CBS Ad Woes Outweigh March Madness Ratings Boom

It was a manic Monday for CBS, suffering double blows from the auto industry and an analyst downgrade. The stock traded down as much as 17 percent in the morning, ending the day down 17.79 percent.

Concerns about the auto industry, once an advertising powerhouse, took their toll on CBS. The media giant derives some two-thirds of its revenue from advertising, more than any of its competitors, and its radio and local TV businesses are particularly reliant on auto industry ads.

Add to that a downgrade. UBS analyst Michael Morris downgraded CBS to "sell," reflecting lower advertising estimates through 2010. The cyclical decline in ad sales we're seeing is a result of the recession, but Morris says the decline is due to much more than that. While the economy will recover from the recession, advertisers won't.

Morris writes, "ad buyers are looking for higher return on their marketing investments." These days, they have enough options that CBS' traditional means of reaching consumers may seem outdated. Morris also points out that while CBS' price-to-earnings ratio looks attractive, that's assuming its credit rating can be maintained; while, in reality, it's probably at risk.

All this negativity overshadowed some good news about CBS' March Madness. CBS ratings for NCAA basketball are up 9 percent over last year, benefitting from the advancement of big name teams. CBS also continues to draw high ratings with hits like Survivor. But eyeballs aren't enough to counter a massive shift away from traditional ads, around which CBS' business is built.

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