CBS's Setbacks Are Offset By Smart Streaming Plans

(Bloomberg Opinion) -- CBS Corp. is known for creating some of the most popular shows on television, a skill that was long credited to Les Moonves, its now disgraced former chief. Now that he’s gone, the company is desperate to prove it can maintain its reputation in showbiz. So far, it’s faced setbacks, but it’s also putting forth some intriguing ideas. 

CBS’s programming prowess always seemed inextricably linked to Moonves, who remained deeply involved in the creative side of the TV network in a way that other media CEOs aren’t. He made himself indispensable to the point that some insiders appeared willing to look past the risks that his alleged sexual misconduct and abuse of power levied on CBS. Removing Moonves from his post will never have not been the right decision. But that’s left CBS to face the consequences of having made him the anchor of the $18 billion company and not preparing for the large void he’d leave.

CBS's Setbacks Are Offset By Smart Streaming Plans

CBS reported fourth-quarter results late Thursday, its first full operating period without Moonves. Earnings per share missed estimates, but in the wake of the management upheaval, a key area to keep an eye on is content licensing. That refers to the revenue the company gets from selling its productions to third parties such as Netflix Inc. and cable networks like Comcast Corp.’s USA. It’s perhaps the biggest indicator of the value of the CBS studio, and it’s also how Moonves had been positioning the business for the future. In a worrisome sign, there hadn’t been many announcements on that front since Joe Ianniello, a CBS executive known more for his financial experience than creative talents, was installed as acting CEO. 

Sure enough, revenue from content licensing and distribution fell 11 percent, marking the weakest period since the third quarter of 2017. The stock fell about 2 percent after the report, but bounced back (and then some) Friday morning.

Content licensing has become an increasingly important revenue driver for CBS as the shrinking number of U.S. cable-TV subscribers produces fewer advertising dollars. The USA network pays for CBS’s popular “NCIS” series, while CBS also produces “Drop the Mic” for TBS, a network now owned by AT&T Inc. It licenses “Star Trek: Discovery” to Netflix outside the U.S., and is making “Diary of a Female President,” starring Gina Rodriguez, for Disney+, the streaming service Walt Disney Co. is launching this year. 

CBS's Setbacks Are Offset By Smart Streaming Plans

This quarter could just be a blip. Ianniello made a good point on Thursday’s earnings call that as companies such as Disney start preserving their content for their own apps, CBS’s “beachfront property is going to be ever scarcer.” He seems to also be working with executive David Nevins on smart ways to generate buzz for CBS’s All Access and Showtime apps. Nevins, head of Showtime, was given an expanded role last year as CBS creative chief. He’s known for producing Emmy award-winning shows “24” and “Arrested Development” that to this day have loyal followings.

They’re exploring the idea of taking a series exclusive to All Access, such as “The Good Fight,” and putting it on the CBS broadcast channel down the road. That could attract more app subscribers who don’t want to wait for stuff to air on regular TV. All Access and the Showtime app together have 8 million subscribers, a figure Ianniello sees reaching 25 million by 2022. That’s about as many users as the older and managerially neglected Hulu recently said it has. 

CBS's Setbacks Are Offset By Smart Streaming Plans
The CBS team is also trying to tackle the biggest problem for streaming apps: the high rate and ease of canceling during content lulls. All Access had three content originals in 2017, seven last year, and will add four more this year, according to Ianniello. Viewers aren’t “leaving the ecosystem,” he said. “They just want more, and so let's give it to them.”

During recent company events, Ianniello seemed to lack the presence of a Hollywood leader. Not to mention, he took Moonves’s side in the power struggle against Shari Redstone, the face of CBS and Viacom Inc.’s controlling shareholder, so he’s unlikely to top her list of potential permanent replacements. That said, he’s proving to be a worthy temporary option until CBS and Viacom finally agree to a merger.

In the event of a merger of CBS and Viacom, Redstone may want to ultimately make Viacom’s Bob Bakish head of the combined entity. Or, instead of waiting to strike the deal, the CBS job could instead be filled by an esteemed outsider, such as Tom Staggs, formerly of Disney. That person would just have to be on board with Redstone’s merger plans, and Bakish would have to accept perhaps a No. 2 role at CBS-Viacom.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

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