Moonves: As CBS Prospers So Will Affiliates

Hoping to give its stock price a boost, CBS called together media investors and analysts on March 15 in New York to hear from top executives about where the company has been and where it is going.

CBS’s latenight host Steven Colbert dropped in with a few jokes, but CBS CEO Leslie Moonves was the star. With slides and video at his command, Moonves bragged on CBS’s accomplishments (the stock is up 144% since the last Investor Day in 2011) and what he considers its unmatched opportunity to capitalize on new broadband media and the burgeoning overseas TV market.

The Moonves strategy come down the this: Produce the best possible programming and then squeeze every last dollar out of it through advertising on CBS and CW, distribution on pay media (its own and others) and licensing to other outlets around the world. “Anywhere you want your CBS, we are there,” Moonves told the assembled.

Other top executives fleshed out Moonves’ vision during the three-hour presentation. All the talk led to a promise of an additional $3.75 billion in annual revenue from five areas by 2020.

Combined retransmission consent and reverse comp revenue would grow $1.7 billion (from $800 million in 2015 to $2.5 billion in 2020) and licensing of CBS programming to other outlets would grow $800 billion (from $1.5 billion to $2.3 billion).

On top of that, CBS will reap another $1.25 billion from what are essentially new businesses: CBS All Access and Showtime OTT ($800 million), distributing the CBS O&Os on “skinny bundles” like Sony PlayStation Vue ($200 million) and inserting targeted advertising on time-shifted programming ($250 million).

Here, in this interview with TVNewsCheck Editor Harry A. Jessell, Moonves goes beyond his New York script to reassure affiliates that they will be coming along for the ride. CBS remains committed to broadcasting and to them, he says. If fact, he would own more stations if the FCC would only let him.

He makes no apology for his reverse comp demands, believing most affiliates understand that big-time programming, especially big-time sports, costs big-time money.

He vows to include affiliates in CBS’s forays into broadband TV and says he is still open to backing ATSC 3.0 and developing big-budget first-run shows for syndication.

He also insists he has no regrets for making the decision that forced him to watch Villanova knock off North Carolina on ch. 247 rather than ch. 2.

An edited transcript:

At the Investor Day conference, you said that in five years you expected to make $3 per sub per month from retransmission consent and $2 from your affiliates in reverse comp. That’s a big ask from the affiliates, two-thirds of their retrans take essentially. How do you justify that?

Well, we don’t view it as two-thirds of the retransmission dollars per se, and those numbers are a little bit loose. Look, the good news for us is I think the affiliates and we are on the same page about this. We need this money to pay for the NFL, which is very expensive; to pay for the NCAA, which is very expensive; to pay for the Grammy Awards; to pay for Steven Colbert. This is their fair share of it.

It’s important to note that we think the station business is in really, really good shape. We own a lot of stations ourselves. Because of retransmission, because of political dollars, because of the success of a lot of the event programming on television, affiliates are doing very well. 

So we feel like we want our fair share.  We are not in any way trying to hurt them. We believe in our affiliates and we believe in the world of affiliates and we have been the biggest proponent of broadcasting, I think, of any other major media company. So I think the system is working. There isn’t, from our point of view, a lot of noise. I think our relationship with our affiliates is really terrific. They’re sharing in our revenue for [CBS] All Access.

But I hear the grumbling.

I know they grumble, but, at the end of the day, look at the station business. It’s very solid. It’s a very good business. We are not trying to hurt our stations.

By the way, [station groups] are now major media companies, by and large. It’s not the Mom and Pop who are squeezing the last dollar out of their paychecks.  I know there’s grumbling, but I can give you a lot of affiliates who are pretty happy with what the system is.

But what about the little guys? You just had the breakup with Capitol’s WRAL [Raleigh, N.C.]. Are we going to see more of that?

WRAL made the decision to jump networks. We didn’t think it was fair.  We didn’t think it was a good thing to do. That was their choice. It’s a free society.  NBC was available and they jumped there and they made some unkind statements — maybe not unkind. They talked about NBC being a better broadcaster or something like that. I don’t know if you saw the news today about the Capitol group. We switched affiliations in Wilmington [N.C.] from Capitol to Morris.

Is that more fallout from Raleigh?

Put it this way: Morris was very aggressive. In addition, Capitol made a statement about how they preferred being with NBC than CBS so we said, OK, there is another station here. That was their remaining affiliate with us, by the way. Morris has been a good affiliate and they wanted the station so it was something we felt we needed to do.

Your investors’ conference was all about opportunities — revenue growth from retransmission and from back-end sales of programming. But you didn’t get into what might threaten your business. The FCC, instance. It is looking at regulating retransmission negotiations. How concerned are you that the FCC tweaks the rules in such a way that you lose some of your leverage, your ability to negotiate for higher fees?

I have been into the FCC three times in the last year and we discussed retransmission and we encouraged them to maintain the current situation. I think the system is working. The MVPDs are doing extremely well financially, as well they should be. We have no objection to that, but we just want to get paid our fair share. I don’t think that the FCC is going to interfere.

You once said you would like to own more stations. Would you still?

As I said earlier, I think the station business is a terrific business. We believe in it, we like running our owned-and-operated stations that are doing extremely well. If there wasn’t a limit by the FCC, we would own more stations. Frankly, it’s sort of ironic that a number of our station owners who were against us getting bigger are now sort of running up against some of the same walls as we did. I absolutely believe in the station business and I would own more if I could.

Let’s talk about sports. Is there a sports rights bubble out there?  I mean do you see any signs that prices have peaked or are coming down in any of the major sports?

We have our major sports far into the next decade. So it’s the NFL, March Madness, SEC football and the PGA Tour golf. Those are the big ones. We do make a profit — not a big one — on most of them, but the sports rights have gone very high.

We have all heard things about ESPN, their subs are going down. In some of the sports, it may have reached a peak that the rights fees can’t continue to go up at this rate. The NFL clearly is the biggest game in town and the most important to everyone. Their ratings keep going up year after year. So we are very happy we have it. We are very happy we have it on Thursday.

You want to take a stab at whether there will be another broadcast deal with the NFL after the current one expires?

I fully expect there to be.

Really?

I fully do. One of the things the NFL has held sacrosanct, which I think has been great, is that the Super Bowl should always be on broadcast television. They haven’t ever wanted to venture into cable for the Super Bowl, which we have appreciated, and we have had it every three years for a long time.

Obviously, the NFL like everybody else is exploring digital rights for their properties, but they have been a very good partner to us. Yes, we pay them a lot of money as do some of the other networks, but it’s a great product and, yes, I absolutely believe that there are more deals coming our way when this one expires.

In light of the retransmission revenue that you have gotten over the years, do you regret not stepping up in 2010 to secure the rights to the Final Four every year?

This is the first year we don’t have the Final Four. I don’t feel good about it, but Turner has been an exceptionally good partner to us. When we made the deal with Turner, we were paying a lot of money for the rights for the NCAA tournament and we were losing a lot of money. Now we don’t lose money. Now we make a profit because of this partnership.

So if you had retained all of the rights, you believe you would have continued to lose money?

Absolutely. We were losing over $100 million a year. So, once again, it became an economic necessity to bring in a partner. As a result of that, they get the Final Four. So I will still be watching, although it will be on ch. 245 or 247 and not on ch. 2.

CBS has been highly skeptical of the next-generation broadcast standard ATSC 3.0 and has made that pretty clear at the NAB and in other forums. How come?

I don’t think that’s quite right, maybe a little skeptical. I am not a technology guy as you well know. Clearly, we are analyzing ASTC 3.0 as are a lot of our station groups. Obviously, Sinclair has led the way. Tegna is now in — and Media General. So affiliates with 28% of the U.S. homes are arguing that it will help broadcasters. 

When that many CBS affiliates are taking it very seriously, we are taking it seriously. So was I skeptical? Perhaps. But we are going into it with an open mind.

The way I hear it is that now that you are getting money from retrans, skinny bundles and CBS All Access, you don’t want to give your programming away anymore. You are afraid that if ATSC 3.0 is too good, people will use an antenna to bypass your pay media.

I wouldn’t say that was the reason that we haven’t jumped into it yet. Look, there are a lot of pros to it; there are a number of cons to it. I don’t think one of them is that it’s going to be too good. There is still time to get involved.

Don’t you have to broadcast in 4K? That’s one of the things 3.0 allows and CBS has the tradition of always delivering the best television technically.

We are looking at 4K. I saw a 4K demonstration last week. There is not a lot of production in 4K. Once again, it is still very early in the game and there is still a long way to go before there is a gun to our head to make a decision.

By your count, there are 412 scripted series from 2015.

That’s correct.

Can the TV industry on the whole sustain that level of production?

You know what, it becomes harder and harder. There are 412 shows today. Five or six years ago there literally was half that amount. There is no question that talent gets watered down a bit. One of the advantages of being CBS or Showtime is that we usually get, among other broadcasters, the first pick on a lot of talent.

Is there too much television? I don’t know about that. I would argue there is more good television today than ever before, but there is also more crap than ever before as well.

With demand like that, the cost of production must be going up. Is it?

Not terribly, no. Production costs are really rather contained and the fact that there are a lot more competitors hasn’t really changed the game. We are shooting 17 pilots as we speak for next season and qualitatively I think they are as good as anything we’ve done, and cost-wise they are still under control.

You talked about CBS getting $4 per sub per month for your skinny bundle deals. I think you have a deal right now with Sony PlayStation Vue.

Yes, we do.

Do the affiliates get a cut of the $4 or is that all for CBS?

Any national deal that we make the affiliates will be a part of. Right now, we have something like 85% of our affiliates signed for All Access.

In your presentation, you said only 10% of the viewership of CBS All Access is to live TV, the local station. Why is it so important then to have live TV?

The affiliates are important to us. We announced All Access the day after HBO announced its streaming service. All the articles were written as if this was sort of planned. The truth of the matter is that we were ready to announce six weeks earlier, but we wanted to have a meeting in person with our main affiliates, which we did in New York. That’s why it was delayed six weeks till we could get them together and explain to them what All Access was and to urge them to become part of it. That was important to us. 

Yes, it is only 10% of viewership, but it’s important that everybody says, OK, our network can be watched in lots of different ways. Streaming is going to be a new part of it. It’s going to be a new way people watch television, it’s the future and we want our affiliates to be a part of it.

Is the ad-free version of All Access going to happen?

Yes probably. There will probably be an ad-free version for like $4 more per month — $9.99 instead of $5.99. We are working on that as we speak. 

You talk about how licensing your programming is a fast growing revenue stream. But haven’t you created a couple of monsters in Netflix and Amazon by licensing your content to them? They are now major competitors.

That’s right. You know, Netflix is our friend and also our competitor and so is everybody else in the world. Netflix buys a lot of our library content. They are now in the original programming business. So on that front, I think they are more comparable to a Showtime or an HBO than a CBS.

Look, our world has been filled with competition. There are many new competitors, but by the same token they pay us lots of money for our content and our job is to just keep doing what we do, which is produce programming and put on great sporting events.

It’s a balancing act, I suppose. Will you be pulling back on how much you license to Netflix and Amazon?

It is absolutely a balancing act. We sit down and we discuss all the different ways we could sell our shows. By the way, our No. 1 priority still is making money on the network and anything we think is going to seriously cannibalize our regular schedule we won’t do or we will do it in a different way. By and large, we have stuck to that.

That will be reassuring to the affiliates because they need some exclusivity on those shows.

We agree with that. It’s still a very important thing. Scheduling still matters a lot. We talked about this at the Investor upfront. More than 60% of the people watch the shows live in their time period so there is a reason we put NCIS: New Orleans after NCIS. It helps.

Everybody Loves Raymond helped launched Two and a Half Men, which then later helped launch The Big Bang Theory. So scheduling does matter and the live feed does matter.

You’re starting originals on All Access with a new Star Trek series in January 2017 and then you are going to offer new ones at a rate of about one a quarter. Are they going to be exclusive to All Access?

Initially, yes they are.

By initially do you mean for a year or two?

You know, we are not sure of the afterlife of these shows so we haven’t yet formulated what happens there. All Access will be similar to a Showtime in terms of that.

I wanted to talk about broadcast syndication, another huge source of revenue for you. Do you see CBS mounting another big budget first-run show as you did with Jeff Probst in 2012 and Arsenio in 2013 or are those days over?

We are still looking to develop new first-run syndication. I am very happy with our position where we have some six or seven of the top-rated syndication shows out there because, as you have seen from the marketplace, it is very tough for a new first-run show to break through. There have been a lot of high-profile failures in that area and it’s a tough market to crack. 

So I am very happy. We have Dr. Phil and Judge Judy, Entertainment Tonight. We distribute Wheel and Jeopardy. I am very happy we have this base of shows, but, having said that, we are still developing and we are still looking for the next hit.

So if a big personality walks in the door with a talk show, you will spend the $30 million to launch it?

Well, hopefully, it’s not that much, but, yes, we will. You will see more first-run shows that are launched. But, as you also see, some of our affiliate groups — you have written about this — are forming programming partnerships and doing some of their own things. We will see how that goes.

Any advice for station groups that want to be in the programming business?

I’ll just say it’s tougher than it looks.

What’s the latest in your standoff with Tribune over renewing the CW affiliation?

It’s still a standoff. Put it this way, it’s not great. That’s all I can say.

Do you have a Plan B in case you can’t reach an agreement with them?

Yes, we do.

What is the Plan B?

I am not going to talk about it.

Something else I know you don’t want to talk about is the incentive auction because of the FCC’s quiet period.

It’s not that I don’t want to. I can’t. All I can say is, yes, our hat is in the ring and that’s all I can say.

But generally speaking, a lot of CW affiliates may be on the block. Any concern about what happens if half your CW affiliates disappear? You have to have some contingency for that.

I don’t expect half our affiliates to disappear.

Or even a lot of them?

That’s right, correct.

Earlier I asked you whether you saw the FCC as a threat to retransmission consent revenue. You said no. Do your see any dark clouds out there?

I have to tell you we are looking at ’16 as a very bright year. The advertising climate is extremely strong right now. So as we head into the upfront, we are feeling very good about that. Obviously political dollars are really good. The international marketplace has never been hotter and domestically, the SVOD marketplace is very hot. You know me, I am more optimistic than most people. I would say for a company like ours, the world looks pretty good right now.