Moonves' movie moves

CBS-Showtime pic pact could vex Viacom

By JILL GOLDSMITH

Moonves

A correction was made to this article on August 8, 2006.

Leslie Moonves is officially in the movie business.

CBS' decision to make theatrical movies potentially could exacerbate tensions within Viacom since the network will now become a supplier of titles to Showtime.

Cabler has for more than a decade depended on Paramount for its pic supply.

After months revising a film strategy, Moonves said the company plans to annually produce four to six movies budgeted between $10 million and $50 million -- a move he calls "risk-free" -- and thus compete with Viacom's Paramount Pictures. He did not talk about any theatrical distribution plans.

Beyond expanding CBS' portfolio, maneuver appears destined in part to lessen Showtime's dependence on Hollywood studios for product -- including Viacom, whose Paramount unit currently has an output deal under which its titles play on the CBS-controlled pay channel.

CBS' mini-deal to provide Showtime with movies from its new film unit -- which has no timetable or staffing yet -- won't be enough to replace the net's current output deals; still, Moonves expects to get better terms, and take fewer movies, when those pacts expire in 18 months.

The current Showtime-Paramount output deal expires after next year.

Tom Freston, president of Viacom, which includes Paramount, will be looking for the highest pay-TV bidder in renewing Par's output agreement, and John Malone's Starz! would be a likely candidate because Walt Disney -- that pay cabler's key theatrical supplier along with Sony Pictures -- has said it will cut back its release schedule to only about 10 pictures a year.

Starz! is almost totally reliant on theatricals: Unlike HBO and Showtime, it doesn't produce scripted original series. But the loss of the Paramount titles would be tough for Showtime to swallow because its only other movie provider is MGM; even with original series like "Brotherhood" and "Weeds," Showtime still needs a number of fresh theatricals to supplement its programming menu, and MGM and the four to six Moonves pics would not be enough.

The separation could also be costly to Viacom, however, if the studio can't negotiate terms that are as favorable as those it enjoyed from Showtime when the two both resided under the Viacom umbrella, before chairman Sumner Redstone opted to break up the company. CBS got Showtime in the split.

During a conference call to discuss CBS' latest quarterly earnings, Moonves said DVD and international TV sales would also defray production costs, and "we won't have a large studio overhead. ... We can get into the movie business risk-free."

CBS' net profit rose 4% to $781 million, including a $292 million gain on the sale of Paramount Parks.

Revenue eased 1% to $3.5 billion from slower sales in radio advertising and DVD.

CBS ended June with more than $3 billion in cash and relatively low debt, continuing to fuel speculation about potential acquisitions.

Investor jitters at the thought of a large deal plus radio woes pulled the stock down 2.95% to $26.35.

Radio continues to be CBS' ball and chain as operating income plunged 20% to $220 million and revenue fell 8% to $519 million. Company cited overall market softness and heavy hits where there were "programming changes" (i.e., at stations that lost shock jock Howard Stern).

"The radio marketplace is tough out there," Moonves said.

Moonves said talks are under way to sell at least 10 smaller-market stations. He noted those sales may require a particular acquisition structure that would save lots on taxes but could hinder the company's ability to buy back stock while a deal is under way.

CBS Television income dipped 3% to $492 million. Revenue was off 1% to $2.3 billion.

TV ad revenue was flat. But station revenue was up 5% on political ad spend, which Moonves said is exceeding expectations everywhere but New York.

Affiliate fees were up 11% and licensing revenue up 5%.

Moonves said that Katie Couric's ascent to the "CBS Evening News" anchor chair on Sept. 5 will be "a major step forward for our entire news organization." He was also upbeat about Rachael Ray's new syndicated program, which has been cleared in 97% of the U.S.

The TV division took a $24 million hit to shutter UPN, merging with the WB. New CW net half owned by CBS will debut in late September.

Outdoor advertising, which has always assumed a low profile in media companies, is enjoying a renaissance, Moonves said, with billboards proving a newly popular way to reach increasingly distracted consumers.

Income surged 32% to $108 million. Revenue rose 7% to $534 million.

Simon & Schuster bumped up profits by 5% to $8.2 million on revenue up 1% at $176 million.

Moonves said new-media revenue will grow more than 100% this year from last, ultimately bringing in "hundreds of million of dollars."

(John Dempsey contributed to this report.)