The Tiffany Network Continues To Keep Shining

This morning, CBS CBS and Netflix NFLX announced a licensing deal for Canada and Latin America for more of CBS's content. The "Tiffany Network," as it is known, just continues to keep on giving. What's important to note about this deal is that some of the content is new to monetization, such as 90210, Twin Peaks, Numb3rs as well as Dexter, and Californication. Under the deal previous seasons of series, including "90210," "Medium," "Nurse Jackie," "Californication" and "Dexter," will be available for Latin American members to watch instantly, as will a broad range of library titles, including the original "Star Trek," "Star Trek: The Next Generation," "Charmed," and "Twin Peaks." Financial terms of the deal were not disclosed, but if it is anything like previous deals from Netflix, CBS just received a nice coffer of cash for its portfolio of intellectual property. "We are pleased to be partners with Netflix as they rollout their superb service to new markets," said Armando Nunez, President, CBS Studios International. "This new arrangement — which does not compete with U.S. ratings or SHOWTIME's domestic subscriber base — underscores the popularity of CBS content around the world, and illustrates yet another meaningful way for us to realize incremental value from our vast library of content." "We are delighted to be expanding our successful relationship with CBS to our newer markets in Canada and Latin America," said Ted Sarandos, Chief Content Officer of Netflix. "We aim to provide the widest possible range of great TV shows so our members can always find something compelling to watch wherever and whenever they want." As CBS continues to monetize its old properties, earnings estimates will have to come up. CBS, led by Les Moonves, has done a wonderful job of monetizing its dusty old shows that were doing nothing other than sitting on the shelves. Now, with the growth of Netflix, as well as the resurgence for accessing media anywhere and everywhere, CBS has delivered content that it is making money off of that it otherwise would not have. Shares trade at almost 21 times 2011 earnings, but looking forward to 2012, there is a sharp discount, trading at less than 14 times earnings. Shares also sport a 1.4% dividend yield, better than competitors such as Disney DIS and News Corp. NWSA, but below Time Warner TWX. As CBS continues to monetize its old assets, the dividend is likely to rise, and perhaps an increase to the buyback. The company generates a tremendous amount of free cash flow that is likely to continue to grow as new mediums come that consumers want to consumer content on. ACTION ITEMS:

Bullish:
Traders who believe that CBS will continue to find ways to monetize its assets might want to consider the following trades:

• Go long CBS on dips and pullbacks. Moonves and his team have done a wonderful job of selling old content to distributors. There is no reason to think that the company will stop now.

• Consider other media companies such as Disney, and News Corp. Despite having their content on Hulu, these companies will continue to look to maximize their content and generate strong returns on investment.

Bearish:
Traders who believe that Netflix and other forms of digital media are nearing their peak may consider alternate positions:

• Short the media names, especially Disney. Disney is afforded the highest earnings multiple in the group, and if these names stop monetizing old assets, earnings estimates are likely to remain stagnant, or perhaps come down.

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