Is There A Long-Term Future For CBS All Access?

It can be quite a reporting challenge when you're attempting to determine the long-term viability of a streaming service like CBS All Access. You have no real metrics to use, and even the most basic information such as subscriber numbers are hard to come by. All outsiders really know about the financial details of CBS All Access are the Trump-like descriptions from Les Moonves, touting its Huuuge success.

But even the most opaque company still has to conform to some version of the real life business world. Facts are facts, whether you disclose them or not.

So what kind of numbers would be helpful to have about CBS All Access? Specific subscriber numbers would be helpful, since it would at least be able to judge growth numbers quarter-to-quarter. And yes, we at least get those numbers from Netflix.

Other numbers that would be helpful are the same ones you'd like to see from any business you are trying to analyze. Subscriber churn numbers, cost of subscriber acquisition and some sense of content costs.

In the absence of all those numbers, all I can do from the outside is look at the customer-facing part of the business. What is value proposition for CBS All Access and what challenges is it going to face in the future?

Based on those criteria, it's difficult to see CBS All-Access surviving the next five years. At least in its current form.

Here are the challenges.

CBS All Access has four content components, and nearly all of them are likely to become less exclusive and bring less value to subscribers over the next couple of years. So let's break them down:

1) Live affiliate streams

CBS All Access subscribers in about 90% of the U.S. are able to watch a live stream of their local CBS station. That's due to CBS's novel way of getting affiliate and station groups to buy into the idea. They offered the affiliates a portion of the monthly CBS All-Access fee to the stations in exchange for allowing the live stream. That fee seems to vary depending on the station group and size of market, but it appears to generally be in the $1-$2 per subscriber range.

That sub fee guarantee also serves a couple of other purposes, which don't directly impact subscribers to CBS All Access. That fee is part of the justification CBS uses to claw more of the restransmission and reverse compensation fees from the affiliates. That retransmission fee (which is paid by cable and satellite companies who carry the local affiliate signal) used to go almost entirely to the local station. But in recent years, the network are demanding an increasingly larger percentage of the retransmission fee. These fees are one the largest revenue drivers for CBS right now, and part of their justification to their affiliates is "yes, we're taking more. But hey, you're getting CBS All Access money." The beauty of this argument is it doesn't really cost CBS anything. They're just transferring money from one internal pocket to the next.

But that sub fee kickback also serves another purpose. It provides a floor when other OTT services attempt to negotiate with CBS and/or their affiliates for the rights to stream the local station signal. It's also presumably the model for the revenue deal CBS recently negotiated with their affiliates for streaming rights on other OTT services. CBS is able to say "This is what our affiliates get for CBS All Access live streams. So you can't expect them to take less than that from you." It's one of the reasons why it's taken so long to add CBS stations to some of the established OTT services. The network is asking a fee that is difficult to justify if you're trying to negotiate a deal.

BOTTOM LINE: But despite the slow roll-out, CBS affiliate signals are slowly coming to OTT services. And as they do, that will make their inclusion on CBS All Access less important, especially given its monthly price-point. Adding the ability to stream the network's NFL games is a nice add for this season. But is that enough to change the basic math of the service's value? I'm not convinced.

2) Stacking Rights For Current CBS Shows

Beginning this fall, CBS All Access will finally have multiple season stacking rights for all of its major primetime shows. That mean that subscribers can watch not only every episode of the current season, but many of the previous seasons as well. Given that OTT on-demand offerings for CBS shows are minimal and that there isn't a TV Everywhere app for CBS, this is the only viable option for fans wanting to keep up with their favorite shows.

BOTTOM LINE: This is probably the CBS All Access feature that will have the most value moving forward. But it's longterm value depends on two factors: will CBS continue to be successful in primetime and will customers see the value in paying a monthly fee just to keep up with "NCIS" and "The Big Bang Theory?" This is the CBS All-Access feature that's easiest to protect. But its value depends in large part on the continued success of the network's primetime lineup.

3) Original Programming

As everyone already knows, CBS All Access will be debuting a new original series "Star Trek: Discovery" in September. And the service is certainly milking the chance to add new subscribers. It's split the season into two parts and the season reportedly is one long story arc, making it less likely viewers will want to just subscribe for part of the season.

There's no real financial risk for CBS All Access. They offset the entire production cost of the series by selling the international streaming rights to Netflix and they'll end up with a new season of a franchise they can repackage and resell for decades. And like "The Good Fight," the service wisely stuck to a familiar intellectual property that they conveniently also already owned.

Star Trek is an obvious choice for an original program, as was "The Good Fight" and "Big Brother Over The Top." But in the same way that a linear cable channel can't turn around its fortunes with a couple of shows, streaming services need more than one or two hit original shows to become a destination for viewers looking for new programming. A "Star Trek" series will garner CBS All Access a lot of attention from the press. But will the attention and the potential new subscibers stick around?

BOTTOM LINE: Original programming at CBS All Access is more about media attention than a solution to any long-term subscriber growth challenges. There's no bad side to creating original shows. But it's not going to be a meaningful contributor to growth in the long run. And it might contribute to some subscribe churn, once the new season of "Star Trek" wraps next year.

4) Episodes On Demand

CBS All Access boasts that it includes more than 8,500 episodes on demand and indeed there's a lot to watch. But once you get past the stacked seasons of current and recent CBS shows, most of the other on demand titles are the ones you'd expect to see. In particular, the lineup of classic TV shows is pretty predictable. CBS has an entire library of lesser known shows to choose from out of their catalog and less-known shows would be a draw. But right now, the most exotic classic TV choices on CBS All Access are "Life Unexpected" and "The Guardian."

BOTTOM LINE: The on-demand library is nice to have and certainly some subscribers will be thrilled by the inclusion of the multiple "Star Trek" titles or old episodes of "Perry Mason." But this seems like a missed opportunity to use the catalog of CBS Televisions Studios, which includes titles from Desilu Productions, Paramount Television, Spelling TV, some Viacom titles and a bunch of miscellaneous smaller companies. You could double the size of the CBS All Access on demand library with titles that can't be seen anywhere else.

So given all of this, why do I think the long-term prospects for CBS All Access are challenging?

It's notable that none of the other broadcast networks have launched their own version of a standalone service. Instead, they've opted for a combination of working with Hulu and creating robust authenticated TV Everywhere apps. Now it could be that Les Moonves and the gang are incredible visionaries and see potential no one else in the industry recognizes.

My calculation is that CBS All Access is an interesting experiment that can't compete the further we get into the explosion of rival OTT services. No matter the perceived value of the programs, can a service costing $5.99 per month (with limited commercials) or $9.99 per month (with no commercials) thrive in an environment where the nearly the same money will get a subscription to Hulu or Netflix? And in an industry where there's talk of an entertainment-only bundle from the Discovery and Scripps Networks priced at $3 a month?

Yes, CBS shows have value and if you want to stream them all there's only one option. But audiences are showing less of an attachment to the idea of watching most television shows in anything close to real time. And even if you're an "Elementary" super-fan, are you willing to pay $6 a month to watch new episodes when you can just wait and catch them on Hulu next year?

I don't think CBS All Access will necessarily go away completely - at least not in the next several years. But it's an answer to a problem that was a bigger issue two years ago than in it is today. It's #PeakBroadcastThink at a time when the prevailing winds of the television industry are blowing in another direction.

I should mention that this view is completely opposite of the projections coming from Les Moonves. He recently projected CBS All Access subscriber numbers will top 4 million by 2020. That rate of growth would require the service to double its subscriber base in a bit over two years. I happen to think Moonves is wrong, but I guess we'll see. Bookmark this page and get back to me in two years.

For what it's worth, while I don't have the track record of Les Moonves, I do have some experience parsing these kinds of media industry issues. Before I shifted more to the consumer side of the television industry, I was a financial reporter focusing on technology and the media world. And one of things I learned back then is that no executive ever thinks their ideas might not work out. As one example, my boss received a lot of pressure from NBC to shift me away from the media beat after I interviewed the head of NBCi and voiced my skepticism about the long-term viability of the idea?

Don't remember NBCi? My point exactly. Even the smartest person, particularly those working in a legacy industry, can confuse temporary success with a long-term business model. NBC poured more than $85 million into the web portal business just when the industry was shifting focus.

Unlike NBCi, CBS All Access has a real business model. But as for what the future brings...let's just say I'm more than a little skeptical.

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