State of Play at CBS
D2C services drive growth in final quarter before merger with Viacom
Summary
· CBS’s affiliate and subscription fee revenue in 2019 is up on 2018 figures
· Broadcast Intelligence data indicates that CBS’s D2C services, CBS All Access and Showtime SVoD, are the primary driver of growth.
· Spend on original content for these services is increasing as spend on acquisitions decreases
· Spend on original content is set to continue post-merger
News
Attempts to re-merge US media conglomerates CBS and Viacom have been ongoing for the last few years. A deal was finally announced in August 2019 and is set to be completed in December 2019.
Merger related costs have been called out as a reason for a year-on-year decline in income by CBS in their Q3 2019 results release. Operating income for the quarter was down from $690m in 2018 to $501m in 2019. The company also cited an increased investment in content, for both its traditional platforms and D2C services, as a reason behind the operating income declines.
CBS’s total affiliate and subscription fees grew 12% year-on-year for the quarter, from $1.01bn in 2018 to $1.12bn in 2019 with the company citing increases in fees from affiliated networks, retransmission revenues and D2C revenues. However, Broadcast Intelligence data indicates a nuance to this growth.
Analysis
This 12% year-on-year growth for Q3 is in line with year-to-date increase in affiliate and subscription fee revenue, which has risen from $2.98bn in 2018 to $3.35bn in 2019.
Broadcast Intelligence data indicates that while affiliate fees generate the majority of this segment’s revenue, it is growth in subscription revenue that is the main driver of the headline growth. Annual subscription revenue increased from $335m in 2017 to $528m in 2018, an increase of nearly 58%. In contrast, annual affiliate fee revenue grew from $3.42bn in 2017 to $3.48bn in 2018, an increase of just 2%.
The growth in subscription revenue correlates to growth in subscriptions to CBS’s D2C services, CBS All Access and Showtime SVoD. CBS had initially stated a combined target of 8m subscribers for CBS All Access and Showtime SVoD by 2020, but the company announced in February 2019 that this goal had already been reached. Broadcast Intelligence’s numbers are more conservative (having accounted for a number of free trialists), but we expect the combined number of subscriptions to the two services to surpass 10m by the end of 2019 and 20m by the end of 2023.
CBS has commissioned exclusive original content for CBS All Access, with a clear focus on scripted drama and particularly content that might already be familiar to audiences. Star Trek: Discovery, one of the service’s first major shows, is now in production on its third series while a reboot of The Twilight Zone and a The Good Wife spin-off, The Good Fight, are other high profile shows available to subscribers. CBS’s linear programming, much of which similarly comprises reboots and spin-offs, is also available on CBS All Access while Showtime SVoD hosts the linear Showtime channel’s premium scripted drama and comedy.
This drive for original online content to complement the company’s linear programming is reflected in in the changes to CBS’s programming spend over recent years. Not only did CBS’s original TV programming spend increase from $2.87bn in 2017 to $3.40bn in 2018 (an increase of 18%), but this segment now represents just under 51% of the company’s overall programming spend, up from 45% in 2017.
In contrast, spend on acquisitions dropped from $2.08bn in 2017 to $1.78bn in 2018 while spend on sports programming remained approximately level at around $1.5bn.
Broadcast Intelligence expects CBS’s increased investment in original content to continue post-merger for two reasons. Viewing is increasingly shifting to online platforms and ViacomCBS will be keen to attract new subscribers to CBS All Access and Showtime SVoD with more new content.
Secondly, CBS’s content divisions and services are distinct enough to Viacom’s to co-exist (in the short run at least). Subscriptions services CBS All Access and Showtime SVoD are different to Viacom’s primary online platform Pluto TV, which is an AVoD service offering a range of thematic channels featuring library content from Viacom’s brands alongside third-party content. There is an increasing number of options available to consumers looking for quality television content and having a more diverse range of online offerings could ultimately be an advantage to the new ViacomCBS entity.
This article was originally published on 21st November 2019 by Broadcast Intelligence, part of Media Business Insight. This article remains the intellectual property of Media Business Insight and has be re-published here with their permission.
