CBS Digital Acquisitions: What's Next?

Paid Content refers to a NYT article on CBS (CBS) which calls for the company that Bill Paley built to make digital acquisitions, which begs the question: should it go for a big purchase or make small moves?

Of course, answering that question alone without addressing the backdrop to that question yields an incomplete picture.

CBS has hit some rough patches, according to Paid Content:

The parent company is under a mini-siege of sorts about
a) its performance,
b) Leslie Mooves’ salary, [sic]
c) Katie Couric’s disastrous tenure at the company,
d) layoffs (even on the digital side, as others are ramping up) and other issues…
e) CBS’s need for an acquisition is becoming apparent. Some CBS executives privately agree.

I want to dive in and comment on e) but let’s run through this list quickly.

a) Its Performance

We’re not sure if they are referring to its financial performance or its stock’s, but either way:

As per the NYT:

Without the cushion of Viacom’s other properties, CBS has been more exposed to the struggles of the advertising market. In 2007, it earned $1.25 billion, down from $1.66 billion the year before. CBS stock closed at $21.40 on Friday, compared with $30.99 a year earlier.

While no company or manager can control what happens to the stock price, I think big media will see a lot of revenue loss over the next few years. Print-centric media companies shrank, and why would TV or radio-centric media companies be any different in the next wave of the web’s growth?

After all, 1994-2003 saw text-based media explode online, and 2003 is about audio/video-heavy media.

CBS is seeing this sooner and faster due to its exposure to TV and radio. However, it is strong in outdoors, while the challenge is that the upside there won’t account for the downside in more traditional media.

So, all hope signals point to online… which explains why:

On Monday, the company’s interactive unit will officially open a fully staffed office in Menlo Park, Calif., in Silicon Valley, to stir innovation and content development.

Ironically, the CBS Interactive brass get the web quite a bit, but it’s true that they have been overly cautious, too. Being cautious is a bad thing in booming times and a great thing in corrections. The problem for CBS is that the correction is coming offline and online continues to charge ahead… so indeed, CBS does need to make some bold moves. But what are those moves?

Last year, we suggested an outright merger with Yahoo! (YHOO). With Microsoft's (MSFT) $45B gamble, those bets are off (hmm… are they?).

b) Leslie Moonves’ Salary

Last week Henry Blodget wrote: “CBS CEO Moonves Gets 29% Raise, Just Reward For Job Well Done“.

Clicking through, I realized he was being sarcastic by pointing to the seemingly inverse relationship between Mr. Moonves salary and CBS’ performance. While I appreciate Henry’s position, the truth is that CEO pay is determined on a number of things, frankly.

It’s also about the demand and supply for talent. As the CEO of CBS, Mr. Moonves could probably command a much larger salary elsewhere. If CBS’s board wants to pay him $100M because that is what it takes to retain him, I am not sure CBS or Moonves should be blamed.

For the record, he did not make $100M but rather $37M. Is that a lot of money? Yes. But the company made well over a billion dollars in profit and $14B in revenues. Of course, I’m an executive so my perspective is going to be different than that of an analyst or journalist.

But my point is: running a shrinking business in a mature market is not something most executives would embrace. To lure the best (or retain them) -- guess what? It takes a generous compensation program.

c) Katie Couric

I don’t care personally, but indeed, this is becoming an albatross, and if she is that horrific (I don’t watch TV), it’s time to try something else. I recognize she might not be best suited for news, but surely there are plenty of things she can be doing for CBS in other capacities (infotainment, mainly).

d) Layoffs

Layoffs are always demoralizing, especially when a company is making over $14B in revenue and remains profitable. But what about a case, like this one, when the company is shrinking? This is a tough question.

My gut says Jack Welch’s “the lowest 10% should leave” is not a bad thing… so while I don’t want to dehumanize the layoff dynamics and their effect, I think it’s unfair to question the layoffs.

Of course, I do wonder why layoffs are taking place in online areas… which is what both Paid Content and NYT refer to. But just bear one thing in mind: many traditional media companies are not necessarily well structured in new media. Divisions and structures are sometimes borne out of legacy organizational systems, and sooner or later a correction or adjustment is called for. If this is the case, then I don’t think it’s fair to bash CBS on this point.

e) Acquisitions

The question remains: should CBS make one big hairy and ambitious acquisition or should it buy a number of smallish companies and roll them up and/or foster their growth?

For the record, CBS has done both. In fact, it’s done everything including investments in Spotrunner, Joost and many others. In terms of acquisitions: Last.fm was a mid-sized / big one; Wallstrip was a small one.

What would you do if you were Quincy Smith and company? Buy? Merge? Sell?

Comments

[Health Guy:]

CBS will buy WBMD before the year is over. They have an exisiting content syndicaiton relationship but more importantly, WBMD stock is down 3x from its highs. Its cheap right now and gives CBS entry into a growth market---online health. And of course, Phara cross selling could be huge, assuming they could make that work operationally.

2008 Apr 15 01:58 PM

[Michael Smith:]

I agree that a WebMD acquisition would be a smart move. However, imagine if CBS simultaneously built out its Outernet division and acquired more assets in the healthcare sector - Lifeclinic and/or AVTV (whom both have strategic relationships with CBS). Imagine packagining those with Network sales. One buy, whick reach consumers at home, on the road, in medical and dental offices, and in pharmacies. Wow. Scary thought. And a very profitable one.

2008 Apr 16 03:04 PM