Think CBS is just dabbling with its over-the-top CBS All Access and Showtime plays? Think again.
The company is making money, gaining access to an audience it may not have had access to before and is firmly committed to moving deeper into the online video ecosystem.
And, by acknowledging that there’s a new marketplace being formed – one that may be exclusive of traditional broadcasting – the company plans to continue iterating on its current OTT play, including making significant changes to the way it monetizes content.
Speaking at the Nomura 2016 Media, Telecom & Internet Conference this week, CBS COO Joseph Ianniello painted a sharp picture of where the broadcaster believed the industry was going – online – and made it clear that CBS intended, with its CBS All Access and Showtime portals, to be an early leader among broadcasters.
“The marketplace has spoken,” Ianniello said. “We want to be able to give consumers content on their terms… that has value.” He went on to describe the $5.99/mo. CBS All Access as “a test” that’s delivering “more and more data points” to CBS about what works – and what doesn’t – in terms of streaming.
Ianniello said “there’s a new marketplace being formed” and added that “consumers decide what they pay.”
In CBS’s case, the early bet of taking CBS content and Showtime content over-the-top has paid off, he said.
Ianniello said CBS was generating about $100 million in revenue from CBS All Access and Showtime, each of which now have about 1 million subscribers, all of them paid. All Access launched in October 2014 and Showtime followed in June 2015.
In March, CBS Chief Les Moonves said he expected CBS All Access to ring up more than 4 million subscribers by 2020, and said Showtime should end up at about the same number.
Ianniello this week said the OTT services represent an $800 million incremental revenue growth opportunity for the company over the next five years. He reiterated remarks he made at a CBS investors’ day that CBS gets about $8.25 for each Showtime subscriber and slightly more than that for CBS All Access (most of the $5.99/mo. subscription fee and $4 from ads with the programing).
Ianniello said he expected more ad dollars to come from CBS All Access as the platform matured and added more original programming – like the upcoming Star Trek iteration that will be available only through the platform – because it already attracts a much younger demographic than the traditional CBS network, pointing out that although the content available “didn’t change a whole lot, it’s the platform.”
“More younger people are finding it in the world they live in,” he said, noting that they watch twice as much content on CBS All Access as they do on the free CBS.com portal, and they watch longer.
“They’re engaging with the content,” he said, bringing in a larger male audience and “a new set of subs we don’t have in the base.”
Ianniello said CBS plans a traditional ad load for fresh content on CBS All Access, because the “demographics are so attractive,” but also said the company is considering a premium-priced ad-free version.
“We could price point in ad free,” he said. “We (likely) have to have both for CBS All Access.”
No live sports, high churn… so what?
Ianniello said CBS still didn’t have a deal to bring in NFL content to CBS All Access, but pointed out that Netflix had 45 million subscribers with no live sports, and said CBS All Access projections don’t include having the NFL.
“I think right now were demonstrating we have a growth path not dependent on sports,” he said.
With both Showtime and CBS All Access, he said, churn was occurring but, he said, CBS was working to minimize it by adjusting how popular shows like Homeland and Ray Donovan were being brought to market.
“With any direct a la carte service, churn is always higher,” he said. “What drives churn down is that you have something at the end of that (to keep customers).
“Churn will always be a little higher.”
Nevertheless, “customers like OTT “because they’re in control.”
More skinny bundles
Ianniello said CBS was willing to work with any service provider putting together a skinny bundle, but said the success of both Showtime and CBS All Access have allowed it to take a tough negotiating stance and demand top dollar.
But, he said, it’s not just about price, emerging partners have to understand the pivot CBS is making.
“It’s not price, that’s too linear. We don’t want to replicate a model of the traditional system that has proven its not working,” he said. “There’s another value proposition. It’s not the traditional bundle.”
Multiple players are looking to deploy skinny bundles for different reasons, he said.
“Video broadband is growing,” Ianniello said. “Somebody will figure out how to aggregate enough networks to gain scale” creating an oligopoly of major players. And, CBS will make up a significant piece of all of them.
CBS has seen the percentage of revenue from advertising going fdown for several quarters and is in the process of enlarging its already formidable content pipeline.
This fall, CBS will own more than 80% of the shows it schedules.
That means it will “have more stuff to sell.”
“Content licensing doesn’t bother me at all,” he said. “The marketplace feels really good to me. You’re not going to have 500 cable nets producing their own content, their margins would go way, way down.”
And that’s a market CBS plans to leverage aggressively.
You can listen to the full webcast here.
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