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CBS: Betting On The Subscription Business Model

Back in March, at the annual shareholders meeting, CBS (NYSE:CBS) unveiled its ambitious plans for the next few years, the goal of which is to strengthen the company’s competitive advantage against others and improve the networks business performance. A lot was said about CBS’s subscription-based services that will be the greatest catalysts for growth in the foreseeable future.

At the moment, CBS has two subscription-based services: CBS All Access and Showtime OTT. Thanks to the strong pipeline of shows, the network uses both of these services to reach different demographic groups and expand its user base. At the moment, CBS All Access has more than 7500 episodes on demand that includes a number of shows and live programs that the network created and produced in the last few years, and is available for streaming on different platforms, such as Apple TV, Xbox, Fire TV, Chromecast and others, just for $5.99/month. Showtime OTT, on the other hand, is a premium service that charges $10.99/month and is aimed at households that do not use traditional pay-tv service.

CBS predicts that by 2020, its streaming services will have 8 million subscribers combined, and the main catalyst in this endeavor’s success will be its content. In the last few months, the network managed to improve the quality of its shows and launched a number of new series that were successful among the public. Last month, Variety reported that CBS won the 2015-16 season in young adults’ category and increased its lead against the competition. Hence, as we can see, delivering great content will not be a problem for the network going forward.

If we look at the statistics, we will see a rising trend of OTT streaming among consumers:   

(Source: Statista)

This will help CBS increase its audience, improve ratings, and better monetize its shows in the long run. At the same time, we should not forget about the competition that is also making big moves in the streaming space. Netflix, Amazon Prime, HBO Now, Hulu and other services are already have a big presence in this field. However, there’s one thing that will help CBS establish a strong foothold in this area, and that is original content. In the latest earnings call, CBS’s CEO Leslie Moonves said that its streaming services at the moment broadcast 80% of the network’s original content. That means that CBS does not need to license and spend additional resources on content just in order to keep its users engaged. This will help the network to spend more money on expanding its subscription business at a very low cost.

Obviously, it will take some time for CBS to grow its services, but considering the rising trend of OTT’s and robust competition, the company has all the chances of succeed. At the moment, the network has the most popular crime genre series on TV, and it added new programs like The Late Late Show with James Corden and The Late Show with Stephen Colbert to its comedy lineup and launched a new premium series - Billions - on Showtime.

To fund its operations in the long run, CBS is planning to sell its radio division and spend more resources on creating more original content. As for the investors that want to join the subscription game, CBS offers generous dividend payments that may convince them to stay with the company for the long-term: 

(Source: dividend.com)

Based on the facts that I described above, I believe that the company is moving in the right direction, and the success of the CBS All Access and Showtime OTT services is only a matter of time. 

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