www.pwc.com/ceosurvey Growth reimagined Prospects in emerging markets drive CEO confidence 14th Annual Global Leslie Moonves Interview Transcript
Interview with Leslie Moonves PwC: We ve divided the questions into four areas, designed to reflect your role in overseeing the diversified properties of CBS. The first area is strategic change. Please begin by briefly explaining the major impact the recession has had on CBS Entertainment, Cable, Publishing, Local Broadcasting and Outdoor operations. LM: The recession affected all of our operations, but in different ways. On the Entertainment side, the cost of production has gotten very expensive. We produce premium-quality television shows, and when things are good and advertising money is rolling in, costs get a little out of control and people aren t paying quite as much attention to them as is necessary. We took our schedule and literally went through, show by show, and cut costs. We said, This show has ten writers, but we could do fine with eight. Or, This supporting player doesn t need to be in the show, and we would eliminate an actor. Or a production could be cheaper if we shot a scene in a different location. Ultimately every show, from our brand-new ones to our biggest hits the CSIs and the NCISs all ended up costing less. The entire system went through a shift, in some ways major and in some ways minor, but I think it made the Entertainment business a far more efficient place to be. We get over 60 percent of our overall revenue from advertising. The recession forced many companies to reduce their advertising, which hit our local broadcast affiliates especially hard. For example, they depend a great deal on automotive advertising, and when the auto industry slumped and their ad spending went down, it forced our affiliates sales groups to find new local advertisers. In the Outdoor advertising operation, we had been converting a number of our conventional billboards to digital, which costs a lot of money. During the recession, the advertising money to purchase billboards wasn t flowing as well, so we slowed down our capital expenses on digital boards. We recently began to slowly reinvest in those boards, as we ve seen the advertising climate improve. Our Publishing operation is primarily a retail business, and like most retail businesses, it was hurt by the troubled economy. To cut costs there, we changed the mix of some book title releases and advances paid to certain authors. PwC: In what areas have those strategies been most resilient through the economic crisis, and what changes have you had to make, if any, along the way? LM: The good news is, when you ve reduced costs within an operation, it usually forces people to be more efficient. For instance, we did more crossovers with local television and radio stations, where they shared a lot of services. We streamlined the process, and it became more efficient. We saved money. As the recession began to fade which we feel it has, and we re optimistic that we re heading in a very good direction these new things that we ve implemented have affected our business in a positive manner. Because as revenue comes up and as the costs have stayed down, our margins improve and our business improves. People are pleased that they were able to cut costs and yet perform not only in the same excellent way they had before, but maybe in a better way. PwC: Would you say you were taking advantage of an opportunity that the economic crisis presented? LM: No question about it. I think somebody at the White House said, Never let an economic crisis go to waste. That s clearly the case here.
Overall, everybody was very conscious of the fact that costs needed to come down throughout CBS. And, I must say, our team rose to the occasion and did very well. PwC: What indicators are you currently watching to tell you how well the U.S. economy, and those in your key international markets, will develop in the coming months? LM: The main indicators are actually in our own business. Because we have so many local assets in terms of radio stations, television stations and billboards changes in the economy directly affect them almost immediately. Earlier I referred to the automotive category as a major advertising revenue source. As we ve seen automotive manufacturers coming back being strengthened, getting new management, getting help from the US government and begin to advertise again, it directly hits us on the bottom line. We see that effect immediately. Our business is very much tied to GDP. We see the US economy improving day to day. We see retail improving. We see automotive improving. We see other major advertisers, such as fast food, improving. So it s not a question of looking at surveys and government reports although we re affected by consumer confidence reports and whatever the Federal Reserve is saying we can see economic indicators pretty clearly from our own businesses. PwC: What about the economic situation in your international markets? LM: Throughout the recession, the great thing that has travelled, always, is our content. We are a content provider; that is our bread and butter and what we re most proud of. We are fortunate to have a company that produces a lot of premium content. In most markets throughout the world, the CSI franchise is huge, as is the NCIS franchise. We are reaping the benefits of that. Even during the worst times in the global economy, our international sales continued to grow at a fairly remarkable pace. Throughout the world, new markets are developing. We re soaring in Western Europe, and the Far East, Eastern Europe and Latin America are beginning to buy more. So we re seeing a great international marketplace for our content. PwC: What is your outlook beyond 2011 and what do you see as the major risks to some of your strategies? LM: I am an optimist, and I do believe in the value of our content and our businesses. The world is a very tricky place right now. We re dealing with some political turmoil in the United States, and that is also affecting our economy throughout the world. There s a lot of unrest. We re all paying close attention to the trouble spots. However, as we look down the road, if we continue to produce premium content, like we re doing, our company is going to be fine. PwC: Describe your biggest strategic opportunity today, as well as the greatest risks associated with that opportunity. LM: The thing that keeps me up most at night, in a positive way not a worry but an opportunity is: where we put our content so it s financially beneficial to us and doesn t risk hurting our other businesses. We have what s called the content food chain. It starts with the CBS network, which is the biggest chunk of revenue, and moves into syndication and DVDs. Then it begins to get into all the new media formats cbs.com, itunes, ipad, Netflix, etcetera that are coming forward. The great opportunity is, they desperately need our content. We are going to get paid for it.
The question is, where do you place your bets? If you go on a certain new media platform, is it going to hurt any of your core businesses? Fortunately, we re the number-one network by a nice margin right now, and I would hate to do anything to jeopardise that, because that s still the primary focus of our revenue. Take, for example a hit show like NCIS. We sell it on the network with advertising, we sell it all over the world in syndication and we sell it domestically in syndication. It helps our local television stations get advertising, as well, and it helps us get retransmissionconsent payments from our cable operators. So if we put it on a new device and people start watching it a different way, yes, we re going to get paid for it, but are we getting paid enough to take that risk that it s going to hurt all these other things in the content food chain? PwC: Considering those new media platforms and how consumers interact with them, do you look at content any differently? Do you alter content for any particular platform? LM: Content is the most valuable asset that all these devices need. You can t have technology without the content. Wireless is useless if you re hitless. Certain shows work online better than others, such as self contained episodes or ones that have good video clips. Our attitude is still basically the same: Do the best darn show you can. If it s a great piece of content, it ll work on the network, it ll work all over the world. Just put on a good show and good things will happen. PwC: In last year s CEO survey and interviews, a majority of CEOs told us that they planned to increase their innovation spending, despite the economic crisis. In what specific ways are you pursuing more innovation in CBS different businesses? LM: New media is a key. We have a great group in San Francisco called CBS Interactive, which has three functions. One is to get our existing TV and radio content online in different ways. Function two is to create original content for the web, which includes our gaming service. The third function deals with where this corporation needs to be digitally ten years from now. What new businesses should we be in? What acquisitions can we make that will fit into our existing content groups? There s a lot of interesting research and development in that area. We just started a local web group, combining our radio and television stations to have an online service in a particular city. In Los Angeles, for instance, we had two television stations and two news radio stations. All four of them had different websites, so we put the four of them together to form cbsla. com. We now have the greatest online content platform in that market. We also have utilised our salesmen in those four organisations to sell online. That is fairly innovative, in that nobody can compete with us on the local level with as many salesmen and pre existing content. We now have similar web services in 24 cities. You go on the service in the morning, and it gives you everything you need locally news, sports, weather and hooks you into our national news, sports, and weather as well. It also gives you information on local restaurants, driving directions, where to get a babysitter, where to get a coupon.
That innovation we think could turn into something spectacular. We have also recently invested in three joint ventures for international channels in India, Australia and the UK. In India, we formed a partnership with Reliance Group, which is that country s largest media company. Initially, we re using existing CBS content, and we re going to create original content there. That s how we re expanding our brand internationally, and we d like to do more of that. We re trying to build our businesses that don t rely totally on advertising, so that the balance is better and we re more recession-proof. Although right now, with the economy beginning to come up, we re looking awfully good. PwC: Are these new media ventures a different type of an investment than you would make in more conventional broadcasting areas? LM: Undoubtedly. In new media, you have to put your foot in the water. And Wall Street has to look at it somewhat differently. They re not investments that are necessarily going to give you a return in 30 90 days. You have to look a little further out, which is a quandary, in that investors sometimes don t like looking out that far. They want to know what you have done lately, and I think we re able to balance that fairly well. PwC: Is it also a challenge for a traditional broadcaster like CBS to go outside the box? LM: One of the things we ve had to change is our perception as an old media company. Over the last couple of years, we ve done that quite well. People aren t looking at us quite the same way. We can still win as a broadcast network and a radio company, and be very proactive in the new media space and attack that equally well. I think people are finally appreciating that. PwC: Specific to CBS, how have you changed or improved your company s capital structure, and has access to capital impacted any of the strategic initiatives you ve mentioned? LM: The good news about our company is, we produce a lot of cash, so accessing capital has not been necessary to do anything that we ve wanted. Over the past couple of years, we ve paid down our debt quite significantly by about $1 billion, in fact. Our capital structure right now is in a fabulous position, probably the best we ve been in for a number of years. PwC: When thinking about CBS entertainment and media operations in this evolving digital age, how is the definition of value changing, in particular with regard to consumer behaviours and appetites? What is the near future of the value and monetisation of your content in the ongoing debate over whether consumers will pay or want it for free? LM: We are living in such an interesting time, involving consumers and their consumption of media, which is something that at CBS we give a great deal of thought and conversation to. No question, the younger generation is not as used to a television screen as the older ones. They re much more used to a computer screen. They are much more impatient. We ve all heard, I want what I want when I want it. And for every new media device, there are new and more and better ways of getting content. It is a challenge for us, getting content out there, and getting paid for it. We sell our content over the air to cable and satellite and telcos, and then it will appear days later online for pennies on the dollar in advertising revenues. Our biggest nightmare is that instead of one
percent of viewers watching online, 99 percent watch it online for those pennies on the dollar. We wouldn t be able to produce the quality of shows that we do on that basis. We wouldn t be able to spend hundreds of millions of dollars purchasing the National Football League contract and putting the highest premium content on the network. All the media companies are walking the fine line of being part of new media, making content available, but still getting paid for it. The way the dialogue has changed is that five years ago, there was the attitude that technology was the thing and content was fungible. A show is a show is a show. I think the respect for content has grown immensely, along with the realisation that you can t have great technology without great content. The good news for us is, in a marketplace with 500 channels and a billion websites where you can get content, that only emphasises that the big platform players are still the best game in town. We average 12 million viewers a night. Arguably, that is the biggest channel in the world. There s no other network that s higher, certainly no cable network that s higher, and no website that s higher. www.pwc.com/ceosurvey PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 163,000 people in 151 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2011 PwC. All rights reserved. Not for further distribution without the permission of PwC. PwC refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm s professional judgment or bind another member firm or PwCIL in any way.