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CBS Takes On Cablevision In Next Retrans Talks

With the ad market in the dumper, retransmission deals have taken on new significance and today CBS Corp. said it expects new fees to help add an estimated $250 million to its bottom line in the coming years.

After concluding a new five year deal with Time Warner Cable, CBS is now talking to Cablevision Systems Corp. for increased fees for its content which includes CBS network and the Showtime premium services. “Cablevision is coming up and we’re in talks with them to hopefully resolve that shortly,” said CBS CEO Leslie Moonves at an investor conference today.

When asked for details on the Time Warner Cable agreement he said, “We are not allowed to give many details. We had said we expected, three to four years ago to get $250 million to the bottom line from retransmission. This is on target for that. We are very pleased with the deal and it was in the neighborhood we wanted to be in.” He added Showtime subscriptions had risen 17% in the past two years.

The $250 million is an estimate of what CBS will gain annually once it has tied up all retransmission agreements with the likes of Comcast Corp. and myriad medium to small sized cable players. "There is a lot of positive in our story even in the downward model," said Moonves.

In a note issued this morning, Bernstein Research analyst Michael Nathanson wrote that although the deal terms between Time Warner Cable and CBS Corp. are kept secret, the assumption is that CBS was able to gain retransmission fees of 50 cents for CBS affiliates and 25 cents for CW affiliates. The estimates would translate into a gain of $38 million in revenue and operating profit in 2011, according to Nathanson. However, CBS Corp. negotiated a single fixed price for Showtime and CBS as a package rather than asking for separate fees on each property given their common ownership.

Separately, Moonves said that CBS expected to spend $150 million less than last year as part of cost savings as revenue shrinks because of the poor ad market. CBS takes 65% of its revenue from advertising. Capital expenditure will drop from $500 million in 2008 to $350 million in 2009. He explained that now CBS’ digital transformation is essentially complete, spending would remain at those levels.

Appearing at Citi’s annual media conference at the Arizona Biltmore Hotel, Moonves extolled some of the corporation’s brightest spots despite the poor market. He reiterated the strength of broadcast TV saying that the network business had not been cyclical for CBS which had remained at the top of its game. He suggested that it was cyclical only for networks that had dropped from first to fourth, a veiled reference to NBC.

International distribution is a bright spot for CBS. The company’s remake of the youth drama, Beverly Hills 90210, titled simply “90210,” bags $1.5 million profit per episode, according to Moonves. “The cable revolution has hit the international marketplace,” he said. “We sold it for north of $2 million per episode internationally this year. That’s $1.5 million in profit per episode for a brand new show in its first season. When it gets renewed that’s automatically $30 million to the bottom line.”

Touching on the ad market, Moonves said he was hopeful that the auto bailout would begin to see money trickle back to  the ad market and that comments from European car markets about hoping to win share in America would also bode well for the marketplace.

When asked to comment on upfront pricing this year, Moonves said: “God knows where we’ll be then. Relatively speaking our numbers are good so we’ll be at the top of the line. We do expect increases, what they’ll be, I don’t know.”