Oprah Winfrey's Fiscal Impact on Television

The Hysteria Over Her Exit From Her Network TV Talk Show is a Little Overblown

Unless you just now got back from a deep space mission, you'll know by now that Oprah Winfrey is turning in her microphone and leaving the 'The Oprah Winfrey Show' behind after a 25 year run. Of course (and understandably so), Wall Street's first questions were (1) what sort of financial impact will this have, and (2) does any stock need to be bought or sold as a result?

The answer to the second question is ultimately up to the individual investor. However, there are some answers to the first question that will help you come to a decision regarding the second one.

First and foremost, CBS - or CBS Television Distribution, to be precise - will forgo an estimated $50 million in annual licensing fees once Oprah leaves network TV. The amount is surprisingly small to some, considering Oprah's a TV personality and television advertising is such a big business. However, show-by-show, the financial impact of each is really quite minimal. In other words, Oprah's absence won't make an enormous dent in total revenue for CBS despite the hysterics of her exit.

So who wins? Possibly Discovery Communications Inc. See. Oprah's not leaving the business - she's just changing the venue..... from a network presence to a cable presence.

Discovery is no stranger to various types of programming. The company fills the Science Channel, TLC, and Animal Planet with 24/7 television content, much of which is original. This is where the Oprah story gets really interesting....

It's still unclear of Oprah is leaving the talk-show business altogether, or just leaving behind here current show. Her handlers will only say 'The Oprah Winfrey Show' is not moving to another network, which doesn't preclude a similar talk show on a Discovery station. Winfrey and Discovery are thinking bigger though. Whether or not Winfrey does her own show, she is going to be the centerpiece of an all-new cable station called the Oprah Winfrey Network (or 'OWN', to the inner circle). The rumor is it will be a 50/50 partnership between Oprah and Discovery.

A couple of important generalizations can be made here about the fiscal impact and/or the opportunity.

Assuming the current show is worth $50 million annually to CBS - and it has a very wide viewer base - the value of such a show to Discovery - with a smaller viewer base (about 1.3) - can be no greater than $50 million, and is probably less. And, it's still not knows if Oprah's actually going to be hosting a show on the OWN.

On the flipside, what's an entire cable channel worth? A TV show lasts one hour per day, five times per week. A channel offers eyeballs to advertisers 24/7.

We do know that Discovery's annual revenue rate has been running at about $3.8 billion. And, we know the annual earnings run rate is on pace to total about $540 million. Dividing those figures by Discovery's 13 cable channels translates into 'per-channel' revenue of $292 million, and earnings of $41 million. (It's a very undetailed calculation, but you get the perspective on an average station's value.)

Will attaching Oprah's name to a channel mean a bigger-than-average draw of viewers as well as advertisers? Probably. But, even if OWN ends up being the company's top network, after a 50/50 split it's still not likely to be a game-changer for Discovery. Moreover, Discovery Communications is dumping one channel (albeit a weak one) to make room for OWN. So, it's not even as if Oprah's presence and associated revenue will be a 100% incremental addition.

In any case, she's big news to be sure, but only a blip in terms of her impact on the television business. Her ventures outside of television? That's a different story.

More Stories By James Brumley

James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.

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