After releasing stellar first-quarter results, CBS Corp. execs told Wall Street analysts that the company is leveraging its traditional strength but also growing significantly in the direct-to-consumer arena.
“In an era when others are concerned about losing subscribers due to cord-cutting and other factors, CBS Corp. is growing subscribers,” said chairman and CEO Leslie Moonves. “As people move place to place, they’re not leaving CBS. They’re just moving to different platforms that pay us more than the old ones.”
Even though Topic A — merger talks with Viacom — was taken off the table for the hour-long call, executives shed some interesting light on the state of CBS. Subscriber growth, Moonves said, is coming from traditional MVPDs, skinny-bundles as well as direct-to-consumer plays CBS All Access and Showtime’s stand-alone OTT service.
The two OTT services combined are more than two-thirds of the way toward the company’s stated goal of 8 million total subscribers by 2020, meaning they have about 5.2 million between them. COO Joseph Ianniello also revealed an interesting stat on CBS All Access: the $10-a-month, reduced-ad version of the service launched in 2016 represents one-third of the total. He said that means that between Showtime and the reduced-ad All Access, about two-thirds of total OTT subscribers are paying more to avoid ads. While that once may have been anathema to an ad-dependent company like CBS, execs argued it is motivating their programming and distribution strategies.
“When a consumer pays $10 a month, that speaks volumes,” Ianniello said. The premium subscriber levels “certainly give us a lot of confidence.” The numbers are also informing the company’s rollout of (for now) ad-supported OTT services like CBSN and CBS Sports HQ. Converting subscribers to a premium level is the ultimate goal. “If you like the product, we’re going to upsell you,” Ianniello said. Expanding limited-ad subscribers “should grow, diversify and reduce the volatility of our revenue.” During the first quarter, he added, non-advertising revenue increased 17% and now comprises 54% of the overall pie.
Refining the programming pipeline to suit this evolved profile is a top Moonves priority. Asked how the company views competition from the likes of Netflix, he said there are “certain cases where we will not pay what they will. We’re more disciplined.” Referencing the mega-deals signed recently by Shonda Rhimes and Ryan Murphy at Netflix for hundreds of millions apiece, Moonves said, “Price has gone up, but we have something else to offer: visibility and something called the back end. There’s a guy named Chuck Lorre, who’s made a lot more than a couple hundred million from his shows on the CBS Television Network.”
While All Access has grown steadily, subscriber churn remains a concern. “There is no question that more original programming reduces churn,” Moonves said. All Access has “two and a half” shows on, he said, apparently a reference to the latest Star Trek iteration, which is distributed overseas by Netflix. That level, he said, “will increase to seven or eight and we expect the churn to go way down.”
Unlike Disney, which is pulling its programming and movies from Netflix as it gears up to launch its own direct-to-consumer service in 2019, Ianniello said CBS has “an ongoing relationship with them,” with Criminal Minds and NCIS ranking among the streaming service’s top 10 shows.