CBS to Investors: It’s All Good

New York — At its first Investor Day in five years, CBS spent the better part of three hours touting the strength of its broadcast network and what it called its key position in the over-the-top world.

Over-the-top was one of the most-used phrases of the day, and CBS chairman and CEO Les Moonves wasn’t afraid to use it, along with other top buzzwords like “streaming” and “skinny bundles.”

Some programmers have taken a more cautious approach to smaller packages and some, such as Time Warner Inc., have said they would rethink their relationships with streaming services like Netflix. CBS and Moonves fully embraced both concepts.

Moonves said CBS was a must-have network for skinny-bundle distributors, pointing to its own OTT service, CBS All Access, as well as potential relationships with other providers.

“Any way you want CBS — large bundle, small bundle, OTT — CBS is there,” Moonves said.


On the broadcast side, chief operating officer Joe Ianniello increased estimates for retransmission and reverse-compensation revenue to $2.5 billion from $2 billion over the next five years. That was expected by many analysts, who had already baked that figure into their models.

Ianniello raised some eyebrows when he predicted the content company would generate $800 million in revenue from over-the-top services — equally split between Showtime OTT and CBS All Access.

What surprised some analysts wasn’t the number, as most believed that Showtime and CBS All Access have the potential to capture significant share. It was that CBS risked assigning a target to an increasingly volatile market.

“Certainly, nobody would disagree there is opportunity here, especially at Showtime,” Sanford Bernstein media analyst Todd Juenger wrote in a note to clients. “But now there is a number on it against which they will be judged.”

On the positive side for analysts and investors, CBS will likely have to disclose its progress against that benchmark, Juenger said.

For the most part, media companies have been reluctant to release sales or subscriber figures for their OTT services. HBO recently said it had about 800,000 subscribers to its HBO Now OTT product at the end of the fourth quarter, and that was below Wall Street estimates of 1 million to 2 million.

Dish Network hasn’t released figures for its Sling TV over-the-top service — it incorporates its OTT and satellite-TV sales and subscriber numbers into its consolidated results — forcing analysts to extrapolate their own estimates. So far, those estimates have been low.

“[W]e expect to see more disclosure of subs and revenue for their OTT products, which could have good or bad impact, depending on the absolute trajectory, and now, more importantly, the trajectory against their guidance,” Juenger wrote.

Original content will help drive OTT businesses, and CBS has already announced plans to launch a Star Trek reboot in January that will be exclusive to CBS All Access after its first episode. CBS All Access will launch four new series each year in an effort to differentiate itself from the competition, Moonves said. He expects Showtime OTT and CBS All Access to add 4 million incremental subscribers each over the next five years.

Morgan Stanley media analyst Ben Swinburne said the programming investment is a “big bet.” While Showtime OTT has a pricing advantage over HBO Now ($10.99 per month vs. $14.99 per month), he added, CBS’s subscriber-increase projections could be optimistic.

“We believe in Showtime’s content pipeline, but [are] less sure how many subscribers that want Showtime today are not buying it through their MVPD,” Swinburne wrote in a research note.

What shocked Juenger most is that CBS has been riding a wave of optimism in an industry that has had little to be optimistic about. Strong broadcast ratings — CBS says it will be the No. 1 network in the current season, the 13th time in 14 years that has happened — has helped drive better-than-average advertising growth.


CBS’s retransmission-consent and reverse-compensation revenue, at about $1 billion in 2015, is among the largest in the industry and shows no signs of slowing. In a nutshell, the content company has nothing to prove.

“Given CBS’s relative advantages, why not sit back and let the world come to you, rather than forcing the issue and making promises that we believe will be hard to keep (especially given the pace of change in the general marketplace)?” Juenger asked. “Every media company that has recently made long-term guidance promises has come to regret it.”