CBS shares are up 27% from a year ago, in large part because of the company's strong balance sheet, several dividend increases and speculation that the company eventually might go private in a leveraged buyout.
Radio has long been a drag on the company's earnings. Last year, profit at the division, one of the nation's largest chains of stations, was down 12%. CBS executives cut programming expenses and sales commissions and sold 39 stations to lift the bottom line.
The loss of Imus doesn't help that cause, although not because his program was all that profitable. Bear Stearns estimated that "Imus in the Morning" generated between $15 million and $17 million in revenue a year. Profit amounted to about $2 million a year, according to people familiar with its finances. That is a minute portion of the more than $780 million in profit CBS Radio made last year.
However, the talk show host had three to four years remaining on his five-year contract, Bear Stearns said in its report, adding that a payout to settle the balance could ding the company's earnings. CBS has not said how it planned to deal with Imus' contract, which is worth about $10 million a year, according to published reports.
The Imus scandal came at a time of internal turmoil at CBS Radio. Its bottom line has yet to recover from the loss of its biggest star, Howard Stern, who switched to satellite radio a year ago seeking artistic freedom after regulators imposed fines for indecent remarks. Late last month, CBS said it would replace the head of its underperforming radio division, Joel Hollander, with Dan Mason, a former president of the group.
Merrill's Reif Cohen concluded that the Imus scandal served only as "an additional distraction" for management.
But the radio division is not Moonves' only headache. Just as worrisome is a decline in prime-time ratings for the company's flagship asset, the CBS television network. That could be costly for CBS as it heads into the all-important "upfront" advertising sales period in May and June, when broadcast networks typically sell as much as 80% of their commercial spots for the coming season.
"Our key area of concern is on the CBS network heading into the upfront season," Bank of America broadcast analyst Jonathan Jacoby wrote Thursday in a report on CBS. He estimated that CBS' ratings declines could cost the company as much as $300 million a year in pretax earnings.
