CBS All Access Isn’t A Real Business, It’s Negotiating Leverage

With CBS All Access’ highest profile series launch (Star Trek Discovery) coming up on Sunday, it’s a good time to be reminded that All Access isn’t meant to be a real business. Instead, it’s meant as negotiating leverage for CBS in their cable/satellite company retransmission negotiations.

How Big Is CBS’s Retransmission Revenue?

There are ~96 million customers of multichannel video programming distributors (MVPDs) in the US. Most are customers of cable companies like Comcast, or satellite companies like DirecTV.

There are ~2 million customers of internet based virtual multichannel video programming distributors (vMVPDs) like SlingTV, Playstation Vue, Hulu, DirectTV Now, etc.

CBS’ Les Moonves recently said that CBS gets paid “over $2” for each MVPD customer per month, and “over $4” for every vMVPD customer.

CBS Corp. keeps all that ($2+/$4+) revenue from the customers of its 16 owned and operated affiliates (most in big markets), and shares the revenue with the affiliates they don’t own. It’s not clear how large a share CBS Corp. takes, but their remarks suggest it’s a large share.

If we estimate that CBS keeps ($1.00/$2.00) from those two sets of subscribers it models their total retransmission revenue in the neighborhood of $1.2 billion/year, which agrees approximately with their public statements that their retransmission revenue was $1 billion in 2016, and rose 25% in Q3 2017 vs. Q3 2016. For reference, $1.2 billion is a bit less than 10% of all CBS Corp. revenues from all sources.

Subscribers

Revenue/sub/month

Revenue/month

Revenue/year

MVPD

96,000,000

$1.00

$96,000,000

$1,152,000,000

vMVPD

2,000,000

$2.00

$4,000,000

$48,000,000

Total

$1,200,000,000

How Big Is CBS All Access Revenue?

The latest public comments put CBS All Access at ~1.5 million subscribers.

There are 4 current subscription plans:

  • With commercials ($5.99/month) or ($59.99/year)
  • Without commercials ($9.99/month) or ($99.99/year)

The split among those plans is unknown, so the revenue is somewhere between $5/month/sub and $9.99/month/sub making CBS All Access annual revenue between $90 million and $180 million, or between 7.5% and 15% of CBS’s retransmission revenue.

Impossible to calculate, but worth noting is that CBS’ retransmission revenue is acquired at very little additional cost, so is very high margin. On the other hand, All Access has significant marketing, technical infrastructure and delivery costs, and so is certainly less profitable per revenue dollar.

Why Is CBS All Access A Negotiating Tool and Not A Real Business?

Imagine the retransmission fee negotiations between CBS and Comcast on a monthly fee per subscriber for CBS programming.

If you’re Comcast, you’d start the discussion with “Viewers can get your programming free with an antenna, let’s start the fee at $0.10/month/sub”

For CBS, All Access provides a real market price point for the negotiations to be leveraged against.

With All Access, CBS is able to reply “We have X subscribers paying us between $5 and $10 a month, that’s what you should pay us”.

Given that CBS All Access revenues are just ~10% of the CBS retransmission fee revenue, the leverage to increase those retransmission fees just 10% is worth as much revenue as all of CBS All Access (and likely far more profit given the relative costs).

More notes:

CBS All Access pricing is uncompetitive, for a single network’s shows/catalog, with Netflix ($8-12 depending on # of devices/resolution), or Hulu streaming ($7.99 ads/$11.99 no ads). That’s fine with CBS, because customer acquisition isn’t their objective, it’s putting that price point ($5.99/$9.99) in front of negotiators!

If CBS All Access were a real business, measuring by subscribers gained it’s a failure, with only 1.5 million customers after nearly 3 years. Yet, CBS’s Les Moonves claims (perhaps tongue in cheek) that’s it’s exceeding expectations. May, 2018 update: CBS All Access+ Showtime now have 5.2 million subscribers, no breakdown between the two was given.


Also published on Medium.