned by each of Hulu, LLC and Netflix, Inc. pursuant to license agreements.
Television Production and Syndication. CBS Television Studios and CBS Global Distribution Group produce, acquire and/or distribute programming worldwide, including series, specials, news and public affairs, and generate revenue principally from the licensing and distribution of such programming. The programming is produced primarily for broadcast on network television, exhibition on basic cable and premium subscription services or distribution via first‑run syndication. First-run syndication is programming exhibited on television stations without prior exhibition on a network or cable service. The Company subsequently distributes programming after its initial exhibition on a network, basic cable network or premium subscription service for domestic exhibition on television stations, cable networks or video-on-demand services (known as “off-network syndicated programming”). Off-network syndicated programming and first‑run syndicated programming distributed domestically, as well as programming distributed internationally, can sometimes be sold in successive cycles of sales known as “first cycle,” “second cycle” sales, and so on, which may occur on exclusive or non-exclusive bases. Generally, license fees may decrease with successive sales cycles due to increased program exhibitions.
Programming that was produced or co-produced by the Company’s production group and is broadcast on network television includes, among others, CSI: Crime Scene Investigation (CBS), NCIS (CBS), The Good Wife (CBS), Madam Secretary (CBS) and Scorpion (CBS). Generally, a network will license a specified number of episodes for broadcast on the network in the U.S. during a license period. Remaining distribution rights, including international and/or off‑network syndication rights, are typically retained by the Company or, in the case of co-productions, distribution rights are shared with the co-producer for U.S. or international markets. The network license fee for a series episode is normally lower than the costs of producing the episode; however, the Company’s objective is to recoup its costs and earn a profit through various forms of distribution, including international licensing, domestic syndication and digital streaming of episodes. International sales of network series are generally made within one year of the U.S. network run, although, increasingly, this time frame is being shortened. Generally, a series must have a network run of at least three or four years to be successfully sold in domestic off-network syndication. In off-network syndication, the Company distributes series such as Hawaii Five-O, Criminal Minds, Blue Bloods, The Good Wife, NCIS and NCIS: Los Angeles as well as a library of older television programs. The Company also produces and/or distributes first- run syndicated series such as Wheel of Fortune, Jeopardy!, Entertainment Tonight, Inside Edition, The Insider, Dr. Phil, Rachael Ray, Hot Bench and Judge Judy. The Company also distributes syndicated and other programming internationally.
The Company continues to monetize its content through digital media. It enters into and renews numerous multi-year licensing agreements for distribution of certain of its programming to various services, including the digital streaming on subscription video-on-demand services owned by Netflix (in the U.S., Canada, countries in Europe and Latin America), Amazon (in the U.S., Germany and the U.K.), Comcast, Hulu, Hulu Plus (each, in the U.S.), Nippon TV (in Japan), DLA (in countries in Latin America and the Caribbean), Canal Play (in France), Telefonica (in Spain), StreamCo, Foxtel (each, in Australia), Bell Media, Shomi (each, in Canada) and Telecom NZ (in New Zealand), among others; and the digital downloading on various electronic-sell-through services owned by Apple (in the U.S., Canada, Australia and countries in Europe), Amazon (in the U.S., Germany and the U.K.), Google and Microsoft
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(each, in the U.S.), among others. In October 2014, the Company and Sony Network Entertainment International LLC entered into an agreement for certain of the Company’s programming to be exhibited on Sony’s broadband pay television service, PlayStation Vue.
Fees for television programming licensed for syndication and digital streaming are recorded as revenues at the beginning of the license period in which the programs are made available for exhibition, which, among other reasons, may cause substantial fluctuations in the Entertainment segment’s operating results. Unrecognized revenues attributable to such license agreements were $1.02 billion and $1.14 billion at December 31, 2014 and December 31, 2013, respectively.
The Company has a global channel presence through domestic and international joint ventures. The Company owns a 50% interest in a joint venture with Lionsgate, which owns and operates the entertainment cable network, POP™ (formerly known as TVGN, TV Guide Network). The Company owns a 49% interest in a joint venture with a subsidiary of AMC Networks Inc., which owns and operates six cable and satellite channels in the U.K. and Ireland, including CBS Action™, CBS Drama™ and CBS Reality™. The Company also owns a 30% interest in a joint venture with another subsidiary of AMC Networks, which owns and operates nine cable and satellite channels in Europe, the Middle East and Africa broadcasting CBS programming and branded as CBS Action™, CBS Drama™, CBS Reality™ and CBS Europa™. In Australia, the Company owns an approximately 33% interest in a joint venture with a subsidiary of Ten Network Holdings Limited to provide content to ELEVEN™, a digital television channel service. The Company owns a 30% interest in a joint venture with RTL Group, which owns and operates two cable channels in Southeast Asia in English and local languages, RTL CBS Entertainment™ and RTL CBS Extreme™.
CBS Interactive. CBS Interactive is one of the leading global publishers of premium content on the Internet. CBS Interactive was ranked among the top Internet properties in the world according to comScore Media Metrix, December 2014. CBS Interactive’s leading brands, including CNET, CBS.com, CBSSports.com, GameSpot, TVGuide.com, TV.com, CBSNews.com, ZDNet, Last.fm, and MetroLyrics.com, among others, serve targeted audiences with text, video, audio, and mobile content spanning technology, entertainment, sports, news, business, gaming and music categories. In addition to its U.S.‑based business, CBS Interactive operates in Asia, Australia and Europe. CBS Interactive’s worldwide brands reached approximately 294 million unique monthly visitors during December 2014 according to comScore Media Metrix, December 2014.
CBS Interactive generates revenue principally from the sale of advertising and sponsorships, in addition to fees derived from search and commerce partners, licensing fees, subscriptions, e-commerce activities, and other paid services. Advertising spending on the Internet, as in traditional media, fluctuates significantly with economic conditions. In addition, online marketing spending follows seasonal consumer behavior throughout the calendar year to reflect trends during the calendar year.
CBS Interactive owns and operates digital properties, including: CNET, one of the preeminent Websites for technology and consumer electronics information and featuring news, reviews, downloads and instructional and entertaining video and audio shows about technology; CNET en Espanol, which delivers CNET.com’s information in the U.S. to Spanish speakers; TVGuide Digital, which provides comprehensive information about television programming; GameSpot, a leading gaming information Website providing video game reviews and previews, news, eSports, Webcasts, videos, and game downloads; CBSSports Digital, which provides sports content, fantasy sports, community and e‑commerce features, and also owns and which operates MaxPreps; Last.fm, which is a music recommendation, discovery and social networking site; MetroLyrics.com, which is one of the most popular databases for song lyrics online; and TV.com, which is a destination for entertainment and community around television where visitors can watch videos and discuss and obtain information about television shows across all networks.
CBS Interactive also operates CBS.com, the online destination for CBS Television Network programming. Further extending the CBS.com experience, the Company offers a CBS software application (or “app”) offering on-demand streaming of various programs from the Company’s current network programming and library to Android, iPhone, iPad and Windows 8 users. In October 2014, the Company launched CBS All Access, a digital subscription streaming service offering a more extensive on-demand selection of CBS Television Network content as well as the ability to
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stream live programming from local CBS Television Stations in 14 markets as of February 1, 2015. CBS All Access is available at CBS.com and on mobile devices through the CBS App for iOS and Android. In November 2014, the Company launched CBSN, a live streaming digital advertiser-supported news network available 24 hours a day, seven days a week. CBSN is available at CBSNews.com, on devices through its mobile Website, the CBS News App for iOS and Windows 8 and through Internet-connected television platforms, including Roku, Apple TV and Amazon Fire TV. Through the CBS Audience Network™, the Company delivers video content from its Websites and television, radio and affiliated stations under an advertiser-supported distribution model to third-party Websites. The growing slate of the Company’s content available online includes full episodes, clips and highlights based on CBS, CBS Sports Network and Showtime Networks programming as well as original made-for-the-Web content.
CBS Films. CBS Films produces, acquires and distributes theatrical motion pictures across all genres. The budget for each picture is intended to be up to $50 million plus advertising and marketing costs at a level consistent with industry custom. The majority of motion pictures produced or acquired by CBS Films is intended for a wide, commercial theatrical release, similar to motion pictures typically produced and released by major studios. CBS Films’ theatrical releases in 2014 were What If, Pride, Gambit and Afflicted.
In general, motion pictures produced or acquired by CBS Films are exhibited theatrically in the U.S. and internationally, followed by exploitation via home entertainment (including DVDs and Blu-ray Discs and electronic rental and sell-through), video-on-demand, pay-per-view, pay television, free television and basic cable, digital media outlets and, in some cases, other channels such as airlines and hotels. CBS Films exploits its motion pictures (including certain ancillary rights, such as licensing and merchandising) and generates revenues in all media in the relevant release windows either directly, through affiliated CBS entities, or via third party distribution arrangements, including CBS Films’ multi-year agreement with Lions Gate Films, which was entered into in November 2014, for Lions Gate Films to distribute CBS Films’ new wide-release motion pictures in all media, except U.S. pay television.
Entertainment Competition.
Television Network. The television broadcast environment is highly competitive. The principal methods of competition in broadcast television are the development and acquisition of popular programming and the development of audience interest through programming and promotion, in order to sell advertising at profitable rates. Broadcast networks like CBS compete for audience, advertising revenues and programming with other broadcast networks such as ABC, FOX, NBC, The CW and MyNetworkTV, independent television stations, cable program services as well as other media, including DVDs and Blu‑ray Discs, digital program services, print and the Internet. In addition, the CBS Television Network competes with the other broadcast networks to secure affiliations with independently owned television stations in markets across the country, which are necessary to ensure the effective distribution of network programming to a nationwide audience.
Television Production and Syndication. As a producer and distributor of programming, the Company competes with studios, television production groups, and independent producers and syndicators such as Disney, Fox, NBCUniversal, Sony and Warner Bros. to produce and sell programming both domestically and internationally. The Company also competes to obtain creative talent and story properties which are essential to the success of all of the Company’s entertainment businesses.
CBS Interactive. CBS Interactive competes with a variety of online properties for users, advertisers, and partners, including the following: general purpose portals such as AOL, MSN and Yahoo!, especially as these properties expand their content offerings; search engines such as Google, Yahoo! and Bing; online comparison shopping and retail properties, including Amazon.com; vertical content sites in the categories that CBS Interactive’s brands serve, such as technology, gaming, music, news, business, food, and lifestyle focused Websites; other content sites such as Hulu, HBO GO and ESPN.com as well as major television broadcast company Websites; and platforms such as blogs, podcasts and video properties. CBS Interactive also competes for users and advertisers with diversified media companies that provide both online and offline content, including magazines, cable television, network television, radio and newspapers.
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CBS Films. Motion picture production and distribution is a highly competitive business. During the life cycle of the development and production of a motion picture project, CBS Films must compete for the rights to compelling underlying source material and talent such as writers, producers, directors, on-screen performers and other creative personnel. CBS Films must also compete with other buyers for the acquisition of third-party produced motion pictures. Once a motion picture is completed or acquired, CBS Films must compete with numerous other motion pictures produced and/or distributed by various studios and independent producers including Paramount Pictures Corporation, Walt Disney Studios Motion Pictures, Warner Bros. Entertainment Inc., Lions Gate Entertainment, The Weinstein Company, Relativity Media, Metro-Goldwyn-Mayer Studios Inc. and Lakeshore Entertainment Group, among others, for audience acceptance as well as limited exhibition outlets across all of the relevant release windows. In addition, the ultimate consumer has many options for entertainment other than motion pictures including video games, sports, travel, outdoor recreation, the Internet, and other cultural and computer-related activities.
Cable Networks (16%, 15% and 14% of the Company's consolidated revenues in 2014, 2013 and 2012, respectively, and 34%, 29% and 28% of the Company's consolidated operating income in 2014, 2013 and 2012, respectively)
The Cable Networks segment is composed of Showtime Networks, which operates the Company’s premium subscription program services; CBS Sports Network, the Company’s cable network focused on college athletics and other sports; and Smithsonian Networks, a venture with Smithsonian Institution, which operates Smithsonian Channel.
Showtime Networks. Showtime Networks owns and operates three commercial‑free, premium subscription program services in the U.S.: Showtime, offering original series, recently released theatrical feature films, documentaries, boxing and other sports-related programming, and special events; The Movie Channel, offering recently released theatrical feature films and related programming; and Flix, offering theatrical feature films primarily from the last several decades. At December 31, 2014, Showtime, The Movie Channel and Flix, in the aggregate, had approximately 76 million subscriptions in the U.S., certain U.S. territories and Bermuda.
Showtime Networks also owns and operates multiplexed channels of Showtime and The Movie Channel in the U.S. which offer additional and varied programming choices. Showtime Networks makes versions of Showtime, The Movie Channel and Flix available “on demand,” enabling subscribers to watch individual programs at their convenience. Showtime Networks also makes available Showtime Anytime®, an authenticated version of Showtime, which can be accessed on computers via showtimeanytime.com or via certain Internet-connected devices through a Showtime Anytime app free of charge to Showtime subscribers as part of their Showtime subscription through participating Showtime Networks’ distributors. Through Showtime Anytime, Showtime subscribers can view hundreds of hours of on demand programming as well as live telecasts of the east and west coast feeds of Showtime. Showtime Networks additionally operates the Website SHO.com and various apps, which promote Showtime, The Movie Channel and Flix programming, and provide information and entertainment and other services.
Showtime Networks derives revenue principally from the license of its program services to numerous MVPDs, with a substantial portion of such revenue coming from three of the largest such distributors. The costs of acquiring exhibition rights to programming and producing original series are the principal expenses of Showtime Networks. Showtime Networks enters into commitments to acquire rights, with an emphasis on acquiring exclusive rights for Showtime and The Movie Channel, from motion picture studios and other distributors typically covering the U.S. and Bermuda for varying durations, including exclusive motion picture output agreements with CBS Films, Buena Vista Pay Television, a subsidiary of The Walt Disney Company (for certain DreamWorks motion pictures), The Weinstein Company, Open Road Films and STX Entertainment. Showtime Networks’ original series in 2014 included Homeland, Ray Donovan, Masters of Sex, The Affair, Penny Dreadful, Shameless, Nurse Jackie, House of Lies and Episodes, among others. Showtime Networks also telecasts various sports-related programs, including Inside the NFL, 60 Minutes Sports and Jim Rome on Showtime. Showtime Networks has entered into and may from time to time enter into co-financing, co-production and/or distribution arrangements with other parties to reduce the net cost to Showtime Networks for its original programming. In addition, Showtime Networks derives revenue by licensing rights it retains in certain of its original programming. Showtime Networks and its corporate affiliate(s) enter into licensing arrangements with television networks, Internet content distributors, such as Netflix, iTunes and Amazon, and/or other
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media companies for the exhibition of certain Showtime original programming domestically and in various international territories, including Canada under an output agreement entered into with Bell Media Inc. in January 2015. Showtime Networks also produces and/or provides special events to licensees on a pay-per-view basis through Showtime PPV®, including in 2014, two Floyd Mayweather championship boxing matches.
Showtime Networks also owns a majority of and manages Smithsonian Networks, a venture with Smithsonian Institution, which operates Smithsonian Channel, a basic cable service in the U.S., featuring programs of a cultural, historical, scientific and educational nature. Smithsonian Networks offers a companion on‑demand version, makes Smithsonian Channel content available on an authenticated basis to certain distributors in the U.S. and licenses Smithsonian Channel content outside of the U.S., including to Blue Ant Television Ltd. in connection with Smithsonian Channel in Canada. Smithsonian Networks also operates the Website SmithsonianChannel.com and various apps, which promote Smithsonian Channel programming and provide information and entertainment services.
CBS Sports Network. CBS Sports Network is a 24 hours a day, seven days a week cable program service that provides sports and related content, with a strong focus on college sports. The network televises over 580 live professional, amateur, semi-professional and collegiate events annually, highlighted by Division I college football, basketball, hockey and lacrosse, as well as professional bull riding (PBR), professional lacrosse (MLL), arena football (AFL) and various styles of motor sports events (including asphalt, dirt, and off road racing). In addition, the network showcases a variety of original programming, including documentaries, features and , studio shows, highlighted by That Other Pre-Game Show (TOPS), NFL Monday QB, Inside College Basketball, Inside College Football, and a new show featuring a first of its kind all-female panel, We Need to Talk. CBS Sports Network also provides ancillary coverage for CBS Sports relating to major events such as the NCAA Division I Men’s Basketball Tournament, Masters Tournament and PGA Championship, and for Showtime Networks relating to Showtime Championship Boxing. CBS Sports Network produces weekday simulcasts of the radio shows Boomer and Carton and The Doug Gottlieb Show. Further, CBS Sports Network televises a diverse slate of additional programming under the CBS Sports Spectacular™ brand, including mixed martial arts, skiing, bowling, horse racing, volleyball, cheerleading and skate boarding, among other events. CBS Sports Network had approximately 55 million subscribers as of December 31, 2014. The network derives its revenues from subscription fees and the sale of advertising. CBS Sports Network has secured carriage arrangements with the top MVPDs.
Cable Networks Competition.
Showtime Networks. Showtime Networks primarily competes with other providers of premium subscription program services in the U.S., including Home Box Office, Inc. and Starz, LLC. Competition among these premium subscription program services in the U.S. is dependent on: (i) the production, acquisition and packaging of original series and other original programming and the acquisition and packaging of an adequate number of recently released theatrical motion pictures; and (ii) the offering of prices, marketing and advertising support and other incentives to MVPDs for carriage so as to favorably position and package Showtime Networks’ premium subscription program services to subscribers. In addition, Showtime Networks competes with non-traditional subscription programming services delivered via the Internet, such as Netflix and Amazon, for original programming, theatrical motion pictures and viewership. Showtime Networks also competes for programming, distribution and/or audiences with basic cable program services, broadcast television and other media, including DVDs and Blu-ray Discs, portable devices, video games and the Internet.
Smithsonian Networks competes for programming, distribution and/or audiences with non‑fiction and other basic cable program services, including Discovery Channel, National Geographic Channel and History, as well as with broadcast television and other media, such as DVDs and Blu-ray Discs, portable devices and the Internet.
CBS Sports Network. CBS Sports Network principally competes with cable programming services, including other sports‑oriented cable programming services, for distribution and license fee revenue among MVPDs, as well as for viewership and advertising revenue. The effects of consolidation among MVPDs and consumer pricing sensitivity have made it more difficult for niche channels to secure broad distribution in mainstream programming packages. In addition, the largest cable providers have created sports tiers for sports programming services which
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have not, in many cases, achieved significant subscriber penetration or acceptance. CBS Sports Network continues its repositioning to be included in programming packages with more subscribers. Re-alignment of college athletic conferences and their member institutions may adversely impact CBS Sports Network’s programming arrangements. CBS Sports Network also competes with cable programming services generally, including other sports programming services, such as ESPN, NBC Sports Network and the FOX Sports Networks, in acquiring the television and multimedia rights to sporting events, resulting in increased rights fees and increased production expenses.
The terms and favorable renewal of agreements with distributors for the distribution of the Company’s subscription program services are important to the Company. The effects of consolidation among MVPDs and other marketplace factors make it more difficult to reach and maintain favorable terms and could have an adverse effect on revenues.
Publishing (6% of the Company's consolidated revenues in 2014, 2013 and 2012, respectively, and 3%, 4% and 3% of the Company's consolidated operating income in each of 2014, 2013 and 2012, respectively)
The Publishing segment consists of Simon & Schuster, which publishes and distributes consumer books in the U.S. and internationally.
Simon & Schuster publishes and distributes adult and children’s consumer books in printed, digital and audio formats in the U.S. and internationally. Its digital formats include electronic books, and audio books. Simon & Schuster’s major adult imprints include Simon & Schuster, Pocket Books, Scribner, Atria Books, Gallery Books®, Touchstone®, Threshold Editions™ and Howard Books®. Simon & Schuster’s major children’s imprints include Simon Pulse®, Aladdin®, Atheneum Books for Young Readers™ and Simon & Schuster Books For Young Readers™. Simon & Schuster also develops special imprints and publishes titles based on the products of certain CBS businesses as well as that of third parties and distributes products for other publishers. Simon & Schuster distributes its products directly and through third parties. Simon & Schuster also delivers content and promotes its products on its own Websites, general Internet sites as well as those linked to individual titles. Its created assets include online videos showcasing Simon & Schuster authors and new releases on YouTube, iTunes, Blinkx, AOL, SimonandSchuster.com and other sites as well as online video courses led by authors made available for sale to consumers. International publishing includes the international distribution of English-language titles through Simon & Schuster UK, Simon & Schuster Canada, Simon & Schuster Australia, Simon & Schuster India and other distributors, as well as the publication of local titles by Simon & Schuster Canada, Simon & Schuster UK and Simon & Schuster Australia.
In 2014, Simon & Schuster published 294 New York Times bestsellers in hardcover, paperback and electronic formats, collectively, including 29 New York Times #1 bestsellers. Best-selling titles in 2014 include Hard Choices by Hillary Rodham Clinton, Revival by Stephen King and All the Light We Cannot See by Anthony Doerr. Bestselling children’s titles from Simon & Schuster include City of Heavenly Fire by Cassandra Clare, Rush Revere and the First Patriots by Rush Limbaugh and Dork Diaries 7 by Rachel Renée Russell. Simon & Schuster Digital™, through SimonandSchuster.com, publishes original content, builds reader communities and promotes and sells Simon & Schuster’s books over the Internet.
The consumer publishing marketplace is subject to increased periods of demand in the summer months and during the end‑of‑year holiday season. Major new title releases represent a significant portion of Simon & Schuster’s sales throughout the year. Simon & Schuster’s top two accounts drive a significant portion of its annual revenue. Consumer print books are generally sold on a fully returnable basis, resulting in the return of unsold books. In the domestic and international markets, the Company is subject to global trends and local economic conditions. In 2014, the sale of digital content represented approximately 26% of Simon & Schuster’s revenues. The Company expects that electronic books will continue to represent a significant portion of Simon & Schuster revenues in the coming years.
Publishing Competition. The consumer publishing business is highly competitive and has been affected over the years by consolidation trends and electronic distribution methods and models. Mass merchandisers and on‑line retailers are significant factors in the industry contributing to the general trend toward consolidation in the retail channel. The growth of the electronic book market has impacted print book retailers and wholesalers and could result in a reduction of these channels for the sales and marketing of the Company’s books. In addition, unfavorable economic
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conditions and competition may adversely affect book retailers’ operations, including distribution of the Company’s books. The Company must compete with other larger publishers such as Penguin Random House, Hachette and Harper Collins for the rights to works by authors and sales to retailers and customers. Competition is particularly strong for well‑known authors and public personalities. In addition, technological changes have made it increasingly possible for authors to self‑publish and have led to the development of new digital distribution models in which the Company’s books must compete with the availability of both a larger volume of books as well as non‑book content.
Local Broadcasting (20%, 19% and 22% of the Company's consolidated revenues in 2014, 2013 and 2012, respectively, and 28%, 27% and 31% of the Company's consolidated operating income in 2014, 2013 and 2012, respectively)
The Local Broadcasting segment is composed of CBS Television Stations, the Company’s 30 owned broadcast television stations, and CBS Radio, through which the Company owns and operates 117 radio stations in 26 U.S. markets and related online properties. The Company operates local Websites in major U.S. markets, including New York, Los Angeles, Chicago, San Francisco and Dallas, which combine the Company’s television and radio local media brands online to provide the latest news, traffic, weather, and sports information as well as local discounts, directories and reviews to serve the local community.
CBS Television Stations. The Company owns 30 broadcast television stations through its CBS Television Stations group, all of which operate under licenses granted by the Federal Communications Commission (“FCC”) pursuant to the Communications Act of 1934, as amended (the “Communications Act”). The licenses are renewable every eight years. The Company’s television stations are located in the 7 largest, and 15 of the top 20, television markets in the U.S. The Company owns multiple television stations within the same designated market area (“DMA”) in 10 major markets. These multiple station markets are: New York (market #1), Los Angeles (market #2), Philadelphia (market #4), Dallas-Fort Worth (market #5), San Francisco-Oakland-San Jose (market #6), Boston (market #7), Detroit (market #12), Miami-Ft. Lauderdale (market #16), Sacramento-Stockton-Modesto (market #20), and Pittsburgh (market #22). This group of television stations enables the Company to reach a wide audience within and across geographically diverse markets in the U.S. The stations produce news and broadcast public affairs, sports and other programming to serve their local markets and offer CBS, The CW or MyNetworkTV programming and syndicated programming. The CBS Television Stations group principally derives its revenues from the sale of advertising time on its television stations. In addition, the CBS Television Stations group receives retransmission fees from MVPDs for authorizing the MVPDs’ carriage of the Company’s owned television stations. Substantially all of the Company’s television stations operate Websites, many of which are combined with the Websites of the Company’s radio stations in co-located markets, which promote the stations’ programming and provide news, information, entertainment, and other services, through the CBS Local Digital Media group. These Websites principally derive revenues from the sale of advertising. The “Television Stations, Radio Stations and CBS Local Digital Media Websites” table below includes information with respect to these properties within top U.S. television markets and radio markets. In October 2014, the Company launched CBS All Access, a digital subscription streaming service offering an extensive on-demand selection of CBS Television Network content as well as the ability to stream live programming from local CBS Television Stations in 14 markets as of February 1, 2015. CBS Television Stations and Weigel Broadcasting plan to launch, in the second quarter of 2015, DECADES™, a new, national entertainment program service featuring classic television content, movies and original programming for local television stations’ digital sub-channels, which utilize a local television station's available broadcast spectrum to provide a companion to that station's primary channel.
CBS Radio. The Company’s radio broadcasting business operates through CBS Radio, one of the largest operators of radio stations in the U.S. CBS Radio owns and operates 117 radio stations serving 26 U.S. markets as of February 10, 2015. Virtually all of the Company’s owned and operated radio stations are located in the 50 largest U.S. radio markets and approximately 77% in the 25 largest U.S. radio markets. Most of the Company’s owned radio stations implement digital broadcasting. The Company’s strategy generally is to operate radio stations in the largest markets and take advantage of the Company’s ability to sell advertising across multiple markets and formats. CBS Sports Radio Network provides up to 24 hours a day, seven days a week of national sports programming to affiliated radio stations. The network has more than 300 affiliates across the country and Canada, including radio stations in all of the top 10 U.S. radio markets. Cumulus Media, as CBS Sports Radio Network’s exclusive syndicator, is responsible
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for securing radio station affiliates and for the network’s advertising sales. The Company believes that it is favorably impacted by offering radio and television platforms in large markets. In December 2014, the Company completed a radio station swap with Beasley Broadcast Group, Inc. through which the Company exchanged 13 of its radio stations in Tampa and Charlotte and one radio station in Philadelphia, for two radio stations in Philadelphia and three radio stations in Miami.
CBS Radio’s geographically dispersed stations serve diverse target demographics through a broad range of formats such as rock, classic hits/oldies, all‑news, talk, Spanish language, adult contemporary, top 40/contemporary hit radio, urban, sports and country, and CBS Radio has established leading franchises in news, sports and personality programming. This diversity provides advertisers with the convenience of selecting stations to reach a targeted demographic or groups of stations to reach broad groups of consumers within and across markets and also reduces the Company’s dependence on any single station, local economy, format or advertiser. At the same time, CBS Radio maintains substantial diversity in each market where its stations operate so that its stations can appeal to several demographic groups. CBS Radio’s general programming strategies include employing popular on-air talent, some of whose broadcasts may be syndicated by CBS Radio using the services of a third party syndicator, broadcasting programming syndicated to it by others, acquiring the rights to broadcast sports play‑by‑play and producing and acquiring news content for its radio stations. The overall mix of each radio station’s programming lineup is designed to fit the station’s specific format and serve its local community.
The majority of CBS Radio’s revenues are generated from the sale of local and national advertising. The major categories of radio advertisers include: automotive, retail, healthcare, telecommunications, insurance, fast food, beverage, movies and entertainment. CBS Radio is able to use the reach, diversity and branding of its radio stations to create unique division‑wide marketing and promotional initiatives for major national advertisers of products and services. Advertising expenditures by advertisers fluctuate, which has an effect on CBS Radio’s revenues.
Substantially all of the Company’s radio stations operate Websites, many of which are combined with the Websites of the Company’s television stations in co‑located markets, which promote the stations’ programming, and provide news, information and entertainment, as well as other services. The “Television Stations, Radio Stations and CBS Local Digital Media Websites” table below includes information with respect to these properties within top U.S. television markets and radio markets. Also, CBS Radio operates Websites for its music radio stations. All of these Websites are part of the CBS Local Digital Media group and principally derive revenues from the sale of advertising. CBS Radio is one of the most listened to online radio providers according to Triton Digital’s monthly Top 20 Ranker for November 2014.
Local Broadcasting Competition.
CBS Television Stations. Television stations compete for programming, on‑air talent, audiences and advertising revenues with other stations and cable networks in their respective coverage areas and, in some cases, with respect to programming, with other station groups, and, in the case of advertising revenues, with other local and national media. The owned and operated television stations’ competitive position is largely influenced by the quality of the syndicated programs and local news programs in time periods not programmed by the network; the strength of the CBS Television Network programming and, in particular, the viewership of the CBS Television Network in the time period immediately prior to the late evening news; and in some cases, by the quality of the broadcast signal.
CBS Radio. The Company’s radio stations directly compete within their respective markets for audience, advertising revenues and programming with other radio stations, including those owned by other group owners such as Cumulus Media Inc., Emmis Communications Corporation, Entercom Communications Corp, iHeartMedia, Inc. and Radio One, Inc. The Company’s radio stations, including their Internet and streaming activities, also compete with other media, such as broadcast, cable and DBS television, newspapers, magazines, direct mail, and the Internet, including services such as Pandora, Spotify and Rhapsody. The radio industry is also subject to competition from Sirius XM Holdings Inc., which provides digital audio services to subscribers.
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The Company’s television and radio stations face increasing competition from technologies such as audio and visual content delivered via the Internet, which create new ways for individuals to watch programming and listen to music and other content of their choosing while avoiding traditional commercial advertisements. Also, an increasingly broad adoption by consumers of portable digital devices could affect the ability of the Company’s television and radio stations to attract audiences and advertisers.
Aggregate total revenues for the Company’s radio stations for 2014 were ranked #1 or #2 in four of the top five U.S. markets by metro area population (New York, Los Angeles, Chicago, and San Francisco), according to the 2014 Market Total Revenues Performance Summary of Miller Kaplan Arase LLP.
Television Stations, Radio Stations and CBS Local Digital Media Websites
The following table sets forth information with regard to the Company’s owned television stations, radio stations and related CBS Local Digital Media Websites, as of February 10, 2015, within top U.S. television and radio markets:
Television | Radio | CBS Local Digital Media(1) | ||||||||
Market and Market Rank(2) | Stations | Type | Network Affiliation | Stations | AM/ FM | Format | Websites | |||
New York, NY | WCBS‑TV | UHF | CBS | WCBS | AM | News | newyork.cbslocal.com | |||
WLNY‑TV | UHF | Independent | WCBS | FM | Classic Hits | |||||
#1—Television | WFAN | AM | Sports | |||||||
#1—Radio | WFAN | FM | Sports | |||||||
WINS | AM | News | ||||||||
WBMP | FM | Top 40 | ||||||||
WWFS | FM | Hot Adult Contemporary | ||||||||
Los Angeles, CA(3) | KCAL‑TV | VHF | Independent | KAMP | FM | Top 40 | losangeles.cbslocal.com | |||
KCBS‑TV | UHF | CBS | KCBS | FM | Adult Hits | |||||
#2—Television | KNX | AM | News | |||||||
#2—Radio | KROQ | FM | Alternative | |||||||
KRTH | FM | Classic Hits | ||||||||
KTWV | FM | Smooth Adult Contemporary | ||||||||
Chicago, IL | WBBM‑TV | VHF | CBS | WBBM | AM | News | chicago.cbslocal.com | |||
WBBM | FM | Top 40 | ||||||||
#3—Television | WCFS | FM | News | |||||||
#3—Radio | WJMK | FM | Classic Hits | |||||||
WSCR | AM | Sports | ||||||||
WUSN | FM | Country | ||||||||
WXRT | FM | Adult Alternative | ||||||||
Philadelphia, PA | KYW‑TV | UHF | CBS | KYW | AM | News | philadelphia.cbslocal.com | |||
WPSG‑TV | UHF | The CW | WIP | FM | Sports | |||||
#4—Television | WOGL | FM | Classic Hits | |||||||
#8—Radio | WPHT | AM | News/Talk | |||||||
WRDW | FM | Top 40 | ||||||||
WXTU | FM | Country | ||||||||
Dallas‑Fort Worth, TX | KTVT‑TV | UHF | CBS | KJKK | FM | Adult Hits | dallas.cbslocal.com | |||
KTXA‑TV | UHF | Independent | KLUV | FM | Classic Hits | |||||
#5—Television | KMVK | FM | Spanish | |||||||
#5—Radio | KRLD | AM | News | |||||||
KRLD | FM | Sports | ||||||||
KVIL | FM | Hot Adult Contemporary | ||||||||
San Francisco, CA | KPIX‑TV | UHF | CBS | KCBS | AM | News | sanfrancisco.cbslocal.com | |||
KBCW‑TV | UHF | The CW | KFRC | FM | News | |||||
#6—Television | KITS | FM | Alternative | |||||||
#4—Radio | KLLC | FM | Hot Adult Contemporary | |||||||
KMVQ | FM | Top 40 | ||||||||
KZDG(4) | AM | Indian Talk/Music | ||||||||
Boston, MA | WBZ‑TV | UHF | CBS | WBMX | FM | Hot Adult Contemporary | boston.cbslocal.com | |||
WSBK‑TV | UHF | MyNetworkTV | WBZ | AM | News | |||||
#7—Television | WBZ | FM | Sports | |||||||
#10—Radio | WODS | FM | Top 40 | |||||||
WZLX | FM | Classic Rock | ||||||||
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Television | Radio | CBS Local Digital Media(1) | ||||||||
Market and Market Rank(2) | Stations | Type | Network Affiliation | Stations | AM/ FM | Format | Websites | |||
Washington, D.C. | WIAD | FM | Hot Adult Contemporary | washington.cbslocal.com | ||||||
WJFK | AM | Sports | ||||||||
#8—Television | WJFK | FM | Sports | |||||||
#7—Radio | WLZL | FM | Spanish | |||||||
WNEW | FM | News | ||||||||
WPGC | FM | Rhythmic Top 40 | ||||||||
Atlanta, GA | WUPA‑TV | UHF | The CW | WAOK | AM | News/Talk | atlanta.cbslocal.com | |||
WVEE | FM | Urban | ||||||||
#9—Television | WZGC | FM | Sports | |||||||
#9—Radio | ||||||||||
Houston, TX | KHMX | FM | Hot Adult Contemporary | houston.cbslocal.com | ||||||
KIKK | AM | Sports | ||||||||
#10—Television | KILT | AM | Sports | |||||||
#6—Radio | KILT | FM | Country | |||||||
KKHH | FM | Top 40 | ||||||||
KLOL | FM | Spanish | ||||||||
Phoenix, AZ | KMLE | FM | Country | |||||||
KOOL | FM | Classic Hits | ||||||||
#11—Television | KZON | FM | Top 40 | |||||||
#14—Radio | ||||||||||
Detroit, MI | WKBD‑TV | UHF | The CW | WDZH | FM | Top 40 | detroit.cbslocal.com | |||
WWJ‑TV | UHF | CBS | WOMC | FM | Classic Hits | |||||
#12—Television | WWJ | AM | News | |||||||
#12—Radio | WXYT | AM | Sports | |||||||
WXYT | FM | Sports | ||||||||
WYCD | FM | Country | ||||||||
Tampa‑St. Petersburg, FL | WTOG‑TV | UHF | The CW | tampa.cbslocal.com | ||||||
#13—Television | ||||||||||
#19—Radio | ||||||||||
Seattle‑Tacoma, WA | KSTW‑TV | VHF | The CW | KFNQ | AM | Sports | seattle.cbslocal.com | |||
KJAQ | FM | Adult Hits | ||||||||
#14—Television | KMPS | FM | Country | |||||||
#13—Radio | KZOK | FM | Classic Rock | |||||||
Minneapolis, MN | WCCO‑TV | UHF | CBS | KMNB | FM | Country | minnesota.cbslocal.com | |||
KCCO‑TV(5) | VHF | CBS | KZJK | FM | Adult Hits | |||||
#15—Television | KCCW‑TV(6) | VHF | CBS | WCCO | AM | News/Talk | ||||
#16—Radio | ||||||||||
Miami-Ft. Lauderdale, FL | WFOR‑TV | UHF | CBS | WKIS | FM | Country | miami.cbslocal.com | |||
WBFS‑TV | UHF | MyNetworkTV | WPOW | FM | Top 40 | |||||
#16—Television | WQAM | AM | Sports | |||||||
#11—Radio | ||||||||||
Denver, CO | KCNC‑TV | UHF | CBS | denver.cbslocal.com | ||||||
#17—Television | ||||||||||
#18—Radio | ||||||||||
Orlando, FL | WJHM | FM | Top 40 | |||||||
WOCL | FM | Classic Hits | ||||||||
#18—Television | WOMX | FM | Hot Adult Contemporary | |||||||
#33—Radio | ||||||||||
Cleveland, OH | WDOK | FM | Adult Contemporary | cleveland.cbslocal.com | ||||||
WKRK | FM | Sports | ||||||||
#19—Television | WNCX | FM | Classic Rock | |||||||
#31—Radio | WQAL | FM | Hot Adult Contemporary | |||||||
Sacramento, CA | KOVR-TV | UHF | CBS | KHTK | AM | Sports | sacramento.cbslocal.com | |||
KMAX-TV | UHF | The CW | KNCI | FM | Country | |||||
#20—Television | KSFM | FM | Rhythmic Top 40 | |||||||
#28—Radio | KYMX | FM | Adult Contemporary | |||||||
KZZO | FM | Hot Adult Contemporary | ||||||||
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Television | Radio | CBS Local Digital Media(1) | ||||||||
Market and Market Rank(2) | Stations | Type | Network Affiliation | Stations | AM/ FM | Format | Websites | |||
St. Louis, MO | KEZK | FM | Adult Contemporary | stlouis.cbslocal.com | ||||||
KMOX | AM | News/Talk | ||||||||
#21—Television | KYKY | FM | Hot Adult Contemporary | |||||||
#22—Radio | ||||||||||
Pittsburgh, PA | KDKA-TV | UHF | CBS | KDKA | AM | News/Talk | pittsburgh.cbslocal.com | |||
WPCW-TV | VHF | The CW | KDKA | FM | Sports | |||||
#22—Television | WBZZ | FM | Hot Adult Contemporary | |||||||
#26—Radio | WDSY | FM | Country | |||||||
Baltimore, MD | WJZ‑TV | VHF | CBS | WJZ | AM | Sports | baltimore.cbslocal.com | |||
WJZ | FM | Sports | ||||||||
#26—Television | WLIF | FM | Adult Contemporary | |||||||
#21—Radio | WWMX | FM | Hot Adult Contemporary | |||||||
Indianapolis, IN | WBXI-CA(7) | UHF | Independent | |||||||
#27—Television | ||||||||||
#39—Radio | ||||||||||
San Diego, CA | KEGY | FM | Top 40 | |||||||
KYXY | FM | Adult Contemporary | ||||||||
#28—Television | ||||||||||
#17—Radio | ||||||||||
Riverside-San Bernardino, CA | KFRG | FM | Country | |||||||
KRAK | AM | Sports | ||||||||
#25—Radio | KVFG | FM | Classic Hits | |||||||
KXFG | FM | Country | ||||||||
(1) | The CBS Local Digital Media group operates the Websites of the Company’s television stations and radio stations. Many of these Websites are combined for the television stations and non-music radio stations in co-located markets. The Websites provide news, information, entertainment, as well as other services, and promote stations’ programming. |
(2) | Television market (DMA) rankings based on Nielsen Media Research Local Market Universe Estimates, September 2014. Radio market (DMA) rankings based on Nielsen Audio Radio Market Survey, Fall 2014. |
(3) | As required by the FCC, the Company assigned KFWB-AM to a divestiture trust. The Company is a beneficiary of the trust. The trustee is operating the radio station and is responsible for selling the radio station to a third party. (See “CBS Business Segments—Regulation—Broadcasting—Ownership Regulation—Radio‑Television Cross‑Ownership Rule”). |
(4) | KZDG-AM in San Francisco, California, is programmed by a third party through a time brokerage agreement. |
(5) | KCCO-TV is operated as a satellite station of WCCO-TV. |
(6) | KCCW-TV is operated as a satellite station of WCCO-TV. |
(7) | WBXI-CA is a Class A low power television station. Class A low power television stations do not implicate the FCC’s ownership rules. |
REGULATION
The Company’s businesses are either subject to or affected by regulations of federal, state and local governmental authorities in the U.S. and of national, regional and local authorities in foreign countries. The rules, regulations, policies and procedures affecting these businesses are subject to change. The descriptions which follow are summaries and should be read in conjunction with the texts of the statutes, rules and regulations described herein. The descriptions do not purport to describe all present and proposed statutes, rules and regulations affecting the Company’s businesses.
Intellectual Property and Privacy
Laws affecting intellectual property are of significant importance to the Company. (See “Intellectual Property” on page I-17 for more information on the Company’s brands).
Unauthorized Distribution of Copyrighted Content and Piracy. Unauthorized distribution, reproduction or display of copyrighted material in digital formats without regard to content owners’ copyright rights in television programming, motion pictures, clips and books, such as through pirated DVDs and Blu-ray Discs, unauthorized stored copies and live streaming, Internet downloads, file “sharing” and peer-to-peer services, is a threat to copyright owners’ ability to protect and exploit their property. The Company’s digital delivery services and commercial arrangements with digital content providers help reduce the risks associated with unauthorized access to its content. The Company is
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also engaged in enforcement and other activities to protect its intellectual property and participates in various litigation, public relations programs and legislative activity.
Copyright Law and Content. The Company derives revenues from the creation and exploitation of creative content, for which the copyright law grants certain exclusive rights, including to reproduce, publicly perform and distribute. In the U.S., the copyright term for authored works is the life of the author plus 70 years. For works made for hire, the copyright term is the shorter of 95 years from the first publication or 120 years from creation. Any changes to copyright laws, including through court decisions, which diminish the scope of a copyright owner’s exclusive rights, could impact the Company.
Privacy. The laws and regulations governing the collection, use and transfer of consumer information are complex and rapidly evolving, particularly as they relate to the Company’s interactive businesses. The Company monitors and considers these laws and regulations in the design and operation of its Websites, digital content services and legal and regulatory compliance programs.
Broadcasting
General. Television and radio broadcasting are subject to the jurisdiction of the FCC pursuant to the Communications Act. The Communications Act empowers the FCC, among other actions, to issue, renew, revoke and modify broadcasting licenses; determine stations’ frequencies, locations and operating power; regulate some of the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act and other laws, including requirements affecting the content of broadcasts; and to impose penalties for violation of its regulations, including monetary forfeitures, short-term renewal of licenses and, in egregious cases, license revocation or denial of license renewals.
Under the Communications Act, the FCC also regulates certain aspects of the operation of MVPDs and certain other electronic media that compete with broadcast stations.
Indecency and Profanity Regulation. The FCC’s rules prohibit the broadcast of obscene material at any time and indecent or profane material between the hours of 6 a.m. and 10 p.m. Broadcasters risk violating the prohibition against broadcasting indecent or profane material because the vagueness of the FCC’s indecency/profanity definition makes it difficult to apply, particularly with respect to spontaneous, live programming. The FCC’s maximum forfeiture penalty per station for broadcasting indecent or profane programming is $325,000 per indecent or profane utterance with a maximum forfeiture exposure of $3 million for any continuing violation arising from a single act or failure to act. The Company has been involved in litigation and, from time to time, has received and may receive in the future letters of inquiry from the FCC prompted by complaints alleging that certain programming on its broadcast stations included indecent or profane material.
License Renewals. Radio and television broadcast licenses are typically granted for standard terms of eight years. The Communications Act requires the FCC to renew a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity and, with respect to the station, there have been no serious violations by the licensee of either the Communications Act or the FCC’s rules and regulations and there have been no other violations by the licensee of the Communications Act or the FCC’s rules and regulations that, taken together, constitute a pattern of abuse. The Company has a number of pending renewal applications. A station remains authorized to operate while its license renewal application is pending.
License Assignments. The Communications Act requires prior FCC approval for the assignment of a license or transfer of control of an FCC licensee. Third parties may oppose the Company’s applications to assign, transfer or acquire broadcast licenses.
Ownership Regulation. The Communications Act and FCC rules and regulations limit the ability of individuals and entities to have an official position or ownership interest, known as an “attributable” interest, above specific levels in broadcast stations as well as in other specified mass media entities. In seeking FCC approval for the acquisition of
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a broadcast radio or television station license, the acquiring person or entity must demonstrate that the acquisition complies with the FCC’s ownership rules or that a waiver of the rules is in the public interest.
The FCC adopted a notice of proposed rule‑making in its latest quadrennial review of broadcast ownership rules in April 2014 (“NPRM”), which incorporates the record of the FCC’s prior review of broadcast ownership rules, which started in December 2011. The FCC’s current ownership rules, certain proposed changes by and items for which the FCC is seeking comments under the NPRM, are briefly summarized below.
Local Radio Ownership. The FCC’s local radio ownership rule applies in all markets where the Company owns radio stations. Under that rule, one party may own up to eight radio stations in the largest markets, no more than five of which may be either AM or FM. With a few exceptions, the rule permits the common ownership of 8 radio stations in the top 50 markets, where CBS Radio has significant holdings.
Local Television Ownership. Under the FCC’s local television ownership rule, one party may own up to two television stations in the same DMA, so long as at least one of the two stations is not among the top-four ranked stations in the market based on audience share as of the date an application for approval of an acquisition is filed with the FCC, and at least eight independently owned and operating full-power television stations remain in the market following the acquisition of the second television station. The NPRM proposes to modify the local television station ownership rule to prohibit transactions involving the sale or swap of network affiliations between same-market television stations that result in an entity holding an attributable interest in two top-four ranked television stations. Further, without regard to the number of remaining independently owned television stations, the rule permits the ownership of more than one television station within the same DMA so long as certain signal contours of the stations involved do not overlap. “Satellite” television stations that simply rebroadcast the programming of a “parent” television station are exempt from the local television ownership rule if located in the same DMA as the “parent” station.
Television National Audience Reach Limitation. Under the FCC’s national television ownership rule, one party may not own television stations which reach more than 39% of all U.S. television households. For purposes of calculating the total number of television households reached by a station, the FCC attributes a UHF television station with only 50% of the television households in its market. In September 2013, the FCC adopted a notice of proposed rule‑making to eliminate the UHF discount, which remains pending. The Company currently owns and operates television stations that reach approximately 38% of all U.S. television households but for purposes of the national ownership limitation, the Company’s reach is less than this amount applying the UHF discount in accordance with the FCC’s methodology.
Radio-Television Cross-Ownership Rule. The radio-television cross-ownership rule limits the common ownership of radio and television stations in the same market. The numeric limit varies according to the number of independent media voices in the market. The Company owns a combination of radio and television stations in the Los Angeles market in excess of the limit. As required by the FCC, the Company assigned radio station KFWB-AM in Los Angeles to a divestiture trust. The Company is a beneficiary of the trust. The trustee is operating the radio station and is responsible for selling the radio station to a third party, the closing of which would bring the Company into compliance with this cross‑ownership rule.
Newspaper-Broadcast Cross-Ownership. The newspaper-broadcast cross- ownership rule prohibits the common ownership of a radio or television station and daily newspaper in the same market absent a waiver by the FCC. As part of its NPRM, the FCC seeks comment on: (1) whether the restriction on newspaper-radio cross-ownership should be eliminated, and (2) a rule that would presume a waiver of the restriction on newspaper-television cross-ownership to be consistent with the public interest if a daily newspaper sought to combine with a full-power commercial television station in the same top 20 television market, and (a) the television station is not ranked among the top four television stations in the market and (b) at least eight independently owned and operated “major media voices” would remain in the market after the combination.
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Dual Network Rule. The dual network rule prohibits any of the four major networks, ABC, CBS, FOX and NBC, from combining.
Attribution of Ownership. Under the FCC’s attribution rules, a direct or indirect purchaser of various types of securities of an entity which holds FCC licenses, such as the Company, could violate the foregoing FCC ownership regulations or policies if that purchaser owned or acquired an “attributable” interest in other media properties. Under the FCC’s rules, an “attributable” interest for purposes of the FCC’s broadcast ownership rules generally includes: equity and debt interests which combined exceed 33% of a licensee’s total assets, if the interest holder supplies more than 15% of the licensee’s total weekly programming, or has an attributable same-market media interest, whether television, radio, cable or newspaper; a 5% or greater direct or indirect voting stock interest, including certain interests held in trust, unless the holder is a qualified passive investor in which case the threshold is a 20% or greater voting stock interest; any equity interest in a limited liability company or a partnership, including a limited partnership, unless the interest holder is properly “insulated” from management activities; and any position as an officer or director of a licensee or of its direct or indirect parent. The FCC is reviewing its single majority voting shareholder attribution exemption, which renders as non‑attributable voting interests up to 49% in a licensee controlled by a single majority voting shareholder. Because NAI holds an attributable interest in both the Company and Viacom Inc., the business of each company is attributable to the other for certain FCC purposes, which may have the effect of limiting and affecting the activities, strategic business alternatives and business terms available to the Company. (See Item 1A. “Risk Factors—The Businesses of the Company and Viacom Inc. Will Be Attributable to the Other Company for Certain Regulatory Purposes, Which May Limit Business Opportunities”).
Alien Ownership. In general, the Communications Act prohibits foreign individuals or entities from owning more than 20% or more than 25%, depending on the circumstances, of the voting power or equity of the Company. In November 2013, the FCC provided additional information regarding its case-by-case review process for applications that propose foreign ownership that exceed such 25% threshold.
Cable and Satellite Carriage of Television Broadcast Stations. The 1992 Cable Act and implementing FCC regulations govern the retransmission of commercial television stations by cable television operators. Every three years, a television station must elect, with respect to cable systems within its DMA, either “must carry” status, pursuant to which the cable system’s carriage of the station is mandatory, or “retransmission consent,” pursuant to which the station gives up its right to mandatory carriage and secures instead the right to negotiate consideration in return for consenting to carriage. The Company’s owned television stations have elected the retransmission consent option in substantially all cases, and, since 2006, the Company has implemented a systematic process of seeking monetary consideration for its retransmission consent.
Similarly, federal legislation and FCC rules govern the retransmission of broadcast television stations by DBS operators. DBS operators are required to carry the signals of all local television broadcast stations requesting carriage in local markets in which the DBS operator carries at least one signal pursuant to the statutory local-to-local compulsory copyright license. Every three years, each television station in such markets must elect “must carry” or “retransmission consent” status, in a manner similar to that described above with respect to cable systems. The Company’s owned and operated television stations are being transmitted into their local markets by the two major DBS operators pursuant to retransmission consent agreements.
Children’s Television Programming. Federal legislation and FCC rules limit the amount and content of commercial matter that may be shown on television stations during programming designed for children 12 years of age and younger, and require stations to broadcast on their main program stream three hours per week of educational and informational programming (“E/I programming”) designed for children 16 years of age and younger. FCC rules also impose E/I programming requirements on each additional digital multicast program stream transmitted by television stations, with the requirement increasing in proportion to the additional hours of free programming offered on multicast channels. These rules also limit the display during children’s programming of Internet addresses of Websites that contain or link to commercial material or that use program characters to sell products.
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Program Access. Under the Communications Act, vertically integrated cable programmers (more fully described below) are generally prohibited from offering different prices, terms or conditions for programming to competing MVPDs unless the differential is justified by certain permissible factors set forth in the FCC’s regulations. Until 2012, the FCC’s “program access” rules also generally prohibited vertically integrated cable programmers from entering into exclusive distribution arrangements with cable operators. The FCC continues to assess the competitive impact of such individual exclusive contracts. A cable programmer is considered to be vertically integrated under the FCC’s program access attribution rules if it owns or is owned by a cable operator in whole or in part. Cable operators for this purpose may include telephone companies that provide video programming directly to subscribers.
The Company’s wholly owned program services are not currently subject to the program access rules. The Company’s flexibility to negotiate the most favorable terms available for carriage of these services and its ability to offer cable operators exclusive programming could be adversely affected if it were to become subject to the program access rules. Because the Company and Viacom Inc. are under common control by NAI, Viacom Inc.’s businesses could be attributable to the Company for purposes of the FCC’s program access rules. (See Item 1A. “Risk Factors—The Businesses of the Company and Viacom Inc. Will Be Attributable to the Other Company for Certain Regulatory Purposes, Which May Limit Business Opportunities”).
National Broadband Plan. In response to the FCC’s March 2010 National Broadband Plan, which seeks to provide affordable broadband access throughout the U.S., Congress passed legislation in February 2012 authorizing the FCC to conduct voluntary auctions of spectrum utilized by broadcast television stations to provide additional spectrum for wireless broadband services. The television stations that continue their operations may have to change channels once the FCC “repacks” the broadcast spectrum dedicated to broadcast television use. The legislation provides that the FCC will assist television stations in retaining their current coverage areas, no stations will be forced into the VHF band and a fund will be established to reimburse broadcasters for reasonable relocation expenses relating to the spectrum‑repacking. In September 2012, the FCC launched a rule-making proceeding to implement the auction legislation and auctions are expected to occur in 2016, followed by the repacking process.
INTELLECTUAL PROPERTY
The Company creates, owns, distributes and exploits under licenses intellectual property worldwide. It is the Company’s practice to protect its products, including its television, radio and motion picture products, characters, publications and other original and acquired works and audiovisual works made for digital exploitation. The following logos, trade names, trademarks and related trademark families are among those strongly identified with the product lines they represent and are significant assets of the Company: CBS®, CBS Entertainment™, CBS News®, CBS Sports®, CBSSports.com®, CBS All AccessTM CNET®, CBS Radio®, Showtime®, Showtime Anytime®, The Movie Channel®, Flix®, CBS Films®, CBS Audience Network™, TV.com™, Last.fm®, MetroLyrics®, CSI:®, NCIS®, Entertainment Tonight®, Star Trek®, Simon & Schuster®, CBS Sports Network®, CBS Interactive® and all the call letters for the Company’s television and radio stations. As a result, domestic and foreign laws protecting intellectual property rights are important to the Company and the Company actively enforces its intellectual property rights against infringements.
EMPLOYEES
At December 31, 2014, the Company employed approximately 17,310 full-time and part-time salaried employees and had approximately 5,630 additional project-based staff.
FINANCIAL INFORMATION ABOUT SEGMENTS AND FOREIGN AND DOMESTIC OPERATIONS
Financial and other information by segment and relating to foreign and domestic operations for each of the last three years ending December 31 is set forth in Note 16 to the Consolidated Financial Statements.
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AVAILABLE INFORMATION
CBS Corp. makes available free of charge on its Website, www.cbscorporation.com (Investors section), its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Such material is made available through the Company’s Website as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. These documents are also available on the Securities and Exchange Commission’s Website at www.sec.gov.
Item 1A. Risk Factors.
CAUTIONARY STATEMENT CONCERNING FORWARD‑LOOKING STATEMENTS
This document, including “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition,” and the documents incorporated by reference into this Annual Report on Form 10-K, contain both historical and forward‑looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward‑looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. These forward-looking statements are not based on historical facts, but rather reflect the Company’s current expectations concerning future results and events. These forward‑looking statements generally can be identified by the use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “may,” “could” or other similar words or phrases. Similarly, statements that describe the Company’s objectives, plans or goals are or may be forward‑looking statements. These forward‑looking statements involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause the actual results, performance or achievements of the Company to be different from any future results, performance and achievements expressed or implied by these statements. More information about these risks, uncertainties and other factors is set forth below. Additional risks, uncertainties and other factors may be described in the Company’s news releases and other filings made under the securities laws. There may be additional risks, uncertainties and factors that the Company does not currently view as material or that are not necessarily known. The forward-looking statements included in this document are only made as of the date of this document and the Company does not have any obligation to publicly update any forward‑looking statements to reflect subsequent events or circumstances.
RISK FACTORS
For an enterprise as large and complex as the Company, a wide range of factors could affect our business and financial results. The factors described below are considered to be the most significant. There may be other currently unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on the Company’s future results. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The following discussion of risk factors should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition” and the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
A Decline in Advertising Expenditures Could Cause the Company’s Revenues and Operating Results to Decline Significantly in Any Given Period or in Specific Markets
The Company derives substantial revenues from the sale of advertising on its broadcast and basic cable networks, television stations, radio stations, syndicated programming, and online properties. A decline in the economic prospects of advertisers, the economy in general or the economy of any individual geographic market, particularly a major market such as Los Angeles, New York or Chicago, in which the Company owns and operates sizeable businesses, could alter current or prospective advertisers’ spending priorities. Natural and other disasters, acts of terrorism, political uncertainty or hostilities could lead to a reduction in advertising expenditures as a result of disrupted programming and services, uninterrupted news coverage and economic uncertainty. Advertising expenditures may also be affected by increasing competition for the leisure time of audiences. In addition, advertising expenditures by companies in
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certain sectors of the economy, including the automotive, financial and pharmaceutical segments, represent a significant portion of the Company’s advertising revenues. Any political, economic, social or technological change resulting in a reduction in these sectors’ advertising expenditures may adversely affect the Company’s revenue. Advertisers’ willingness to purchase advertising from the Company may also be affected by a decline in audience ratings for the Company’s programming, the inability of the Company to retain the rights to popular programming, increasing audience fragmentation caused by new program channels and the proliferation of new media formats, including the Internet and video‑on‑demand and the deployment of portable digital devices and new technologies, which allow consumers to live stream and time shift programming, make and store digital copies and skip or fast‑forward through advertisements. Any reduction in advertising expenditures could have an adverse effect on the Company’s revenues and results of operations.
The Company’s Success and Profitability Are Dependent Upon Audience Acceptance of Its Content, Including Its Television and Radio Programs and Motion Pictures, Which Is Difficult to Predict
Television, radio and motion picture content production and distribution are inherently risky businesses because the revenues derived from the production and distribution of a television or radio program or motion picture, and the licensing of rights to the associated intellectual property, depend primarily upon their acceptance by the public, which is difficult to predict. The commercial success of a television or radio program or motion picture also depends upon the quality and acceptance of other competing programs and motion pictures released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions and other tangible and intangible factors, all of which are difficult to predict. Rating points are also factors that are weighed when determining the advertising rates that the Company receives. The use of new ratings technologies and measurements, and viewership on new platforms or devices that is not being measured, could have an impact on the Company’s program ratings. For example, while C-3, a current television industry ratings system, measures live commercial viewing plus three days of DVR and video-on-demand playback, the growing viewership occurring on subsequent days of DVR and video‑on‑demand playback is excluded from C-3 ratings. Poor ratings can lead to a reduction in pricing and advertising spending. For example, there can be no assurance that any replacement programming on the Company’s radio or television stations will generate the same level of revenues or profitability of previous programming. In addition, the success of the Company’s cable networks and Simon & Schuster is similarly dependent on audience acceptance of its programming and publications, respectively. The theatrical success of a motion picture, based in large part upon audience acceptance, is a significant factor in determining the revenues it is likely to generate in home entertainment sales, licensing fees and other exploitation during the various other distribution windows. Consequently, low public acceptance of the Company’s content, including its television and radio programs, motion pictures and publications, will have an adverse effect on the Company’s results of operations. In addition, any decreased popularity of programming for which the Company has incurred significant commitments could have an adverse effect on its profitability. Programming and talent commitments of the Company, estimated to aggregate approximately $13.72 billion as of December 31, 2014, primarily included $10.23 billion for sports programming rights, $2.70 billion relating to the production and licensing of television, radio, and film programming, and $797 million for talent contracts with $4.32 billion of these amounts payable in and after 2020. A shortfall, now or in the future, in the expected popularity of the sports events for which the Company has acquired rights, or in the television and radio programming the Company expects to distribute, could lead to decreased profitability or losses for a significant period of time.
Failure by the Company to Obtain, Create and Retain the Rights Related to Popular Programming Could Adversely Affect the Company’s Revenues
The Company’s revenue from its television, radio, cable networks and motion picture business is partially dependent on the Company’s continued ability to anticipate and adapt to changes in consumer tastes and behavior on a timely basis. Moreover, the Company derives a portion of its revenues from the exploitation of its extensive library of television programming. Generally, a television series must have a network run of at least three or four years to be successfully sold in domestic syndication. If the content of its television programming library ceases to be widely accepted by audiences or is not continuously replenished with popular content, the Company’s revenues could be adversely affected. The Company obtains a significant portion of its popular programming from third parties. For example, some of CBS Television Network’s most widely viewed broadcasts, including golf’s Masters Tournament,
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the PGA Championship, NFL games, NCAA Division I Men’s Basketball Tournament games, and series such as The Big Bang Theory, are made available based upon programming rights of varying duration that the Company has negotiated with third parties. In addition, Showtime Networks enters into commitments to acquire rights to certain programming for Showtime, The Movie Channel and Flix from motion picture producers and other suppliers for varying durations, and CBS Radio acquires the broadcast rights to syndicated shows and to various programs, such as sports events from third parties. CBS Films competes for compelling source material for and the talent necessary to produce motion pictures, as well as with other buyers for the acquisition of third‑party produced motion pictures. Competition for popular programming that is licensed from third parties is intense, and the Company may be outbid by its competitors for the rights to new, popular programming or in connection with the renewal of popular programming currently licensed by the Company. The Company’s failure to obtain or retain rights to popular content could adversely affect the Company’s revenues.
The Company Must Respond to Rapid Changes in Technology, Content Creation, Services and Standards in Order to Remain Competitive
Video, telecommunications, radio and data services technologies used in the entertainment industry are changing rapidly as are the digital distribution models for books. Advances in technologies or alternative methods of product delivery or storage, or certain changes in consumer behavior driven by these or other technologies and methods of delivery and storage, could have a negative effect on the Company’s businesses. Examples of the foregoing include the convergence of television broadcasts and online delivery of programming to televisions, video-on-demand platforms, tablets, satellite radio, new video and electronic book formats, user-generated content sites, Internet and mobile distribution of video content via streaming and downloading, and place-shifting of content from the home to portable devices on which content is viewable outside the home. For example, devices that allow users to view or listen to television or radio programs on a time-delayed basis; technologies, such as DVRs, that enable users to fast-forward or skip advertisements or increase the sharing of subscription content; systems that allow users to access copyrighted product of the Company over the Internet or other media; and portable digital devices and systems that enable users to view programming or store or make portable copies of programming, may cause changes in consumer behavior that could affect the attractiveness of the Company’s offerings to advertisers and adversely affect its revenues. Also, the growing uses of user-generated content sites and live and stored video streaming sites, which deliver unauthorized copies of copyrighted content, including those emanating from other countries in various languages, may adversely impact the Company’s businesses. In addition, further increases in the use of digital devices which allow users to view or listen to content of their own choosing, in their own time and remote locations, while avoiding traditional commercial advertisements or subscription payments, could adversely affect the Company’s radio and television broadcasting advertising and subscription revenues. Cable providers and DBS operators are developing new techniques that allow them to transmit more channels on their existing equipment to highly targeted audiences, reducing the cost of creating channels and potentially leading to the division of the television marketplace into more specialized niche audiences. More television and video programming options increase competition for viewers and competitors targeting programming to narrowly defined audiences may gain an advantage over the Company for television advertising and subscription revenues. Television manufacturers, cable providers and others are developing and offering technology to enable viewers to locate digital copies of programming from the Internet to view on television monitors or other devices, which could diminish viewership of the Company’s programming. Generally, changing consumer behavior may impact the Company’s traditional distribution methods, for example, by reducing viewership of its programming (including motion pictures), the demand for DVD and Blu-ray Disc product and/or the desire to see motion pictures in theaters, which could have an adverse impact on the Company’s revenues and profitability. Also, the impact of technological changes on traditional distributors of video programming may adversely affect the Company’s cable networks’ ability to grow revenue. Anticipating and adapting to changes in technology on a timely basis and exploiting new sources of revenue from these changes will affect the Company’s ability to continue to increase its revenue.
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Piracy of the Company's Programming and Other Content, Including Digital Piracy, May Decrease Revenue Received from the Exploitation of the Company's Programming and Other Content and Adversely Affect Its Businesses and Profitability
Piracy of programming (including motion pictures), books and other copyrighted material is prevalent in many parts of the world and is made easier by the availability of digital copies of content and technological advances allowing conversion of such programming and other content into digital formats, which facilitate the creation, transmission and sharing of high quality unauthorized copies of the Company's content. Technological advances, which facilitate the streaming of programming via the Internet to television screens and other devices, may increase piracy. The proliferation of unauthorized access to programming has an adverse effect on the Company's businesses and profitability because these unauthorized actions reduce the revenue that the Company potentially could receive from the legitimate sale and distribution of its products and services. In addition, if piracy were to increase, it would have an adverse effect on the Company's businesses and profitability. Also, while legal protections exist, piracy and technological tools with which to carry it out continue to escalate, evolve and present challenges for enforcement. The Company vigorously defends itself against entities that illegally secure and exhibit its content, including streaming the Company’s broadcast content without obtaining the consent of or paying compensation to the Company. Failure of legal protections to evolve and enable enhanced enforcement efforts to combat piracy could make it more difficult for the Company to adequately protect its intellectual property, which could negatively impact its value and further increase the Company's enforcement costs.
The Company’s Businesses Operate in Highly Competitive and Consolidating Industries
The Company competes with other media companies for high quality content to achieve large audiences and to generate advertising revenue. The Company also competes for distribution on various MVPD platforms. The Company’s ability to attract audiences and advertisers and obtain favorable distribution depends in part on its ability to provide popular television programming and radio programming, motion pictures and books. The consolidation of advertising agencies, distributors and television service providers also has made competition for audiences, advertising revenue, and distribution more intense. In addition, consolidation among book retailers and the growth of on-line sales and electronic books sales have resulted in increased competition for limited physical shelf space for the Company’s publications and for the attention of consumers on-line. Competition for audiences and advertising comes from: broadcast television stations and networks; cable television systems and networks; motion picture studios; the Internet; new, non-traditional programming services; technological innovations in content distribution; terrestrial and satellite radio and portable devices; local, regional and national newspapers; direct mail; and other communications and advertising media that operate in these markets. Other television and radio stations or cable networks may change their formats or programming, a new station or new network may adopt a format to compete directly with the Company’s stations or networks, or stations or networks might engage in aggressive promotional campaigns. In book publishing, competition among electronic and print book retailers could decrease the prices for new releases and the outlets available for book sales. Moreover, the growing use of self-publishing technologies by authors increases competition and could result in decreased use of traditional publishing services. This competition could result in lower ratings and advertising and subscription and other revenues or increased promotional and other expenses and, consequently, lower earnings and cash flow for the Company. The Company cannot be assured that it will be able to compete successfully in the future against existing, new or potential competitors, or that competition will not have a material adverse effect on its business, financial condition or results of operations.
The Loss of Affiliation Agreements or Retransmission Agreements Could Materially Adversely Affect the Company’s Results of Operations
The CBS Television Network provides its affiliates with up to approximately 98 hours of regularly scheduled programming per week. In return, the CBS Television Network’s affiliated stations broadcast network-inserted commercials during that programming. Loss of station affiliation agreements of the CBS Television Network could adversely affect the Company’s results of operations by reducing the reach of the Company’s programming and therefore its attractiveness to advertisers, and renewal of these affiliation agreements on less favorable terms may also adversely affect the Company’s results of operations. The non-renewal or termination of retransmission agreements
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with MVPDs or continued distribution on less favorable terms, could also adversely affect the Company’s revenues and its ability to distribute its network programming to a nationwide audience and affect the Company’s ability to sell advertising, which could have a material adverse effect on the Company’s results of operations. Showtime Networks, CBS Sports Network and Smithsonian Networks are also dependent upon the maintenance of affiliation agreements with MVPDs, and there can be no assurance that these agreements will be renewed in the future on terms acceptable to such programmers. The loss of one or more of these arrangements could reduce the distribution of Showtime Networks’, CBS Sports Network’s and Smithsonian Networks’ program services and reduce revenues from subscriber fees and advertising, as applicable. Further, the loss of favorable packaging, positioning, pricing or other marketing opportunities with any distributor could reduce revenues from subscriber fees. Also, consolidation among MVPDs and increased vertical integration of such distributors into the cable or broadcast network business have provided more leverage to these distributors and could adversely affect the Company’s ability to maintain or obtain distribution for its network programming or distribution and/or marketing of its subscription program services on favorable or commercially reasonable terms, or at all.
The Company’s Operating Results Are Subject to Seasonal Variations and Other Factors
The Company’s business has experienced and is expected to continue to experience seasonality due to, among other things, seasonal advertising patterns and seasonal influences, on people’s viewing, reading, attendance and listening habits. Typically, the Company’s revenue from advertising increases in the fourth quarter, Simon & Schuster generates a substantial portion of its revenues in the fourth quarter, and license fees for television programming and CBS Films’ revenue from motion pictures are dependent on the timing, mix, number and availability of the Company’s television programming and motion pictures, as applicable, which may cause operating results to increase or decrease during a period and create non-comparable results relative to the corresponding period in the prior year. In addition, advertising revenues in even-numbered years benefit from advertising placed by candidates for political offices. The effects of such seasonality make it difficult to estimate future operating results based on the previous results of any specific quarter and may adversely affect operating results.
Economic Conditions May Adversely Affect the Company’s Businesses and Customers
The U.S. and other countries where the Company operates have experienced slowdowns and volatilities in their economies. A downturn could lead to lower consumer and business spending for the Company’s products and services, particularly if customers, including advertisers, subscribers, licensees, retailers, theater operators and other consumers of the Company’s content offerings and services, reduce demands for the Company’s products and services. In addition, in unfavorable economic environments, the Company’s customers may have difficulties obtaining capital at adequate or historical levels to finance their ongoing business and operations and may face insolvency, all of which could impair their ability to make timely payments and continue operations, including distribution of the Company’s content. The Company is unable to predict the duration and severity of weakened economic conditions and such conditions and resultant effects could adversely impact the Company’s businesses, operating results, and financial condition.
Volatility and Weakness in Capital Markets May Adversely Affect Credit Availability and Related Financing Costs for the Company
Bank and capital markets can experience periods of volatility and disruption. If the disruption in these markets is prolonged, the Company’s ability to refinance, and the related cost of refinancing, some or all of its debt could be adversely affected. Although the Company can currently access the bank and capital markets, there is no assurance that such markets will continue to be a reliable source of financing for the Company. In addition, the Company’s access to and cost of borrowing can be affected by the Company’s short- and long-term debt ratings assigned by ratings agencies. These factors, including the tightening of credit markets, or a decrease in the Company’s debt ratings, could adversely affect the Company’s ability to obtain cost‑effective financing.
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Increased Programming and Content Costs May Adversely Affect the Company’s Profits
The Company produces and acquires programming (including motion pictures) and other content and incurs costs with respect to its content, including for all types of creative talent, including actors, authors, writers and producers, composers and publishers of music, as well as for marketing and distribution. An increase in any of these costs and increased competition from new entrants into the market for the production and acquisition of new content may lead to decreased profitability.
Changes in Communications Laws or Other Regulations May Have an Adverse Effect on the Company’s Business
The television and radio broadcasting and distribution industries in the U.S. are highly regulated by U.S. federal laws and regulations issued and administered by various federal agencies, including the FCC. The television and radio broadcasting industry is subject to extensive regulation by the FCC under the Communications Act. For example, the Company is required to obtain licenses from the FCC to operate its radio and television stations. The Company cannot be assured that the FCC will approve its future renewal applications or that the renewals will be for full terms or will not include conditions or qualifications. The non-renewal, or renewal with substantial conditions or modifications, of one or more of the Company’s licenses could have a material adverse effect on the Company’s revenues. The Company must also comply with extensive FCC regulations and policies in the ownership and operation of its television and radio stations and its television networks. FCC regulations prohibit the common ownership of more than one of the top four networks, ABC, CBS, FOX and NBC, and limit the number of television and radio stations that a licensee can own in a market and the number of television stations that can be owned nationwide, which could restrict the Company’s ability to consummate future transactions and in certain circumstances could require it to divest some television or radio stations. The U.S. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations, and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation and ownership of the Company’s radio and television properties. For example, from time to time, proposals have been advanced in the U.S. Congress and at the FCC to require radio and television broadcast stations to provide advertising time to political candidates for free or at a reduced charge. Any restrictions on political advertising may adversely affect the Company’s advertising revenues. The FCC has initiated a proceeding to examine and potentially regulate more closely embedded advertising such as product placement and product integration. Enhanced restrictions affecting these means of delivering advertising messages may adversely affect the Company’s advertising revenues. Changes to the media ownership and other FCC rules may affect the competitive landscape in ways that could increase the competition faced by the Company. Proposals have also been advanced from time to time before the U.S. Congress and the FCC to extend the program access rules (currently applicable only to those cable program services which also own or are owned by cable distribution systems) to all cable program services. The Company’s ability to obtain the most favorable terms available for its content could be adversely affected should such an extension be enacted into law. In response to the FCC’s March 2010 National Broadband Plan, which seeks to provide affordable broadband access throughout the U.S., Congress passed legislation in February 2012 authorizing the FCC to conduct voluntary auctions of spectrum utilized by broadcast television stations to provide additional spectrum for wireless broadband services. The television stations that continue their operations may have to change channels once the FCC “repacks” the broadcast spectrum dedicated to broadcast television use. Such auctions are expected to begin in 2016 followed by repacking, which could adversely impact the Company’s broadcast coverage and related revenues. It is difficult to predict the timing or outcome of the FCC’s actions or their effect, if any, on the Company’s broadcasting properties. Legislation could be enacted, which could remove over-the-air broadcasters’ existing exemption from payment of a performance royalty to record companies and performers of music which is broadcast on radio stations and could have an adverse impact on the cost of music programming for the Company. In addition, changes in or new interpretations of international laws and regulations governing competition and the Internet, including those affecting data privacy, may have an adverse impact on the Company’s international businesses and Internet properties. The Company is unable to predict the effect that any such laws, regulations or policies may have on its operations.
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Vigorous Enforcement or Enhancement of FCC Indecency and Other Program Content Rules Against the Broadcast and Cable Industries Could Have an Adverse Effect on the Company’s Businesses and Results of Operations
The FCC’s rules prohibit the broadcast of obscene material at any time and indecent or profane material on television or radio broadcast stations between the hours of 6 a.m. and 10 p.m. Broadcasters risk violating the prohibition against broadcasting indecent material because of the vagueness of the FCC’s indecency/profanity definition, coupled with the spontaneity of live programming. The FCC enforces its indecency rules against the broadcasting industry. The FCC has found on a number of occasions that the content of radio and television broadcasts has contained indecent material. In such instances, the FCC issued fines or advisory warnings to the offending licensees. Moreover, the FCC has in some instances imposed separate fines for each allegedly indecent “utterance,” in contrast with its previous policy, which generally considered all indecent words or phrases within a given program as constituting a single violation. The fines for broadcasting indecent material per station are a maximum of $325,000 per utterance. If the FCC denied a license renewal or revoked the license for one of the Company’s broadcast radio or television stations, the Company would lose its authority to operate the station. The determination of whether content is indecent is inherently subjective and, as such, it can be difficult to predict whether particular content could violate indecency standards. The difficulty in predicting whether individual programs, words or phrases may violate the FCC’s indecency rules adds significant uncertainty to the Company’s ability to comply with the rules. Violation of the indecency rules could lead to sanctions which may adversely affect the Company’s businesses and results of operations. Some policymakers support the extension of the indecency rules that are applicable to over-the-air broadcasters to cover cable and satellite programming and/or attempts to increase enforcement of or otherwise expand existing laws and rules. If such an extension, attempt to increase enforcement or other expansion took place and were found to be constitutional, some of the Company’s cable content could be subject to additional regulation and might not be able to attract the same subscription and viewership levels.
The Failure or Destruction of Satellites and Transmitter Facilities that the Company Depends Upon to Distribute Its Programming Could Materially Adversely Affect the Company’s Businesses and Results of Operations
The Company uses satellite systems to transmit its broadcast and cable networks to affiliates. The distribution facilities include uplinks, communications satellites and downlinks. Transmissions may be disrupted as a result of local disasters including extreme weather that impair on-ground uplinks or downlinks, or as a result of an impairment of a satellite. Currently, there are a limited number of communications satellites available for the transmission of programming. If a disruption occurs, failure to secure alternate distribution facilities in a timely manner could have a material adverse effect on the Company’s businesses and results of operations. Each of the Company’s television and radio stations and cable networks uses studio and transmitter facilities that are subject to damage or destruction. Failure to restore such facilities in a timely manner could have a material adverse effect on the Company’s businesses and results of operations.
Breach of Security Measures Regarding Information Systems Could Disrupt Operations and Damage the Company’s Reputation and Could Materially Adversely Affect the Company’s Businesses and Results of Operations
Network and information systems and other technologies are important to the Company’s business activities. Despite the Company’s security measures, network and information systems‑related events, such as computer hackings, cyber threats, security breaches, viruses, or other destructive or disruptive software, process breakdowns or malicious or other activities, and natural or other disasters could result in a disruption of the Company’s services and operations or improper disclosure of personal data or confidential information, which could damage the Company’s reputation and require the Company to expend resources to remedy any such breaches. The occurrence of any of these events could have a material adverse effect on the Company’s business and results of operations.
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The Company Could Suffer Losses Due to Asset Impairment Charges for Goodwill, Intangible Assets, FCC Licenses and Programming
The Company will test goodwill and indefinite-lived intangible assets, including FCC licenses, for impairment during the fourth quarter of each year and between annual tests if events or circumstances require an interim impairment assessment. A downward revision in the estimated fair value of a reporting unit or intangible assets, including FCC licenses, could result in a non-cash impairment charge. Also, any significant shortfall, now or in the future, in the expected popularity of the programming for which the Company has acquired rights could lead to a downward revision in the fair value of such assets. Any such impairment charge for goodwill, intangible assets and/or programming could have a material adverse effect on the Company’s reported net earnings.
Dividends and Dividend Rates Cannot Be Guaranteed
The Company’s Board of Directors assesses relevant factors when considering the declaration of a dividend on the Company’s common stock. The Company cannot guarantee that it will continue to declare dividends, including at the same or similar rates.
The Loss of Key Personnel, Including Talent, Could Disrupt the Management or Operations of the Company’s Business and Adversely Affect Its Revenues
The Company’s business depends upon the continued efforts, abilities and expertise of its chief executive officer and other key employees and entertainment personalities. The Company believes that the unique combination of skills and experience possessed by its executive officers would be difficult to replace, and that the loss of its executive officers could have a material adverse effect on the Company, including the impairment of the Company’s ability to execute its business strategy. While the Company does not maintain a written succession plan with respect to Chairman of the Board, in accordance with the Company’s Corporate Governance Guidelines, designated independent committees of the CBS Board together periodically review succession planning for the position of Chairman and report to the non-management directors of the CBS Board. Because approximately 79.6% of the voting shares are controlled by Sumner Redstone there can be no assurance now or in the future that he or the successors to the voting control may not seek to effect succession of the Chairman; however, and in all cases, the Board will elect the next Chairman by a majority vote of the Board. Additionally, the Company employs or independently contracts with several entertainment personalities and authors with significant loyal audiences or readership. Entertainment personalities are sometimes significantly responsible for the ranking of a television or radio station and, therefore, the ability of the station to sell advertising, and an author’s popularity can be significantly responsible for the success of a particular book. The Company’s cable networks, CBS Television Studios and CBS Television Distribution produce programming and CBS Films produces motion pictures with highly regarded directors, actors and other talent who are important to attracting and retaining audiences for their content. There can be no assurance that these entertainment personalities, authors and talent will remain with or be drawn to the Company or will retain their current audiences or readership. If the Company fails to retain or attract these entertainment personalities, authors and talent or they lose their current audiences or readership, the Company’s revenues could be adversely affected.
Fluctuations in Foreign Exchange Rates Could Have an Adverse Effect on the Company’s Results of Operations
Certain of the Company’s revenues are earned and expenses are incurred in foreign currencies. The value of these currencies fluctuates relative to the U.S. dollar. As a result, the Company is exposed to exchange rate fluctuations, which could have an adverse effect on its results of operations.
The Company’s Liabilities Related to Discontinued Operations and Former Businesses Could Adversely Impact Its Financial Condition
The Company has both recognized and potential liabilities and costs related to discontinued operations and former businesses, certain of which are unrelated to the media business, including leases, guarantees, environmental liabilities, liabilities related to the pensions and medical expenses of retirees, asbestos liabilities, contractual disputes and other
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pending and threatened litigation. The Company cannot be assured that its reserves are sufficient to cover these liabilities in their entirety or any one of these liabilities when it becomes due or at what point any of these liabilities may come due. Therefore, there can be no assurances that these liabilities will not have a material adverse effect on the Company’s financial position, operating performance or cash flow.
The Company Could Be Adversely Affected by Strikes and Other Union Activity
The Company and its suppliers engage the services of writers, directors, actors and other talent, trade employees and others who are subject to collective bargaining agreements. If the Company or its suppliers are unable to renew expiring collective bargaining agreements, it is possible that the affected unions or others could take action in the form of strikes or work stoppages. Such actions, higher costs in connection with these agreements or a significant labor dispute could adversely affect the Company’s television, radio, cable networks, interactive and motion picture businesses by disrupting the Company’s ability to provide scheduled services and programming or by causing delays in the production of the Company’s television or radio programming or motion pictures. Depending on its duration, any lockout, strike or work stoppage could have an adverse effect on the Company’s revenues, cash flows and/or operating income and/or the timing thereof.
Political and Economic Risks Associated with the Company’s International Businesses Could Harm the Company’s Financial Condition or Results of Operations
The Company’s businesses operate and have customers worldwide. Inherent risks of doing business in international markets include, among other risks, changes in the economic environment, export restrictions, exchange controls, tariffs and other trade barriers and longer payment cycles. The Company may incur substantial expense as a result of the imposition of new restrictions or changes in the existing economic environment in the regions where it does business. In addition, acts of terrorism or other hostilities, or other future financial, political, economic or other uncertainties, could lead to a reduction in advertising expenditures, which could materially adversely affect the Company’s business, financial condition or results of operations.
NAI, Through Its Voting Control of the Company, Is in a Position to Control Actions that Require Stockholder Approval
NAI, through its direct and indirect ownership of the Company’s Class A Common Stock, has voting control of the Company. Mr. Sumner M. Redstone, the controlling stockholder, chairman of the board of directors and chief executive officer of NAI, serves as Executive Chairman of the Company’s Board of Directors, and Ms. Shari Redstone, the president and a director of NAI, serves as Vice Chair of the Company’s Board of Directors. In addition, Mr. David R. Andelman is a director of NAI and serves as a director of the Company. NAI is in a position to control the outcome of corporate actions that require stockholder approval, including the election of directors and transactions involving a change of control. Other stockholders who may have different interests are unable to affect the outcome of the corporate actions of the Company for so long as NAI retains voting control.
Sales of Shares of Common Stock by NAI Could Adversely Affect the Stock Price
NAI, through its direct and indirect ownership of the Company’s Class A Common Stock, has voting control of the Company. Based on information received from NAI, shares of the Company’s voting Class A common stock and non-voting Class B common stock owned by NAI Entertainment Holdings LLC (“NAI EH”), a wholly‑owned subsidiary of NAI, are pledged to NAI EH’s lenders. NAI holds more than 50% of the Company’s voting Class A shares directly and these shares are not pledged. If NAI EH defaults on its obligations and the lenders foreclose on the collateral, the lenders or anyone to whom the lenders transfer the Company’s shares could sell such shares or convert those shares of voting Class A Common Stock into shares of non-voting Class B Common Stock and sell such shares, which could adversely affect the Company’s share price. Additionally, if the lenders foreclose on the pledged shares of voting Class A Common Stock, NAI will no longer directly or indirectly own those shares and such lenders or other transferees would have voting rights in the Company. In addition, there can be no assurance that NAI
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or NAI EH at some future time will not sell or pledge additional shares of the Company’s stock, which could adversely affect the Company’s share price.
Many Factors May Cause the Stock Price of the Company’s Class A Common Stock and Class B Common Stock to Fluctuate
The stock price of Class A Common Stock and Class B Common Stock may fluctuate significantly as a result of many factors. These factors, some or all of which are beyond the Company’s control, include:
• | actual or anticipated fluctuations in the Company’s operating results; |
• | changes in expectations as to the Company’s future financial performance or changes in financial estimates of securities analysts; |
• | success of the Company’s operating and growth strategies; |
• | investor anticipation of strategic, technological or regulatory threats, whether or not warranted by actual events; |
• | operating and stock price performance of other comparable companies; and |
• | realization of any of the risks described in these risk factors. |
In addition, the stock market has experienced volatility that often has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading prices of the Company’s common stock, regardless of the Company’s actual operating performance.
The Businesses of the Company and Viacom Inc. Will Be Attributable to the Other Company for Certain Regulatory Purposes, Which May Limit Business Opportunities
So long as the Company and Viacom Inc. are under common control, each company’s businesses, as well as the businesses of any other commonly controlled company, will be attributable to the other company for purposes of certain rules and regulations of the FCC, U.S. and non-U.S. antitrust rules and regulations and certain rules regarding political campaign contributions in the U.S., among others potentially. The businesses of one company will continue to be attributable to the other company for certain FCC and other purposes even after the two companies cease to be commonly controlled, if the two companies share common officers, directors, or attributable stockholders. As a result, the businesses and conduct of Viacom Inc. may have the effect of limiting and affecting the activities, strategic business alternatives and business terms available to the Company, including limitations to which the Company contractually agreed in connection with the Company’s separation of former Viacom Inc. (“Former Viacom”) into two publicly traded entities, CBS Corporation and new Viacom Inc., which was completed on December 31, 2005 (the “Separation”).
In Connection with the Separation, Each Company Will Rely on the Other Company’s Performance Under Various Agreements Between the Companies
In connection with the Separation, the Company and Viacom Inc. entered into various agreements, including the Separation Agreement, a tax matters agreement dated December 30, 2005, which is filed as an exhibit to this report, effective as of the Separation (the “Tax Matters Agreement”) and certain related party arrangements pursuant to which the Company and Viacom Inc. will provide services and products to each other from and after the Separation. The Separation Agreement sets forth the allocation of assets, liabilities, rights and obligations of the Company and Viacom Inc. following the Separation, and includes indemnification obligations for such liabilities and obligations. In addition, pursuant to the Tax Matters Agreement, certain income tax liabilities and related responsibilities are allocated between, and indemnification obligations are assumed by, each of the Company and Viacom Inc. Each company will rely on the other to satisfy its performance and payment obligations under these agreements. Certain of the liabilities to be assumed or indemnified by the Company or Viacom Inc. under these agreements are legal or contractual liabilities of the other company. If Viacom Inc. were to breach or be unable to satisfy its material obligations under these
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agreements, including a failure to satisfy its indemnification obligations, the Company could suffer operational difficulties or significant losses.
Certain Members of Management, Directors and Stockholders May Face Actual or Potential Conflicts of Interest
The management and directors of the Company may own both CBS Corp. common stock and Viacom Inc. common stock, and both the Company and Viacom Inc. are controlled by NAI. Mr. Redstone, the controlling stockholder, chairman of the board of directors and chief executive officer of NAI, serves as Executive Chairman of the Company’s Board of Directors and executive chairman of Viacom Inc.’s board of directors. Ms. Redstone, the president and a director of NAI, serves as Vice Chair of the Board of Directors of each of the Company and Viacom Inc. Mr. David R. Andelman is a director of NAI and serves as a director of the Company. Mr. Frederic V. Salerno is a director of Viacom Inc. and serves as a director of the Company. This ownership overlap and these common directors could create, or appear to create, potential conflicts of interest when the Company’s and Viacom Inc.’s management, directors and controlling stockholder face decisions that could have different implications for the Company and Viacom Inc. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between the Company and Viacom Inc. regarding the terms of the agreements governing the Separation and the relationship between the Company and Viacom Inc. thereafter. These agreements include, among others, the Separation Agreement, the Tax Matters Agreement and any commercial agreements between the parties or their affiliates. On occasion, the Company and Viacom Inc. may compete with each other in various commercial enterprises. Potential conflicts of interest could also arise if the Company and Viacom Inc. enter into any commercial arrangements with each other in the future. Each of Mr. Redstone and Ms. Redstone may also face conflicts of interest with regard to the allocation of his or her time between the Company and Viacom Inc. CBS Corp.’s certificate of incorporation contains provisions related to corporate opportunities that may be of interest to both the Company and Viacom Inc. CBS Corp.’s certificate of incorporation provides that in the event that a director, officer or controlling stockholder of the Company who is also a director, officer or controlling stockholder of Viacom Inc. acquires knowledge of a potential corporate opportunity for both the Company and Viacom Inc., such director, officer or controlling stockholder may present such opportunity to the Company or Viacom Inc. or both, as such director, officer or controlling stockholder deems appropriate in his or her sole discretion, and that by doing so such person will have satisfied his or her fiduciary duties to the Company and its stockholders. In addition, CBS Corp.’s certificate of incorporation provides that the Company renounces any interest in any such opportunity presented to Viacom Inc. These provisions create the possibility that a corporate opportunity of one of such companies may be used for the benefit of the other company.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
The Company maintains its world headquarters at 51 West 52nd Street, New York, New York, where it owns a building containing approximately 900,000 square feet of space, 831,000 square feet of which is office space. The Company occupies approximately 276,000 square feet of the office space and leases the balance to third parties. The Company owns the CBS Broadcast Center complex located on approximately 3.7 acres at 524 West 57th Street, New York, New York, which consists of approximately 860,000 square feet of office and studio space. The Company also owns two studio facilities in California: (a) the CBS Studio Center at 4024 Radford Avenue, Studio City, California, located on approximately 40 acres, and (b) CBS Television City at 7800 Beverly Boulevard, Los Angeles, California, located on approximately 25 acres. Showtime Networks leases approximately 200,000 square feet at 1633 Broadway, New York, New York under a lease which expires in 2026. Simon & Schuster leases approximately 290,000 square feet of office space at 1230 Avenue of the Americas, New York, New York, which lease runs to 2019. CBS Interactive leases approximately 280,000 square feet of space at 235 2nd Street, San Francisco, California under a lease which expires in 2022. The Company and its subsidiaries also own and lease office, studio and warehouse space and broadcast, antenna and satellite transmission facilities throughout the U.S., Canada and several other foreign countries for its businesses. The Company considers its properties adequate for its present needs.
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Item 3. Legal Proceedings.
General. On an ongoing basis, the Company vigorously defends itself in numerous lawsuits and proceedings and responds to various investigations and inquiries from federal, state, local and international authorities (collectively, ‘‘litigation’’). Litigation may be brought against the Company without merit, is inherently uncertain and always difficult to predict. However, based on its understanding and evaluation of the relevant facts and circumstances, the Company believes that the below-described legal matters and other litigation to which it is a party are not likely, in the aggregate, to have a material adverse effect on its results of operations, financial position or cash flows. Under the Separation Agreement between the Company and Viacom Inc., the Company and Viacom Inc. have agreed to defend and indemnify the other in certain litigation in which the Company and/or Viacom Inc. is named.
Claims Related to Former Businesses: Asbestos. The Company is a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred principally as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. The Company is typically named as one of a large number of defendants in both state and federal cases. In the majority of asbestos lawsuits, the plaintiffs have not identified which of the Company’s products is the basis of a claim. Claims against the Company in which a product has been identified principally relate to exposures allegedly caused by asbestos-containing insulating material in turbines sold for power-generation, industrial and marine use.
Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. The Company does not report as pending those claims on inactive, stayed, deferred or similar dockets which some jurisdictions have established for claimants who allege minimal or no impairment. As of December 31, 2014, the Company had pending approximately 41,100 asbestos claims, as compared with approximately 45,150 as of December 31, 2013 and 45,900 as of December 31, 2012. During 2014, the Company received approximately 3,880 new claims and closed or moved to an inactive docket approximately 7,930 claims. The Company reports claims as closed when it becomes aware that a dismissal order has been entered by a court or when the Company has reached agreement with the claimants on the material terms of a settlement. Settlement costs depend on the seriousness of the injuries that form the basis of the claim, the quality of evidence supporting the claims and other factors. The Company’s total costs for the years 2014 and 2013 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits were approximately $11 million and $29 million, respectively. The Company’s costs for settlement and defense of asbestos claims may vary year to year and insurance proceeds are not always recovered in the same period as the insured portion of the expenses.
Filings include claims for individuals suffering from mesothelioma, a rare cancer, the risk of which is allegedly increased by exposure to asbestos; lung cancer, a cancer which may be caused by various factors, one of which is alleged to be asbestos exposure; other cancers, and conditions that are substantially less serious, including claims brought on behalf of individuals who are asymptomatic as to an allegedly asbestos-related disease. The predominant number of claims against the Company are non-cancer claims. In a substantial number of the pending claims, the plaintiff has not yet identified the claimed injury. The Company believes that its reserves and insurance are adequate to cover its asbestos liabilities. This belief is based upon many factors and assumptions, including the number of outstanding claims, estimated average cost per claim, the breakdown of claims by disease type, historic claim filings, costs per claim of resolution and the filing of new claims. While the number of asbestos claims filed against the Company has trended down in the past five to ten years and has remained flat in recent years, it is difficult to predict future asbestos liabilities, as events and circumstances may occur including, among others, the number and types of claims and average cost to resolve such claims, which could affect the Company's estimate of its asbestos liabilities.
Other. The Company from time to time receives claims from federal and state environmental regulatory agencies and other entities asserting that it is or may be liable for environmental cleanup costs and related damages principally relating to historical and predecessor operations of the Company. In addition, the Company from time to time receives
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personal injury claims including toxic tort and product liability claims (other than asbestos) arising from historical operations of the Company and its predecessors.
Item 4. Mine Safety Disclosures.
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information concerning the executive officers of the Company as of February 10, 2015.
Name | Age | Title | ||
Sumner M. Redstone | 91 | Executive Chairman of the Board of Directors and Founder | ||
Leslie Moonves | 65 | President and Chief Executive Officer and Director | ||
Anthony G. Ambrosio | 54 | Senior Executive Vice President, Chief Administrative Officer and Chief Human Resources Officer | ||
Joseph R. Ianniello | 47 | Chief Operating Officer | ||
Richard M. Jones | 49 | Executive Vice President and General Tax Counsel | ||
Lawrence Liding | 46 | Executive Vice President, Controller and Chief Accounting Officer | ||
Gil Schwartz | 63 | Senior Executive Vice President and Chief Communications Officer | ||
Angeline C. Straka | 69 | Executive Vice President, Deputy General Counsel and Secretary | ||
Lawrence P. Tu | 60 | Senior Executive Vice President and Chief Legal Officer | ||
None of the executive officers of the Company is related to any other executive officer or director by blood, marriage or adoption except that Shari Redstone, Vice Chair of the Board of Directors of the Company, is the daughter of Sumner M. Redstone.
Mr. Redstone is the Company’s Founder and has been Executive Chairman of the Board of the Company since January 1, 2006. He was Chairman of the Board of Former Viacom from 1987 until January 1, 2006 and served as Chief Executive Officer of Former Viacom from 1996 until January 1, 2006. Mr. Redstone has also served as Chairman of the Board of NAI since 1986 and Chief Executive Officer of NAI since 1967. He served as President of NAI from 1967 through 1999. Mr. Redstone served as the first Chairman of the Board of the National Association of Theatre Owners and is currently a member of its Executive Committee. Mr. Redstone has lectured at a variety of universities, including Harvard Law School, Boston University School of Law and Brandeis University. Mr. Redstone graduated from Harvard University in 1944 and received a LL.B. from Harvard University School of Law in 1947. Upon graduation, Mr. Redstone served as Law Secretary with the United States Court of Appeals and then as a Special Assistant to the United States Attorney General. Mr. Redstone served in the Military Intelligence Division during World War II. While a student at Harvard, he was selected to join a special intelligence group whose mission was to break Japan’s high‑level military and diplomatic codes. Mr. Redstone received, among other honors, two commendations from the Military Intelligence Division in recognition of his service, contribution and devotion to duty. He is also a recipient of the Army Commendation Award. Mr. Redstone also serves as Executive Chairman of the Board of Directors and Founder of Viacom Inc.
Mr. Moonves has been President and Chief Executive Officer and a Director of the Company since January 1, 2006. Previously, Mr. Moonves served as Co-President and Co-Chief Operating Officer of Former Viacom since June 2004. Prior to that, Mr. Moonves served as Chairman and Chief Executive Officer of CBS since 2003 and as its President and Chief Executive Officer since 1998. Mr. Moonves joined former CBS Corporation in 1995 as President, CBS Entertainment. Prior to that, Mr. Moonves was President of Warner Bros. Television since July 1993.
Mr. Ambrosio has been Senior Executive Vice President, Chief Administrative Officer and Chief Human Resources Officer of the Company since June 2013. Prior to that, Mr. Ambrosio served as Executive Vice President, Human Resources and Administration of the Company since January 1, 2006. Previously, he served as Co‑Executive Vice President, Human Resources of Former Viacom since September 2005 and as Senior Vice President, Human Resources
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and Administration of the CBS, Infinity and Viacom Outdoor businesses since 2000. Prior to that, Mr. Ambrosio served as Vice President, Corporate Human Resources of the former CBS Corporation from 1999 to 2000, as Vice President, Benefits of the former CBS Corporation from 1995 to November 1999 and as Director, Personnel of the former CBS Corporation in 1995. He joined the former CBS Corporation in 1985 and held various positions in the human resources area since that time.
Mr. Ianniello has been Chief Operating Officer of the Company since June 2013. Prior to that, Mr. Ianniello served as Executive Vice President and Chief Financial Officer of the Company since August 2009. Previously, he served as Deputy Chief Financial Officer of the Company since November 2008, as Senior Vice President, Chief Development Officer and Treasurer of the Company since September 2007, as Senior Vice President, Finance and Treasurer of the Company since January 1, 2006, as Senior Vice President and Treasurer of Former Viacom since July 2005, as Vice President, Corporate Development of Former Viacom from 2000 to 2005.
Mr. Jones has been Executive Vice President and General Tax Counsel since August 2014. Previously, he served as Senior Vice President and General Tax Counsel of the Company since January 1, 2006 and for Former Viacom in December 2005. Prior to that, he served as Vice President of Tax, Assistant Treasurer and Tax Counsel for NBC Universal, Inc. since 2003 and he spent 13 years with Ernst & Young in their media & entertainment and transaction advisory services practices. Mr. Jones also served honorably as a non-commissioned officer in the U.S. Army’s 75th Ranger Regiment.
Mr. Liding has been Executive Vice President, Controller and Chief Accounting Officer of the Company since August 2014. Previously, he served as Senior Vice President, Controller and Chief Accounting Officer of the Company since October 2011, Vice President, Deputy Controller of the Company since March 2010 and Vice President, Assistant Controller since January 1, 2006. Prior to that, Mr. Liding joined Former Viacom in 1995 and served as Vice President of Financial Reporting from 2002 through 2005.
Mr. Schwartz has been Senior Executive Vice President and Chief Communications Officer of the Company since June 2013. Prior to that, he served as Executive Vice President and Chief Communications Officer of the Company since January 1, 2006. Previously, he was Executive Vice President of CBS Communications Group, which served the Company’s broadcast and local television, syndication, radio and outdoor operations, among others, from 2004 until January 1, 2006. He was Senior Vice President, Communications of CBS from 2000 to 2004, and Senior Vice President, Communications of the former CBS Corporation from 1996 to 2000. Mr. Schwartz served as Vice President, Corporate Communications of Westinghouse Broadcasting from 1995 to 1996. Prior to that, Mr. Schwartz served as Vice President, Communications for Westinghouse Broadcasting’s Group W Television Stations from 1989 to 1995. Mr. Schwartz joined Westinghouse Broadcasting in 1981.
Ms. Straka has been Executive Vice President, Deputy General Counsel and Secretary of the Company since October 2014. Prior to that, Ms. Straka served as Senior Vice President, Deputy General Counsel and Secretary of the Company since January 1, 2006 and Vice President and Associate General Counsel and Co-Head of the Corporate, Transactions and Securities practice group in the corporate law department of Former Viacom. Prior to joining the Former Viacom corporate law department in February 2001, Ms. Straka served as Senior Vice President, General Counsel and Secretary of Infinity Broadcasting Corporation, then a majority‑owned public subsidiary of Former Viacom, from May 2000. Ms. Straka was Vice President, Deputy General Counsel and Secretary of the former CBS Corporation and its predecessor, Westinghouse Electric Corporation, since 1994 and up to the time of the May 2000 merger of Former Viacom and the former CBS Corporation.
Mr. Tu has been Senior Executive Vice President and Chief Legal Officer of the Company since January 1, 2014. Previously, Mr. Tu served as Senior Vice President, General Counsel and Secretary of Dell Inc. since July 2004. Prior to that, Mr. Tu served as Executive Vice President and General Counsel of NBC Universal since 2001. He was previously a partner with the law firm, O’Melveny & Myers LLP, and also served five years as managing partner of the firm’s Hong Kong office. Mr. Tu’s prior experience also includes serving as General Counsel Asia-Pacific for Goldman Sachs, attorney for the U.S. State Department, and law clerk for U.S. Supreme Court Justice Thurgood Marshall.
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Part II
Item 5. Market for CBS Corporation’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities.
CBS Corporation (the “Company” or “CBS Corp.”) voting Class A Common Stock and CBS Corporation non-voting Class B Common Stock are listed and traded on the New York Stock Exchange (“NYSE”) under the symbols “CBS.A” and “CBS”, respectively.
The following table sets forth, for the calendar periods indicated, the per share range of high and low sales prices for CBS Corporation's Class A and Class B Common Stock, as reported on the NYSE.
Voting Class A | Non-Voting Class B | ||||||||||||||
Common Stock | Common Stock | ||||||||||||||
High | Low | High | Low | ||||||||||||
2014 | |||||||||||||||
1st quarter | $ | 68.00 | $ | 55.74 | $ | 68.10 | $ | 55.71 | |||||||
2nd quarter | $ | 63.82 | $ | 55.33 | $ | 63.96 | $ | 55.01 | |||||||
3rd quarter | $ | 65.07 | $ | 53.62 | $ | 65.24 | $ | 53.49 | |||||||
4th quarter | $ | 57.48 | $ | 49.24 | $ | 56.67 | $ | 48.83 | |||||||
2013 | |||||||||||||||
1st quarter | $ | 47.30 | $ | 37.48 | $ | 47.42 | $ | 37.43 | |||||||
2nd quarter | $ | 52.34 | $ | 43.84 | $ | 52.46 | $ | 43.77 | |||||||
3rd quarter | $ | 57.14 | $ | 48.68 | $ | 57.47 | $ | 48.45 | |||||||
4th quarter | $ | 64.00 | $ | 53.15 | $ | 64.06 | $ | 53.01 | |||||||
On January 30, 2015, the Company announced a quarterly cash dividend of $.15 per share on its Class A and Class B Common Stock, payable on April 1, 2015. The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during each of the four quarters of 2014 and 2013, resulting in total annual dividends of $296 million for 2014 and $295 million for 2013. CBS Corp. currently expects to continue to pay a regular cash dividend to its stockholders.
In November 2010, the Company announced that its Board of Directors approved a program to repurchase $1.5 billion of the Company's common stock. Since then, various increases to such amount have been approved and announced, including most recently a $3.0 billion increase to the amount available under such program on August 7, 2014. Below is a summary of CBS Corp.'s purchases of its Class B Common Stock during the three months ended December 31, 2014 under this publicly announced share repurchase program.
(in millions, except per share amounts) | Total Number of Shares Purchased | Average Price Per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Remaining Authorization | |||||||||||||
October 1, 2014 - October 31, 2014 | 3.2 | $52.50 | 3.2 | $ | 5,432 | ||||||||||||
November 1, 2014 - November 30, 2014 | 4.8 | $52.86 | 4.8 | $ | 5,178 | ||||||||||||
December 1, 2014 - December 31, 2014 | 6.9 | $54.60 | 6.9 | $ | 4,800 | ||||||||||||
Total | 14.9 | $53.59 | 14.9 | $ | 4,800 | ||||||||||||
As of February 10, 2015, there were approximately 1,661 record holders of CBS Corp. Class A Common Stock and approximately 23,708 record holders of CBS Corp. Class B Common Stock.
Additional information required by this item is contained in the CBS Corp. Proxy Statement for the Company's 2015 Annual Meeting of Stockholders under the heading “Equity Compensation Plan Information,” which information is incorporated herein by reference.
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Performance Graph
The following graph compares the cumulative total stockholder return on CBS Corp. Class A and Class B Common Stock with the cumulative total return on the companies listed in the Standard & Poor's 500 Stock Index (“S&P 500”) and a Peer Group of companies identified below.
The performance graph assumes $100 invested on December 31, 2009 in each of the Class A and Class B Common Stock of CBS Corp., the S&P 500 and the Peer Group identified below including reinvestment of dividends, through the calendar year ended December 31, 2014.
Total Cumulative Stockholder Return
For Five-Year Period Ending December 31, 2014
December 31, | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 |
CBS Corp. Class A Common Stock | $100 | $137 | $202 | $281 | $475 | $423 |
CBS Corp. Class B Common Stock | $100 | $137 | $198 | $282 | $476 | $417 |
S&P 500 | $100 | $115 | $117 | $136 | $180 | $205 |
Peer Group (a) | $100 | $112 | $121 | $168 | $254 | $303 |
(a) The Peer Group consists of the following companies: The Walt Disney Company, Twenty-First Century Fox, Inc., Time Warner Inc. and Cumulus Media Inc. Clear Channel Outdoor Holdings, Inc., which was previously included in the peer group, has been excluded due to the split-off of CBS Outdoor Americas Inc. in July 2014.
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Item 6. Selected Financial Data.
CBS CORPORATION AND SUBSIDIARIES
(In millions, except per share amounts)
Year Ended December 31, (a) (b) | |||||||||||||||||||
2014 (c) | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
Revenues | $ | 13,806 | $ | 14,005 | $ | 12,820 | $ | 12,381 | $ | 12,271 | |||||||||
Operating income | $ | 2,896 | $ | 3,025 | $ | 2,778 | $ | 2,423 | $ | 1,803 | |||||||||
Net earnings from continuing operations | $ | 1,354 | $ | 1,738 | $ | 1,508 | $ | 1,263 | $ | 739 | |||||||||
Net earnings (loss) from discontinued operations, net of tax | $ | 1,605 | $ | 141 | $ | 66 | $ | 42 | $ | (15 | ) | ||||||||
Net earnings | $ | 2,959 | $ | 1,879 | $ | 1,574 | $ | 1,305 | $ | 724 | |||||||||
Basic net earnings (loss) per common share: | |||||||||||||||||||
Net earnings from continuing operations | $ | 2.46 | $ | 2.86 | $ | 2.35 | $ | 1.90 | $ | 1.09 | |||||||||
Net earnings (loss) from discontinued operations, net of tax | $ | 2.92 | $ | .23 | $ | .10 | $ | .06 | $ | (.02 | ) | ||||||||
Net earnings | $ | 5.38 | $ | 3.09 | $ | 2.45 | $ | 1.97 | $ | 1.07 | |||||||||
Diluted net earnings (loss) per common share: | |||||||||||||||||||
Net earnings from continuing operations | $ | 2.41 | $ | 2.79 | $ | 2.29 | $ | 1.85 | $ | 1.06 | |||||||||
Net earnings (loss) from discontinued operations, net of tax | $ | 2.86 | $ | .23 | $ | .10 | $ | .06 | $ | (.02 | ) | ||||||||
Net earnings | $ | 5.27 | $ | 3.01 | $ | 2.39 | $ | 1.92 | $ | 1.04 | |||||||||
Dividends per common share | $ | .54 | $ | .48 | $ | .44 | $ | .35 | $ | .20 | |||||||||
At Year End: | |||||||||||||||||||
Total assets: | |||||||||||||||||||
Continuing operations | $ | 24,033 | $ | 22,912 | $ | 22,473 | $ | 22,059 | $ | 21,828 | |||||||||
Discontinued operations | 39 | 3,475 | 3,993 | 4,161 | 4,336 | ||||||||||||||
Total assets | $ | 24,072 | $ | 26,387 | $ | 26,466 | $ | 26,220 | $ | 26,164 | |||||||||
Total debt: | |||||||||||||||||||
Continuing operations | $ | 7,146 | $ | 6,435 | $ | 5,921 | $ | 5,981 | $ | 5,998 | |||||||||
Discontinued operations | — | 14 | 14 | 22 | 23 | ||||||||||||||
Total debt | $ | 7,146 | $ | 6,449 | $ | 5,935 | $ | 6,003 | $ | 6,021 | |||||||||
Total Stockholders’ Equity | $ | 6,970 | $ | 9,966 | $ | 10,213 | $ | 9,908 | $ | 9,821 | |||||||||
(a) On April 2, 2014, CBS Outdoor Americas Inc. (“Outdoor Americas”), which was previously a subsidiary of CBS Corporation (the "Company" or "CBS Corp.") and has been renamed Outfront Media Inc., completed an initial public offering through which it sold approximately 19% of its common stock and on July 16, 2014, CBS Corp. disposed of its approximately 81% ownership of Outdoor Americas through a tax-free split-off. Outdoor Americas has been presented as a discontinued operation in the Company’s consolidated financial statements for all periods presented. For 2014, net earnings from discontinued operations, net of tax, includes a gain on the disposal of Outdoor Americas of $1.56 billion, or $2.78 per diluted share.
(b) On September 30, 2013, the Company completed the sale of its outdoor advertising business in Europe, which included an interest in an outdoor business in Asia (“Outdoor Europe”) for $225 million. Outdoor Europe has been presented as a discontinued operation in the Company’s consolidated financial statements for all periods presented.
(c) In 2014, in connection with the early redemption of $1.07 billion of its debt, the Company recorded a pretax loss on early extinguishment of debt of $352 million ($219 million, net of tax), or $.39 per diluted share.
II-3
Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition.
(Tabular dollars in millions, except per share amounts)
Management’s discussion and analysis of the results of operations and financial condition of CBS Corporation (together with its consolidated subsidiaries, unless the context otherwise requires, the “Company” or “CBS Corp.”) should be read in conjunction with the consolidated financial statements and related notes.
Overview
The Company operates businesses which span the media and entertainment industries, including the CBS Television Network, cable networks, content production and distribution, television and radio stations, Internet-based businesses, and consumer publishing. The Company’s principal strategy is to create and acquire premium content that is widely accepted by audiences and generate both advertising and non-advertising revenues from the distribution of this content on multiple media platforms and to various geographic locations. The Company is increasing its investment in both Company-owned and acquired premium content to enhance its opportunities for revenue growth, which include exhibiting the Company's content on digital and other platforms through licensing and subscription services; expanding the distribution of its content internationally; and securing compensation from multichannel video programming distributors (“MVPDs”) and television stations affiliated with the CBS Television Network. The Company also seeks to grow its advertising revenues by monetizing all content viewership as industry measurements evolve to reflect viewers' changing habits. The Company’s continued ability to capitalize on these and other emerging opportunities will provide it with incremental advertising and non-advertising revenues and serves to diversify the Company’s business model.
For 2014, revenues of $13.81 billion decreased 1% from $14.01 billion in 2013 primarily driven by 4% lower advertising revenues as 2013 included the benefit from the broadcast of the Super Bowl on the CBS Television Network and 2014 was impacted by four fewer NCAA Division I Men's Basketball Championship ("NCAA Tournament") games broadcast on CBS. Taken together these items impacted the revenue comparison by three percentage points. The impact from these items was offset by the addition of Thursday Night Football on CBS in 2014, increased political advertising spending associated with midterm elections, and 6% growth in affiliate and subscription fee revenues.
The Company reported operating income of $2.90 billion in 2014, a decrease of 4% from $3.03 billion in 2013, reflecting an increased investment in programming, primarily for National Football League ("NFL") games. The investment in NFL programming has contributed to strong ratings for the 2014/2015 broadcast season, which also includes three successful new Company-owned television series that have all generated higher ratings in their respective time periods compared with the prior season.
For 2014, net earnings from continuing operations were $1.35 billion compared with $1.74 billion for 2013 and diluted net earnings per share ("EPS") from continuing operations were $2.41 for 2014 compared with $2.79 for 2013. Comparability of results for 2014 versus 2013 was impacted by several discrete items that were not part of the normal course of operations. The following tables present adjusted net earnings and adjusted diluted EPS from continuing operations, which exclude the impact of these discrete items. These adjusted results are non-GAAP financial measures, which are reconciled below to the most directly comparable financial measures in accordance with accounting principles generally accepted in the United States ("GAAP"). The Company believes that presenting its financial results adjusted for the impact of these items is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by the Company's management and provides a clearer perspective on the current underlying performance of the Company.
II-4
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Year Ended December 31, | 2014 | 2013 | |||||
Net earnings from continuing operations | $ | 1,354 | $ | 1,738 | |||
Exclude: | |||||||
Loss on early extinguishment of debt (net of tax benefit of $133 million) | 219 | — | |||||
Impairment charge (including tax provision of $22 million) | 74 | — | |||||
Restructuring charges (net of tax benefit of $10 million in 2014 and $8 million in 2013) | 16 | 12 | |||||
Adjusted net earnings from continuing operations | $ | 1,663 | $ | 1,750 | |||
Year Ended December 31, | 2014 | 2013 | |||||
Diluted EPS from continuing operations | $ | 2.41 | $ | 2.79 | |||
Exclude: | |||||||
Loss on early extinguishment of debt | .39 | — | |||||
Impairment charge | .13 | — | |||||
Restructuring charges | .03 | .02 | |||||
Adjusted diluted EPS from continuing operations (a) | $ | 2.96 | $ | 2.80 | |||
(a) Amounts may not sum as a result of rounding.
On April 2, 2014, CBS Outdoor Americas Inc. (“Outdoor Americas”), which was previously a subsidiary of the Company and has been renamed Outfront Media Inc., completed an initial public offering (“IPO”) through which it sold 23.0 million shares, or approximately 19%, of its common stock for $28.00 per share. On July 16, 2014, the Company completed the disposition of its 81% ownership of Outdoor Americas common stock through a tax-free split-off (the “Split-Off”). In connection with the Split-Off, the Company accepted 44.7 million shares of CBS Corp. Class B Common Stock from its stockholders in exchange for the 97.0 million shares of Outdoor Americas common stock that it owned. The Split-Off resulted in a gain of $1.56 billion which is included in net earnings from discontinued operations for 2014. In aggregate, the Company received $4.76 billion from the disposition of Outdoor Americas, including proceeds from Outdoor Americas’ IPO and debt borrowings, and the fair value of shares received in the Split-Off.
During 2013, the Company completed the sale of its outdoor advertising business in Europe, which included an interest in an outdoor business in Asia (“Outdoor Europe”) for $225 million. Outdoor Americas and Outdoor Europe have been presented as discontinued operations in the Company’s consolidated financial statements for all periods presented.
During 2014, the Company also repurchased 60.3 million shares of its Class B Common Stock for $3.61 billion, at an average price of $59.88 per share. During the first quarter of 2015, the Company expects to spend approximately $1.0 billion to repurchase shares of CBS Corp. Class B Common Stock. As of February 10, 2015, the Company had $4.08 billion of authorization remaining under its share repurchase program. Also during 2014, the Company declared dividends of $.54 per share, totaling $296 million on its Class A and Class B Common Stock. On January 30, 2015 the Company announced a quarterly cash dividend of $.15 per share, payable on April 1, 2015.
During 2014, the Company redeemed $1.17 billion of its debt for $1.51 billion, including early redemption premiums, and also issued $1.75 billion of senior notes at significantly lower interest rates. During January 2015, the Company issued an additional $1.20 billion of senior notes, and used the net proceeds for the repurchase of CBS Corp. Class B Common Stock and repayment of short-term borrowings. The Company had $7.72 billion of long-term debt outstanding at January 31, 2015, $6.53 billion at December 31, 2014, and $5.96 billion at December 31, 2013, at weighted average interest rates of 4.7%, 4.9% and 6.0%, respectively.
II-5
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
The Company generated operating cash flow from continuing operations of $1.21 billion in 2014 and $1.78 billion in 2013. Included in operating cash flow for 2014 are payments of $360 million associated with the early extinguishment of debt, primarily for early redemption premiums. The decrease in operating cash flow also reflects the timing of payments for sports programming, as well as the benefit to 2013 from CBS's Super Bowl broadcast. These declines were partially offset by higher collections from television licensing sales and contributions of $150 million in 2013 to prefund the Company's qualified pension plans, with no comparable amount in 2014. Free cash flow for 2014 was $1.00 billion compared with $1.57 billion for 2013. Free cash flow is a non-GAAP financial measure. See “Free Cash Flow” on pages II-13 and II-14 for a reconciliation of net cash flow provided by (used for) operating activities, the most directly comparable financial measure in accordance with GAAP, to free cash flow.
CBS Corp. operates in the following four segments:
ENTERTAINMENT: The Entertainment segment consists of the CBS Television Network, CBS Television Studios, CBS Global Distribution Group, CBS Interactive and CBS Films. Entertainment's revenues are generated primarily from advertising sales, the licensing and distribution of its content, and affiliate and subscription fees. The Entertainment segment contributed 60%, 62% and 60% to consolidated revenues in 2014, 2013, and 2012, respectively, and 45%, 53% and 50% to consolidated operating income in 2014, 2013, and 2012, respectively.
CABLE NETWORKS: The Cable Networks segment consists of Showtime Networks, CBS Sports Network and Smithsonian Networks. Cable Networks' revenues are generated primarily from affiliate fees, and the licensing and distribution of its content. The Cable Networks segment contributed 16%, 15% and 14% to consolidated revenues in 2014, 2013, and 2012, respectively, and 34%, 29% and 28% to consolidated operating income in 2014, 2013, and 2012, respectively.
PUBLISHING: The Publishing segment consists of Simon & Schuster’s consumer book publishing business with imprints such as Simon & Schuster, Pocket Books, Scribner and Atria Books. Publishing generates revenues from the distribution of consumer books in print, digital and audio formats. The Publishing segment contributed 6% to consolidated revenues in each of the years 2014, 2013, and 2012, and 3%, 4% and 3% to consolidated operating income in 2014, 2013, and 2012, respectively.
LOCAL BROADCASTING: The Local Broadcasting segment consists of CBS Television Stations and CBS Radio, with revenues generated primarily from advertising sales and affiliate fees. The Local Broadcasting segment contributed 20%, 19% and 22% to consolidated revenues in 2014, 2013, and 2012, respectively, and 28%, 27% and 31% to consolidated operating income in 2014, 2013, and 2012, respectively.
II-6
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Consolidated Results of Operations—2014 vs. 2013 and 2013 vs. 2012
Revenues
The following tables present the Company’s consolidated revenues by type for each of the years ended December 31, 2014, 2013 and 2012.
Revenues by Type | Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||
Year Ended December 31, | 2014 | 2013 | 2014 vs. 2013 | 2012 | 2013 vs. 2012 | ||||||||||||||||||||
Advertising | $ | 7,204 | $ | 7,525 | $ | (321 | ) | (4 | )% | $ | 7,191 | $ | 334 | 5 | % | ||||||||||
Content licensing and distribution | 3,990 | 3,997 | (7 | ) | — | 3,468 | 529 | 15 | |||||||||||||||||
Affiliate and subscription fees | 2,362 | 2,221 | 141 | 6 | 1,921 | 300 | 16 | ||||||||||||||||||
Other | 250 | 262 | (12 | ) | (5 | ) | 240 | 22 | 9 | ||||||||||||||||
Total Revenues | $ | 13,806 | $ | 14,005 | $ | (199 | ) | (1 | )% | $ | 12,820 | $ | 1,185 | 9 | % | ||||||||||
Year Ended December 31, | ||||||||
Percentage of Revenues by Type | 2014 | 2013 | 2012 | |||||
Advertising | 52 | % | 54 | % | 56 | % | ||
Content licensing and distribution | 29 | 29 | 27 | |||||
Affiliate and subscription fees | 17 | 15 | 15 | |||||
Other | 2 | 2 | 2 | |||||
Total | 100 | % | 100 | % | 100 | % | ||
Advertising
Advertising revenues decreased 4% to $7.20 billion in 2014 from $7.53 billion in 2013. This decrease reflects the benefit to 2013 from the CBS Television Network's Super Bowl broadcast, which is broadcast on the CBS Television Network once every three years, and the broadcast of four fewer NCAA Tournament games on CBS during 2014. Taken together these items impacted the advertising revenue comparison by five percentage points. These decreases were partially offset by the addition of Thursday Night Football on CBS in 2014 as well as political advertising spending associated with midterm elections.
In 2013, advertising revenues increased 5% to $7.53 billion from $7.19 billion in 2012. This growth was principally driven by an increase at the CBS Television Network, including the 2013 broadcast of the Super Bowl, and increases at CBS Interactive. These increases were partially offset by lower political advertising revenues as 2012 benefited from the U.S. presidential election.
In 2015, the local advertising revenue comparison will be impacted by the benefit in 2014 from political advertising spending associated with midterm elections. For national advertising, upfront advertising sales for the 2014/2015 television broadcast season, which runs from the middle of September 2014 through the middle of September 2015, resulted in pricing increases with lower overall volume, compared with the 2013/2014 broadcast season. As a result, in 2015 more advertising spots will be available in the scatter advertising market, which is when advertisers purchase the remaining advertising spots closer to the broadcast of the related programming. Overall advertising revenues will be impacted by ratings for the Company’s programming as well as market conditions, including demand in the scatter advertising market. (See page I-2 for a description of advertising sales in the upfront and scatter markets.)
Content licensing and distribution
Content licensing and distribution revenues are principally comprised of fees from the licensing of internally produced television programming to multiple media platforms and in various geographic locations; fees from the distribution of third party programming; and revenues from the publishing and distribution of consumer books. For 2014, content licensing and distribution revenues of $3.99 billion were comparable with 2013 revenues of $4.00
II-7
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
billion reflecting higher revenues from the licensing of the Company's television programming offset by lower revenues from book sales and theatrical releases. For 2013, content licensing and distribution revenues increased 15% to $4.00 billion from $3.47 billion in 2012 reflecting growth from the domestic and international licensing of programming. Significant contributors to television licensing revenues in 2014 included Blue Bloods, Hawaii Five-0, and Dexter and in 2013 included NCIS: Los Angeles and The Good Wife.
For 2015, the content licensing and distribution revenue comparison will be impacted by fluctuations resulting from the timing of the availability of Company-owned television series for multi-year licensing agreements. Television license fee revenues are recognized at the beginning of the license period in which programs are made available to the licensee for exhibition.
Affiliate and subscription fees
Affiliate and subscription fees are principally comprised of revenues received from MVPDs for carriage of the Company’s cable networks, as well as for authorizing the MVPDs’ carriage of the Company’s owned television stations (“retransmission fees”); fees received from television stations affiliated with the CBS Television Network (“station affiliation fees”); and subscription fees for online content. For 2014, affiliate and subscription fees increased 6% to $2.36 billion from $2.22 billion in 2013 and for 2013, affiliate and subscription fees increased 16% from $1.92 billion in 2012. These increases reflect higher rates across the Company. For 2014, the increase was partially offset by lower revenues from Showtime Networks' distribution of pay-per-view boxing events. In 2015, the Company expects continued growth in affiliate and subscription fees.
Other
Other revenues, which include ancillary fees for Entertainment, Cable Networks and Local Broadcasting operations, decreased 5% to $250 million in 2014 from $262 million in 2013, principally reflecting lower ancillary digital revenues. For 2013, other revenues increased 9% to $262 million from $240 million in 2012 primarily as a result of higher ancillary digital revenues.
International Revenues
International revenues primarily consist of television licensing revenues. The Company generated approximately 13% of its total revenues from international regions in each of 2014 and 2013, and 12% in 2012.
% of | % of | % of | |||||||||||||||
Year Ended December 31, | 2014 | International | 2013 | International | 2012 | International | |||||||||||
United Kingdom | $ | 270 | 15 | % | $ | 359 | 20 | % | $ | 245 | 16 | % | |||||
Other Europe | 657 | 37 | 607 | 33 | 498 | 32 | |||||||||||
Canada | 241 | 13 | 270 | 15 | 260 | 17 | |||||||||||
Asia | 262 | 15 | 225 | 12 | 198 | 13 | |||||||||||
Other | 363 | 20 | 366 | 20 | 344 | 22 | |||||||||||
Total International Revenues | $ | 1,793 | 100 | % | $ | 1,827 | 100 | % | $ | 1,545 | 100 | % | |||||
II-8
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Operating Expenses
The table below presents the Company’s consolidated operating expenses by type for each of the years ended December 31, 2014, 2013 and 2012.
Operating Expenses by Type | Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||
Year Ended December 31, | 2014 | 2013 | 2014 vs. 2013 | 2012 | 2013 vs. 2012 | ||||||||||||||||||||
Programming | $ | 2,938 | $ | 3,047 | $ | (109 | ) | (4 | )% | $ | 2,621 | $ | 426 | 16 | % | ||||||||||
Production | 2,493 | 2,491 | 2 | — | |||||||||||||||||||||