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CBS Keeping Retrans Haul

With its coffers nearly bursting with cash from retransmission- related revenue, CBS CEO Les Moonves said the broadcaster isn’t looking to make a big acquisition, but he reopened speculation The Eye might partner with a cable news organization.

CBS said last week it expects to cross $1 billion combined in retransmission-consent cash and reverse-compensation revenue (from non-owned stations) by 2016, a full year before its previous target date of 2017.

Speaking at the Bank of America Merrill Lynch Media, Communications & Entertainment conference in Beverly Hills, Calif., last Wednesday, Moonves said that milestone might even come earlier.

CBS recently signed a retransmission pact with Cablevision Systems and inked a reverse-compensation agreement with eight CBS affiliates owned by Nexstar Broadcasting Group, doing so at “very high rates,” according to Moonves.

Unlike some other broadcasters and station groups, CBS was able to reach these agreements without its channels going dark to distributors, he said.

“People are realizing the value of our content,” Moonves said at the conference. “They can’t live without the things we provide — the NFL, CSI, Two and a Half Men, Big Bang Theory, 60 Minutes. So our affiliates and our MSO partners realize they need to pay. The ecosystem has changed dramatically.”

Three years ago, CBS was receiving no retransmission cash, he said. Five years ago, the network was paying its affiliates to carry CBS programming. This year, MSOs, satellite providers and telco TV operators will pay more than $250 million in retransmission fees to CBS, Moonves said.

Hitting the billion-dollar benchmark a year early is good news for CBS and other broadcasters, but Sanford Bernstein media analyst Todd Juenger said that alone won’t have much impact on valuation.

“What does matter, a lot, is the 10 years of retrans growth after that,” Juenger said in a research note.

Juenger estimated $1 billion in revenue implies average retransmission fees of about $1.22 per subscriber per month.

Were those charges to rise to $4 per subscriber per month by 2025 (the theoretical upper bound in that time frame), that would mean an extra $16 per share in value for CBS, the analyst said.

He said he considers $2 per subscriber per month the more likely upper limit — and that would add $10 per share in value to CBS stock, which closed last Wednesday at $36.16, down 2% (68 cents per share).

Junger said MSOs on average pay about $33 per subscriber per month for content, $2 of which (5%) goes to broadcasters’ retransmission fees.

CBS plans to be conservative with the cash earned from this growing and highly profi table revenue stream. Moonves said at the conference the company had “no burning desire to acquire anything.”

Moonves was slightly less definitive about whether he would like to add another cable channel to CBS’s portfolio of premium network Showtime and CBS Sports Network.

“Would we like to add a general cable channel? Perhaps,” he said. “I think we could program it pretty darn well. We’ve got a great library. We obviously are programming people. We know how to do this. We’ve been the No. 1 network nine of the last 10 years. We know this business. We know how to make networks work.”

In 2010, CBS and cable news channel CNN talked about combining news operations, but never cut a deal. With CNN consistently lagging cable news leader Fox News Channel, speculation has risen again about partnering with another broadcast or cable network.

Moonves said joint ventures are difficult to engineer for both sides, but said CBS News is in better shape than it was two or three years ago. “We are really proud of the status of our news division. It’s in profit. Any of these troubled networks, they can reach out and we’ll take their call.”