Cord-Cutting, OTT Embraced By CBS

CBS CEO Les Moonves has been preaching about the value of his company’s presence on multiple platforms for quite some time, and his Thursday session with securities analysts was no exception. Meanwhile, retrans and reverse comp income helped blunt advertising revenue losses in an off-political year.

Discussing new distribution platforms and the people using them, Moonves said: “Not only are we not affected as others are by cord-cutting, it has real measurable upside for us. This is what sets CBS apart from the pack.”

Moonves continued: “As the industry moves ahead to more viewer choice and new subscription models there will be a wider gap between the haves and the have nots, and clearly we’re on the right side of that divide.”

Moonves explained that CBS makes more money per sub when the cord is cut. “At CBS, when a consumer switches from a traditional to a skinny bundle we get double the fees. It they switch to All Access, that revenue sometimes triples from what we get from traditional distributors.”

CBS’s local television group could not make up for the loss of political revenue during 3Q, but was able to mitigate it with healthy gains in retrans income, as well as a 6% gain in core advertising.

COO Joe Ianniello cited entertainment and financial services as particularly strong categories. Ianniello said that the combination of retransmission consent and reverse compensation income grew by 27% during 3Q, adding that its 3Q YTD total was equal to its end-of-year 2016 total. The company is well on its way to its target of $2.5 billion in the category by 2020.

Looking ahead to the fourth quarter, Ianniello said that local non-political is continuing to perform at about that pace, with sales up in the mid-single-digits. He also said the company expects to benefit greatly from the 2018 mid-terms.

At the network, Ianniello added: “Scatter pricing is up double digits against upfront pricing. See seven is now the standard currency, and we are starting to sell beyond seven days as well.” He later added that scatter is also ahead of last year’s 4Q pace.

On the retrans front, 20% of CBS O&Os are up for renewal in 2018, and new reverse compensation contracts will be negotiated for 10% of network affiliates.

Moonves praised the consistency of advertising results on his company’s flagship television network. “In each of the last five years, “he said, “we’ve generated a very consistent $4 billion in network advertising, and that doesn’t even include the Super Bowl which is in addition to that total.”

He noted that the network will surpass that number again in 2017, adding that ad revenue will constitute about 40% of the company’s total income.

Asked about the NFL, Moonves said: “The ratings are down a bit this year,” but after citing a laundry list of issues, added: “It’s still the best thing on television. The ratings are still extraordinarily high. I think all the networks are very happy they have the product. And you see when you compare it to other things, live events are still working phenomenally well.”

He said there has been no problem with advertisers despite the recent Papa John’s Pizza controversy. “I don’t know of one sponsor that’s pulled out of any spot that they’ve had,” said Moonves.

He did not offer comment on CBS’s plans for its Thursday NFL package, which is in its final season.

Production is a major profit center for CBS, which has developed multiple ways to monetize its intellectual property. Domestically, Ianniello said content can be used on CBS distribution platforms or it can be sold to others; it all has the potential for further use in syndication; and most lucratively of all, it can be sold overseas.

Ianniello said that the company’s current total of 65 in-production programs is up 14% YOY.

Moonves commented that given numerous monetization options, the company knows a given program is going to be profitable from day one. “That means that we’re going to continue to increase that 65 number to a lot more.”

Mooves noted that some of the company’s new programming product is going to its own CBS All Access to attract subscribers, most notably Star Trek Discovery. He said that on average All Access subs are about 20 years younger than the CBS Television Network audience, although he quickly added that “We don’t care if you’re 8 or 80.”

He said that the NFL has been good for the OTT service, with the company enjoying a spike in new subscribers on game days.

Mooves did not have much to say about ratings other than to note that the field is undergoing rapid change, and despite the emergence of new competitors, he said that Nielsen is still a very big player.