CBS' Imus problem

Now that the media giant has dumped Don Imus, its radio unit is likely to lose some ad revenue. But will Imus put a dent in CBS' stock?

By Paul R. La Monica, editor at large

NEW YORK ( -- CBS has fired Don Imus. But Dan Mason is still walking into the toughest job in the media business.

Mason, who was named the new president and CEO of CBS Radio in March, will start his job on April 16, the same day that the two-week suspension of shock jock Don Imus was supposed to begin for his offensive remarks about Rutgers' women's basketball team.
Don Imus: a risk for CBS stock?

But now that CBS has joined MSNBC in cutting ties with Imus - the cable network owned by GE (Charts) decided to drop the telecast of Imus' radio show on Wednesday - Mason will immediately be faced with questions about CBS post-Imus. CBS (Charts) has more at stake than GE since MSNBC is just a small part of NBC Universal, which in turn, represents only 10 percent of GE's total sales.

But even without the Imus fiasco, it still is a tumultuous time for CBS' 144 radio stations.

Last year, radio accounted for 14 percent of CBS' total revenues. Sales fell 7 percent at the division in 2006 and operating income before depreciation and amortization, a key measure of profitability in the media business, fell 11 percent.

CBS lost millions of dollars in advertising revenue as a result of its biggest star, Howard Stern, defecting for a job at Sirius Satellite Radio (Charts). And the media company, which also owns a big outdoor advertising business and the flagship CBS broadcast network, has been reducing its exposure to radio since the company split from former Viacom (Charts) last year. The company sold several stations in smaller markets last summer.

The Imus problem is the latest concern for CBS. According to estimates from several analysts, Imus accounted for about $20 million in ad sales for CBS last year. To be sure, that's only about 1 percent of the radio unit's total revenue in 2006.

But with the CBS radio business proving to be a big PR quagmire for the company, any financial hit is going to be magnified in the eyes of Wall Street. So could Mason and CBS CEO Les Moonves decide to sell even more stations, or perhaps the entire radio business?

Analysts did not think that CBS would make that drastic of a move.

"That would be too dramatic," said James Goss, an analyst with Barrington Research. "Radio is still very profitable for CBS and generates strong cash flow. It's not a growth business but it is providing fuel to feed other growth at CBS."

Goss added that CBS and Westwood One (Charts), a radio programming network that CBS owns a minority stake in, just signed a letter of intent to extend their current radio syndication agreement, set to expire in 2009, until 2017. That doesn't sound like a move that a company looking to exit the business would make, Goss said.

Still, CBS may be starting to wonder if the radio business is worth the trouble. So there may be some changes made to further lower its financial impact on the whole company.

"The radio business is a big one for CBS whether it's de-emphasized or not. I don't think Imus' big mouth will change the way of thinking about radio at the corporate level. But radio has been a headache for CBS for a long time," said Andy Baker, an analyst with Cathay Financial.

Baker said that dumping Imus could actually be a financial positive for CBS. Even though the company would lose advertisers by getting rid of him, it already looks like they will lose advertisers if they keep him. (CNN coverage: CBS lets Imus go)

Plus, Baker said CBS should be able to lure back advertisers by firing Imus and that the company also would probably hire a much younger (i.e. cheaper) replacement for Imus. And lower costs could boost profits in the radio business.

David Miller, an analyst with Sanders Morris Harris, said he would be very surprised if CBS decided to leave radio entirely. Although he said that getting out of smaller markets is a good strategy for the company, it still makes sense for CBS to maintain a presence in large cities like New York, where CBS also owns a television station and billboards.

Miller also thinks that investors should take advantage of any short-term decline in CBS stock related to Imus. He said some fund managers may decide to sell CBS stock if the company fires Imus because they may fear that the radio business will take a big hit. But that hit may never come.

"If Imus is dismissed, it adds more of an emotional element to the stock and it could be volatile. Some managers may think it will create more of a challenge for CBS radio. But I would be surprised if any analyst would have to take their earnings numbers down because of this," he said.

Shares of CBS fell about 0.7 percent in after-hours trading Thursday following the news that Imus was fired after rising 1.4 percent in regular trading.

Barrington's Goss owns shares of CBS but his firm has no investment banking relationships with the company. Other analysts quoted in this story do not own shares of CBS and their firms have not performed banking for it.