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Forget stocks for a second. I love television. Before entering the hedge fund world (via the internet world), I worked at Home Box Office. I did everything from helping them with their interactive television projects to setting up their initial website (in 1994), even shooting a pilot for them (never aired, but a lot of fun). I watch back episodes of Mad Money, Lost, The Office, and anything else, on my video iPod on the way to and from work. There’s nothing I won’t watch: morning shows, talk shows, news, sitcoms, dramas, reality TV, etc. In short, it’s one of the few areas of life in which I consider myself an expert.

So I was sad to see Katie Couric saying goodbye to The Today Show, but I think this decision will have an enormous effect on the stocks of the companies involved. First off, GE owns the NBC Universal Group which is run by Jeff Zucker. Jeff launched his career as a young, aggressive producer for a little-known talk show host named Katie Couric back in the early 1990s. They literally grew up together at the network and it was thanks to their combined efforts that The Today Show became the most-viewed morning show. Jeff’s obvious talents at producing The Today Show led to a broader challenge as head of NBC’s Entertainment Group, just as NBC was losing its cashcow franchises Friends and then Frasier. Even though NBC lost the lead on its must-see TV Thursday to CBS’s Survivor and CSI, Zucker got catapulted into NBC leadership, marking him as the probable successor to GE vice chairman and former NBC head Bob Wright. All of this is to say that Couric had no small influence on eventual leadership of the network.

Meanwhile, CBS was the bottom of the barrel in both primetime and in news. Les Moonves turned around primetime when he came on board, introducing Survivor and CSI. But Moonves, once a Hollywood actor, never really had a grip on the news. Dan Rather had been a distant third to Tom Brokaw and Peter Jennings since the 1980s. Briefly, when Brokaw announced his retirement and Jennings sadly succumbed to lung cancer, it looked like Rather would have his chance. But things went from bad to worse, as Rather was forced out in the 60 Minutes/Bush military career scandal.

Wall Street assumes that CBS got the slow-moving unprofitable businesses when it split off from Viacom, but I disagree. I think not only that Moonves is taking all the right steps, but that people will be surprised at the boost in ratings and then ad revenues that Couric is going to bring in when she goes up against anchors Brian Williams (NBC) and Charles Gibson at ABC.

Some of the other recent decisions that Moonves has made:

  • He sold the amusement park business for $1.24bn in cash to Cedar Parks (NYSE: FUN). He plans to use that cash for share buybacks
  • He’s selling the radio stations
  • The company has a forward price-earnings ratio of 15 (compared with Walt Disney at 20 and Time Warner at 19) and trades at a multiple over cash flows of less than 10
  • During the past six years Moonves has completely turned around the primetime programming at CBS. Now by adding Couric to the roster (starting September 5) as news anchor I think CBS will be number one in news for the first time since the 1980s. That will increase drastically the advertising dollars CBS draws from its customers. I also wouldn’t be surprised to see Moonves start charging the cable companies for carrying CBS.
  • Moonves, who used to run Warner Bros television studios, hit the great concept of combining the WB Network with CBS’s UPN networks. The world wasn’t big enough for six networks. WB and UPN were losing money. Combining them and taking the best shows from each (go Smallville!) could give the majors a run for their money and will also reduce the cost structure over at CBS of maintaining the UPN
  • I never give Showtime enough credit (I’m biased towards HBO).

But Moonves – aggressively putting shows on iTunes to get new viewers, as well as the recent ending of Sex & the City and the soon-to-be ended run of The Sopranos – will give Showtime a chance to strike gold, particularly with great shows like Weeds and Sleeper Cell (both of which I was introduced to on iTunes. HBO, where are you on my iPod?)

Moonves is fiercely competitive. CBS has vast cash flows.

The programming has great potential, and at every level (radio, the parks, the UPN), CBS has cut costs. CBS just now is the perfect growth-value play.

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