Expectations are low for CBS' earnings

CBS declared itself "Mentally Strong" in a news release the other day, trumpeting the big ratings for the network's latest hit drama, "The Mentalist."

Fiscally fit, however, is the question.

The broadcasting giant today reports quarterly results, and Wall Street is bracing for grim numbers -- and looking for CBS Corp. to outline a strategy for how it will navigate the choppy waters ahead.

A rapidly deteriorating economy is making it difficult for CBS to capitalize on its resurgence in prime time, where viewership is up 6% over last season, a notable achievement at a time when network TV is experiencing an audience exodus. In addition to "The Mentalist," the network has notched gains for sitcoms "Two and a Half Men" and "How I Met Your Mother," the Navy forensic drama "NCIS" and the news magazine "60 Minutes."

Even "CBS Evening News With Katie Couric," pummeled by critics after an embarrassing start with Couric in the anchor chair, has increased its audience about 1% this season.

But all that isn't of much help right now for CBS, which is uniquely vulnerable to the recession because nearly 70% of its revenue comes from advertising. TV and radio stations have been battered as mainstay advertisers such as automakers, financial firms and retailers have slashed spending. Unlike media rivals Time Warner Inc., Walt Disney Co. and News Corp., CBS doesn't have a broad stable of cable channels pouring in subscriber revenue to offset advertising declines.

The nose dive in TV and radio ads is hitting the company on the balance sheet. Last fall CBS took a $14-billion write-down to reflect the diminished value of its broadcasting assets and billboards. Since then, the economy has eroded further. CBS' Internet play -- spending $1.8 billion to buy technology news operation CNet Networks Inc. -- is widely considered an ill-timed investment in the wake of a massive retrenchment in online advertising.

"They overpaid for it," said longtime media investor Harold Vogel. "I wouldn't be surprised if they had to take another write-down."

Then there is the issue of CBS' generous dividend. Vogel and other analysts are watching to see whether CBS reduces the payment. The company currently issues more than $725 million a year in dividends to shareholders, which it has done to attract investors. That is money that CBS desperately needs for other purposes.

"In this environment, cash is the most important asset that you can have," Vogel said.