M+E Connections

CBS is so pleased with the performance of its current direct-to-consumer streaming services that it’s now readying the launches of CBS Sports HQ and “Entertainment Tonight” streaming services this year, with more streaming service initiatives planned, according to CEO Leslie Moonves.

“In a very short period of time, CBS All Access and Showtime OTT are now at nearly 5 million subs combined,” he said Feb. 15 on an earnings call with analysts for the company’s fourth quarter (ended Dec. 31), referring to the CBS and Showtime over-the-top streaming services. “That’s far beyond where we expected to be at this point and it gives us great confidence that we will more than exceed our goal of 8 million subs combined by 2020,” he said.

During the Q&A, he told analysts that CBS All Access and Showtime OTT were “sort of neck and neck” in terms of subscribers. It was “pretty 50-50 right now” in terms of how many of the 5 million combined subscribers each service had, he said.

In August, Moonves had told analysts CBS All Access and Showtime OTT were on pace to pass 4 million subscribers combined by the end of 2017, pointing out that’s “more than halfway” towards achieving the company’s previously stated goal of having 8 million subscribers by 2020 and it was only year two of its five-year plan.

“These services give us our highest subscriber rates and a direct relationship with our consumers as we collect increasingly valuable data about our audience,” Moonves told analysts Feb. 15. “Delivering these services over the top also allows us to attract the next generation of viewers with an average age that’s approximately 20 years younger than those who watch broadcast and cable television,” he said, adding: “This is the case with our entertainment content on CBS All Access and it’s the case with our news content at CBSN, our direct-to-consumer digital news network, where nearly 80 percent of the audience is between the ages of 18 and 49 and the average age is 38.”

The company’s CBSN news streaming service “model has been so successful that we are now using it to launch two more of our most popular brands into their very own direct-to-consumer services this year,” including CBS Sports and the entertainment news show “Entertainment Tonight” (‘ET’), he said.

CBS Sports HQ will launch in late February, “right before March Madness and the Masters, and will provide 24/7 news highlights and analysis in a unique way,” he told analysts. “We believe we can build a significant audience by launching an ad-supported free service with full mobile and on-demand capabilities,” he said.

“More importantly, we’re setting ourselves up for the direct-to-consumer future with another vertical that is right in our wheelhouse,” he said, telling analysts the “ET” streaming service will debut in the fall. “There was a tremendous appetite in the marketplace for entertainment news and here again we’ll be taking advantage of one of our marquee brands and launching it on a new platform, where we can take advantage of better economics and bring in new viewers. Plus, we can use CBSN, CBS Sports HQ and ‘ET’ to cross promote all of our direct-to-consumer services converting viewers on our ad-supported platforms into paying subscribers,” he said.

CBS won’t be stopping with “ET.” Moonves disclosed: “There will be more news along these lines in the quarters ahead, as we continue to invest in our portfolio of streaming services as direct-to-consumer becomes a bigger part of our strategy.”

The company also sees the “tremendous potential of launching all of these OTT services around the world beginning in June when we expand All Access into Canada, followed by Australia and then Europe and beyond as well,” he said.

CBS, meanwhile, continues to be included on OTT “skinny” bundles as part of deals with Hulu, YouTube TV, DirecTV Now and Sony PlayStation Vue, among others, with more to come,” he said, adding: “These streaming services pay us more than we get from traditional bundles and they’re having a bigger impact on our affiliate and subscription revenue all the time.”

At the same time, what represents “even better news” for CBS is that, “while all of this is happening, our revenue from traditional” multichannel virtual programming distributors (MVPDs) is “strong, with a lot of room to grow,” he said. If one considers the viewers that “we bring to the table, we continue to provide the best value to our MVPD partners,” and so, “as a result, each new deal we do is better than that last,” he said.

Revenue for the company’s fourth quarter grew 11% from a year earlier, to $3.9 billion. Content licensing and distribution revenue increased 33%, “driven by strong growth from both domestic and international licensing sales,” CBS said in an earnings news release. Affiliate and subscription fee revenue jumped 20%, led by 31% growth in retransmission revenues and fees from CBS Television Network affiliated stations as well as growth from digital initiatives, including the company’s owned streaming subscription services, it said. Advertising revenue, however, decreased 3% due to what it said were record political advertising sales in the fourth quarter of 2016.

Profit from continuing operations slid to $40 million from $271 million, while its net loss narrowed to $41 million from $113 million.

“Overall, the quarter and the outlook appear in many ways more favorable than our prior expectations, as fundamentals generally look reasonably good for the business,” Pivotal Research Group analyst Brian Wieser said in a research note Feb. 16.

But he said: “If anything we have a slightly more negative disposition towards the stock because of the looming likelihood of a combination with Viacom, given the potential for disruption that might occur as the process moves forward.” It’s been widely reported that CBS and Viacom executives have been in talks about a possible merger that would reunite the companies that separated from one another in 2005, when CBS left Viacom to become a separate, publicly-traded company.