The CEO sees the acquisition of CNET as a way to remake CBS into a growth company, but can the master programmer pull it off?
Anyone who knows Leslie Moonves, CBS's gravel-voiced CEO, knows he doesn't like to lose. This is the guy who kept a punching bag in his Los Angeles office to take out his frustrations, and who engineered one of TV's great turnarounds, lifting his network from the ratings heap to No. 1 three years after joining the faded Tiffany Network in 1995. You can understand why the 59-year-old programming genius probably wasn't doing backflips when he was given the so-called "slow-growth asssets" back in 2005, when Viacom (VIA) Chairman Sumner Redstone split that company into two pieces. The guy who still frets over casting choices for CBS's prime-time lineup wasn't going to be satisfied simply issuing dividends and buying back the $14 billion company's stock.
So it's hardly a surprise that in May, Moonves plunked down $1.8 billion in cash to buy CNET Network, paying a hefty 45% margin for a collection of tech and other Web sites that, frankly, a lot of folks thought had fallen behind some of its newer tech site rivals. Not Moonves, it appears, who sees the San Francisco company as the engine that is going to help reinvent CBS (CBS) as a growth company.
Whether he can do it is another story, but don't tell that to Moonves. "We have tremendous growth potential here," he says, sitting in CNET's San Francisco office, decked out in the standard-issue open shirt of the Web workforce. "I'm a programmer. Getting people to come to a screen is what I do."
Moonves' Game Plan
The man who gave America shows like C.S.I. and Survivor is confident he can boost CNET's traffic, hike its ad rates, and make it a $1 billion Internet business within three years. The game plan: to add "at least two percentage points" to the company's revenue and profit growth rates, Moonves said on a recent conference call with analysts. That's key because analysts like Standard & Poor's (MHP) Tuna Amobi figure CBS's reliance on TV and radio ads will limit its pre-CNET growth to 1% this year. Even that measly growth will experience a "flattening out" in 2009, according to Amobi. No wonder Moonves has had to pacify investors by raising dividends in six of the last 10 quarters.
Watching Moonves at a meeting of CNET executives, it's hard to miss the CEO's competitive spirit. The key, he says, is to boost traffic at CNET's dozen or so Web sites, which include video gamer site Gamespot.com, the all-things-television TV.com, and food site Chow.com. Katie Couric was on CNET streaming special shows from the convention. Chow.com's photogenic food editor Aida Mollenkamp is headed to a guest spot on Rachael Ray's show, which CBS syndicates, while CNET reporters are expected to populate every segment possible on its news shows. When an exec at Moonves' meeting says that the CBS Early Show mentioned CNET by name a dozen times that week, Moonves' face brightens.
Early indications are that CBS can build traffic—at least at the outset. CBSsports.com got a huge bump when it started showing March Madness basketball games this spring, and the network promoted it. In fact, traffic to CNET and several other sites jumped by double digits this July after only a few weeks under new ownership.
Finding New Markets
But getting them there and keeping them there are two different things. CNET has revamped its home page to make it more enticing, and Neil Ashe, CBS Interactive president, says they're planning the same thing for TV.com—a site that's key to Moonves' plan to find new markets (read: advertising) for his CBS shows. That site is the Internet's 10th-rated TV-centric site in terms of traffic, according to comScore (SCOR). Trouble is, its 6.7 million unique monthly viewers only hang around for 31 minutes to get info on TV shows and maybe to watch a few programs. That's about half the time they spend on ABC.com or CBS.com.
Small detail. Moonves says he will make TV.com the destination for online TV viewing, even if it doesn't currently get any shows from ABC and only a handful of episodes from NBC and Fox through their Hulu joint venture. Some of that might be because CBS doesn't yet license its own shows to Hulu, Moonves acknowledges. "Eventually, we're all going to have everyone else's shows," he says. "And who is going to have a better address to go to than TV.com?"
Building Ads for CNET
Yes, Moonves is gearing up. And, to be fair, he has the building blocks. Rambling through the CNET building, you see twentysomethings who work for Gamespot.com and sleep on cots in their office, or the geeks who crowd the newsroom at CNET. CNET appeals to an under-35 crowd, compared with those pushing 60 who currently watch CBS. Moonves intends to have the CBS ad folks take the CNET people on sales calls, and to get them ads from car, drug, and other companies that have so far skipped the online sites. "Our guys couldn't find their way to [Proctor and Gamble's headquarters in] Cincinnati," says CBS Interactive Chief Financial Officer Zander Lurie, who had the same job at the pre-CBS CNET. "That will change."
What's not likely to change is the mountain of expectations that CBS still has to climb. CBS wanted CNET so badly that it raised its offer for the company three times, according to CNET's financial statements. "We had a lot of companies who took a look at us," says former CNET Chairman Jarl Mohn, who rattles off companies like Walt Disney (DIS) and Time Warner (TWX). "Only Leslie heard what we were saying."
So how does Moonves make the CNET deal pay? There will be some cost-cutting, he allows, but not much. CNET was making money already, and Moonves says the deal is immediately accretive to CBS. And with a total of 54 million monthly users to its sites, CBS is already a top 10 online player. But there's a big upside if he can convince even more folks to come to the online screen, just like he did at the CBS network more than a decade ago. Maybe it works. Maybe it doesn't. But don't try to get in Moonves' way while he figures it out.