Les Moonves thinks CBS is not getting a fair shake from Wall Street. He does not want his company’s valuation pulled down with all the cord-cutting negativity around traditional television. He may have a point!
Moonves claims CBS is different
Speaking at the Goldman Sachs Communacopia investors conference, CBS CEO Les Moonves sought to distance his company from the traditional television business. He believes that CBS is now positioned to benefit regardless of what happens with pay TV and the broadcast business:
“So, all this movement that’s out there, when <Disney CEO> Bob Iger says, ‘oh we’re going to be flat’ or Comcast says, ‘our subs are declining.’ For CBS this is viewed as positive news. So, when we get lumped in with that, we say there’s a misconception here. We are different than them. That this movement is a positive for us.”[i]
Looking at how Mr. Moonves has repositioned CBS over the last couple of years he seems to have a point. While CBS’ competitors Fox, NBC, and ABC have sat on their hands, Mr. Moonves has forward into the direct-to-consumer Internet world.
CBS taking multiple online approaches
Although CBS was initially slow to license broadcast stations to vMVPDs, the company has become much more aggressive in recent months. Owned and operated stations, as well as some affiliates, are available on all the major services, except for Sling TV.
It launched a 24×7 news station, CBSN, to target a younger audience. The free-ad-supported network is available online, and via mobile apps for iOS and Android.
CBS All Access, the company’s $5.99 a month SVOD+linear service, launched in 2014. It added an ad-free tier costing $4 more. It now has most of the CBS broadcast stations available. Earlier this year, Mr. Moonves said that the service had 1.5 million subscribers, though this could have increased substantially due to the release of Star Trek: Discovery exclusively through the service.
CBS has done all of this apparently without disrupting existing revenue streams through pay TV operators and CBS local affiliates.
CBS All Access subs are the cream
In seeking to justify this strategy of multiple distributors, Mr. Moonves gives insight into how online delivery is reshaping CBS’ revenue stream. He says that CBS stations generate “something like $2 plus a sub” from pay TV operators. He says the virtual MVPDs or skinny bundles as he calls them, pay “something like $4 a sub”. However, the most valuable subscriber of all comes from CBS All Access, which yields $6 per subscriber.
Mr. Moonves did not talk about how broadcast viewers stack up against pay TV and other subscriber services, but his actions speak loudly on that issue. Moving a premium franchise like Star Trek from the broadcast channel to CBS All Access makes total sense with CBS getting a substantial premium for each viewer. The company is also reviving the classic Twilight Zone series for exclusive distribution on All Access.[ii]
CBS is different
Given the aggressive online strategy being pursued by CBS, Mr. Moonves seems justified in claiming his company should be set apart from the traditional television industry. However, that may not mean Wall Street will be any happier. At some point, CBS’ online strategy must begin to disrupt existing distribution channels. Whether, in the long game, CBS ends up coming out ahead remains to be seen. Moreover, if there is one thing investors hate, it is uncertainty.
Why it matters
CBS’ online strategy is the most aggressive of all the broadcasters in the US.
So far, the broadcaster has managed to develop online distribution without disrupting existing revenue streams.
When online distribution starts negatively to impact traditional TV delivery, it is unclear if CBS will end up better off than it is today.
[i] John Lafayette, Moonves: Cord-Cutting is Positive News for Us, Broadcasting and Cable, 14 Sept 2017
[ii] Dade Hayes and Patrick Hipes, ‘Twilight Zone’ Series Reboot in Works at CBS All Access, deadline.com, 2 Nov 2017