Will CBS Unload Its Publishing Business?

by Jonathan Berr | January 22, 2013 6:30 am

CBS (NYSE:CBS[1]) CEO Les Moonves has made no secret of his desire to unload the company’s marginally profitable outdoor advertising business. Yesterday, he pulled the trigger by announcing plans to[2] convert its U.S. portion into a real estate investment trust (REIT) and sell the rest.

Investors might pressure him to do the same with the media giant’s Simon & Schuster publishing business.

Simon & Schuster has a long, illustrious history. Founded in 1924 by M. Lincoln Schuster and Richard L. Simon, the business publishes 1,800 titles annually. Its books have won tons of awards including the Pulitzer Prize. Among its current best sellers are Proof of Heaven: A Neurosurgeon’s Journey into the Afterlife by Eben Alexander and Doris Kearns Goodwin’s Team of Rivals: The Political Genius of Abraham Lincoln, which served as the basis for Steven Spielberg’s critically acclaimed movie.

Still, like outdoor advertising, publishing has been a laggard at CBS for years. During the third quarter, the business generated revenue of $210 million on operating income of $38 million, which is worse than the outdoor segment, which reported operating income of $45 million on revenue of $486 million.

In 2012, Simon & Schuster had around 14% market share of bestselling hardcover books tracked by Publisher’s Weekly, ranking third behind Random House, which is part of the German media giant Bertelsmann, and Penguin, a division of the U.K.’s Pearson (NYSE:PSO[3]). Unfortunately for Simon & Schuster, Random House and Penguin are set to merge[4], which will only added to the competitive pressures facing the business. Plus, Amazon (NASDAQ:AMZN[5]) is increasingly snatching up consumer book spending.

All in all, as booksellers go, Simon & Schuster is a fairly small fish on a worldwide basis. As of 2012, Publisher’s Weekly says it ranked 27th among worldwide publishers.

The long-term prognosis for the book publishing business isn’t great either, particularly when it comes to printed books. According to Nielsen Book Scan[6], unit sales of printed books fell 9% in 2012 — roughly the same rate as its fallen for the past two years. Spending on e-books also isn’t picking up steam. Publisher’s Weekly[7] noted in November that digital book sales accounted for 22% of all book spending in the second quarter, up 1% from the previous quarter.

For his part, Moonves said he is pleased with Simon & Schuster’s progress in the digital space and believes that it is a good fit with the rest of the company. In fact, CBS has said the outdoor segment is not part of its core content business, while publishing has relationship to its other operations.

Unfortunately, the synergies the publishing business may have had at one time with other CBS business units such as broadcast television and its corporate sibling Viacom (NASDAQ:VIAB[8]) aren’t there any longer. For instance, DreamWorks Studios and News Corp’s (NASDAQ:NWSA[9]) 20th Century Fox produced Lincoln.

CBS has also exited slow-growing content businesses before, although it’s been a while. The company unloaded CBS Records to Sony (NYSE:SNE[10]) in 1987. But while investors have asked about the publishing business before, CBS has yet to come up with a satisfactory answer. A spokesperson for CBS told InvestorPlace that “Les has addressed this before publicly several times. We are not looking to sell it, but we always listen” to offers.

Investors should hope an offer comes along soon. All things considered, CBS needs to either try to expand its footprint, (which isn’t an easy task) or find someone to take Simon & Schuster off its hands.

As of this writing, Jonathan Berr was long CBS. Follow him on Twitter@jdberr.

Endnotes:
  1. CBS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CBS
  2. by announcing plans to: http://www.foxbusiness.com/news/2013/01/16/cbs-outdoor-to-convert-americas-unit-to-reit/
  3. PSO: http://studio-5.financialcontent.com/investplace/quote?Symbol=PSO
  4. Random House and Penguin are set to merge: http://www.nytimes.com/2012/10/30/business/global/random-house-and-penguin-to-be-combined.html?pagewanted=all&_r=0
  5. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  6. According to Nielsen Book Scan: http://www.publishersweekly.com/pw/by-topic/industry-news/publisher-news/article/55357-print-units-fell-9-percent-in-2012.html
  7. Publisher’s Weekly: http://www.publishersweekly.com/pw/by-topic/digital/retailing/article/54609-e-books-market-share-at-22-amazon-has-27.html
  8. VIAB: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIA.B
  9. NWSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=NWSA
  10. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE

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