Market Insight

CBS becomes first of US big four broadcasters to launch SVoD service

October 16, 2014  | Subscribers Only


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US broadcaster CBS has jumped into the over-the-top game with the launch of a direct-to-consumer online subscription service, CBS All Access. The announcement comes a day after HBO said it would launch an over-the-top HBO Go service next year. CBS All Access is available on CBS.com, iOS and Android devices. Priced at $5.99 a month, the service includes live programming from CBS-owned stations in 14 of the largest US markets and a large collection of on demand programming. Customers who do not live in one of the 14 markets will not have access to live local coverage at launch. CBS made it clear that live programming on CBS All Access will be Nielsen-measured.

Additionally, CBS All Access includes full current seasons of 15 primetime shows with new episodes having day-after on-demand availability. Eight other current shows will have full past seasons available. There will be more than 5,000 episodes of older series available, branded as CBS Classics, with no advertising.

Our analysis

It was inevitable that once the Pandora's Box was opened, the lid would not close. In the same way, some content companies are embracing the idea of a-la-carte SVoD direct-to-consumer. EPIX pioneered the paradigm in October 2009 out of necessity when it launched its service without carriage on any major pay TV platform. It took five years for the next major content company, HBO, to announce plans this week to go after TV households without pay TV subscriptions, with CBS following suit one day later. 

What distinguishes the CBS announcement from that of HBO is the immediacy.CBS All Access opened for business on the same day it was announced, while the HBO product is slated to launch in 2015. The services by CBS and HBO are both similar and different; similar in the sense that they break with the current pay TV paradigm, but they are born of different necessities.

HBO's growth in the pay TV space is likely to stall in the next few years as more consumers become cost-conscious because of increasing monthly fees for video service. CBS, on the other hand, is fully penetrated, reaching nearly all US pay TV households. So while the motivation for CBS to launch its standalone SVoD offer is the same, that is to reconnect with households who do not subscribe to pay TV, their opportunity is slightly different.

If CBS All Access is successful, its internet-only subscribers will  be 'icing on the cake'. The expense related to provisioning the service is expected to not be too onerous; subscribers are likely to bring in decent margins right from the start. The real question is whether or not the new service can attract significant numbers of subscribers at the $5.99 a month price when 'cord-cutters' and 'cord-nevers' already have free access to over the air CBS live programming. Most broadcast basic TV packages from pay TV operators are within the $15 to $20 a month range, making the CBS SVoD offering higher than its bundled pay TV price.

In a perfect world it would seem logical for the big four broadcasters to band together to produce one product, or a series of products that could even be bundled, which are competitive with a broadcast basic TV package from pay TV. It is plausible that if the other three enter the market at a similar price point that their combined cost would not be significantly appealing to consumers. If they could agree on an SVoD business model with a combined monthly price closer to the $15 to $20 mark more subscribers would likely buy in. 

That's not to say that the library of content that CBS is making available isn't a compelling proposition. By offering current episodes near day-and-date with the TV debut, the company is ensuring that water cooler talk can continue, and its significant library of older series and previous episodes mean that subscribers will be able to binge. 

While we speculate about the possibility that others among the big four networks will make a similar play, it is certain that incumbent Netflix will be watching the new service closely. It is possible that shows like Under the Dome, which is produced by CBS Studios, could be shunted to CBS All Access rather than being sold to Netflix. If other major studios pursue the same strategy, there could be significant pressure put on Netflix's business model. At the same time, the new competitor will likely drive up the cost of the internet SVoD rights to future programs, a win for CBS investors.

A certain amount of cord-nevers and cord-cutters are likely to subscribe to CBS All Access, while some will continue to make do with antennas and piracy. IHS believes that the number of video pirates who will straighten up and fly right won't be huge, but anything is better than piracy. And to counter the argument that households can erect an antenna to get the same programming, the vast on-demand library and ability to watch live programming on mobile devices provides significant value. 

Could the CBS and HBO services lead to the unbundling of pay TV? The answer is likely not, for one because of the significant costs associated with sports content, and for two the minimums that are required of pay TV operators by programmers in TV carriage contracts. IHS sees validity in the transition to concurrent SVoD products for both premium and broadcast channels, but believes that the cable space is largely immune to the shift due to contractual obligations revolving around carriage.

Geography
USA
Organization
CBS CBS Corporation
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