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CBS Corporation (CBS) Stock Depends on Its No. 1 Network’s Success

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CBS Corporation (NYSE:CBS) has done an impressive job of making its television network the No. 1-rated network, vaulting over its peers. As a result, CBS stock vaulted to all-time highs last month in what has been an impressive recovery since 2009’s stock market lows, with the stock having given investors 15-bagger performance since then.

CBS Corporation (NYSE:CBS)

CBS Corporation (NYSE:CBS)’s prime-time ratings took a hit in the most recent week from the NBA Finals on The Walt Disney Company (NYSE:DIS)‘s ABC, but 38 weeks into the 2012-2013 Nielsen season, CBS leads its rival U.S. broadcast networks by a substantial margin, with ratings of 7.1 and a 12 share comparing favorably to ABC’s 5.0 and eight, respectively, and even lower results for Comcast Corporation (NASDAQ:CMCSA)‘s NBC and News Corp (NASDAQ:NWSA)‘s Fox. Let’s take a closer look at how CBS has achieved this success, and what investors can expect from the stock going forward.

What’s under the CBS umbrella?
CBS Corporation (NYSE:CBS) is best-known for its namesake U.S. broadcast network, but it has plenty of other businesses that it runs. The company also owns the CW Network as well as premium cable giant Showtime, in addition to having its own television production studios and an extensive sports presence that includes its own nascent sports network. An immense radio network diversifies CBS’s media presence, and the company’s Simon and Schuster publishing company adds books and other publications to the mix. Surprisingly, CBS also owns the third-largest billboard and outdoor-advertising business in the world.

Lately, CBS Corporation (NYSE:CBS) has taken steps to refocus on its broadcast units. Earlier this year, CBS stock soared on news that CBS would spin off its billboard and outdoor advertising business, using the tax-favored real-estate investment trust structure to benefit shareholders. It also bought a 50% stake in the TV Guide Network in March, teaming up with Lionsgate to bolster its basic-cable offerings and obtain a new vehicle for CBS’s various content brands.

The costly world of television
Yet, the big challenge that CBS Corporation (NYSE:CBS) and its peers continue to face is the rising cost of content. Working with Time Warner Inc (NYSE:TWX)‘s Turner Broadcasting, CBS locked in a 14-year deal with the NCAA to broadcast the lucrative men’s national basketball tournament, better known as March Madness, that will cost the companies $10.8 billion. With NBC, Fox, and ESPN, as well as other networks and broadcast outlets facing many of the same challenges with high-cost content, including the NFL and other popular sports leagues, the whole industry has recognized how important it is to offer viewers what they want to watch.

CBS Corporation (NYSE:CBS) is doing its best not to pick favorites in the streaming world, arguing that it still has a strong relationship with Amazon rival Netflix, Inc. (NASDAQ:NFLX). But with Netflix, Inc. (NASDAQ:NFLX) having recently lost 1,800 movies and television shows at the beginning of May as a result of expiring licensing deals, the streaming giant is sensitive to moves like CBS’s that give its competitors any edge whatsoever, especially with desirable content.

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