Last Updated Jan 30, 2011 10:43 PM EST
Are investors really this dumb? Yesterday, at almost the same time, the stock of CBS (yes, BNET's corporate overlord) dropped by as much as two percent, TMZ reported that its biggest sitcom star, Charlie Sheen, had been rushed to the hospital after an alleged all-night party. (In case you're wondering, his show, Two and a Half Men isn't shooting this week.)
It's hard to be absolutely sure that this was cause/effect, particularly since CBS stock had already experienced an earlier dip yesterday. However, the timing of the second drop, and the TMZ story, looks like more than a coincidence. So, was any of this weird stock behavior warranted? Let's look at the facts: per a report on the stock drop yesterday by Julia Boorstin at CNBC, the show pulls in $150 million in ad revenue per year for CBS, but in the big picture, even as the highest-rated sitcom on TV, it just isn't that important to the overall company's bottom line. In 2009, a down year, the company made $13 billion. In other words, Two and a Half Men represents slightly more than one percent of revenue, and that's just the top line.
From a bottom line perspective, the show has even less overall impact because of its substantial costs. For one, CBS has to pay a hefty licensing fee to Warner Bros., who actually produces the show. Sheen, the highest paid actor in television, makes $2 million per episode, a huge jump over the $1.25 million per episode he made last year. (His contract is with WB, not CBS). Then there are all of the other costs associated with one of the biggest shows on TV: other actors, writers, producers, sets, etc. The profit margin on such a show just isn't all that high. One more thing to remember: that network TV isn't a zero-sum game. If the series were to go away, something else would replace it. Some of the money would be recouped.
And, unfortunately, there's one other thing to take into account: even if an investor is so dumb as to think Sheen's headline-making behavior warrants selling the stock, that should already be baked into the investment assessment anyway. Yesterday isn't the first time that Charlie Sheen has been in the news, and unfortunately, it certainly won't be the last.
Yes, it's still hard to figure out just what went on yesterday, but CBS, and every other big media conglomerate, is a huge company with multiple properties and revenue streams. As another example, American Idol, which makes somewhere around $800 million a year for News Corp. and is the biggest moneymaker on TV, represents less than three percent of revenue. Media is an increasingly diversified business. If media companies really were so dependent on one individual, it would be a mistake to invest in any of them.