While CBS Corp. is, like every other media company, exposed to the ongoing collapse of the pay-TV bundle, Guggenheim analyst Michael Morris said the company has an advantage over its peers, having been early out of the gate with an SVOD platform, CBS All Access.
To take this OTT platform to the next level, Morris has two recommendations: CBS should add live-streaming of NFL games to the All Access mix, and it should acquire AMC Networks, bringing water-cooler programming like The Walking Dead to the service, as well.
Even with ongoing increases in broadcast retransmission fees, the CBS broadcast network only takes in about $2 to $3 per pay-TV subscriber, said Morris, in a report obtained by The Hollywood Reporter.
Conversely, All Access commands a per-subscriber monthly fee of $6. CBS hasn't released any subscriber metrics since launching the service last October. But Morris believes that significantly expanding the All Access base would give CBS a key, higher-margin hedge in a suddenly unstable pay-TV ecosystem.
"With the early start CBS has achieved with All Access and the potential power of an OTT platform that would include the NFL and potentially The Walking Dead, we believe CBS could quickly utilize AMC's programming to drive subscriber growth," Morris said
"AMC Networks currently generates about $0.75 monthly in affiliate fees across its five consolidated networks (AMC, WeTV, IFC, Sundance Channel and BBC America) on a fully distributed basis," the analyst also said. "By gaining control to AMC Networks content and including it on All Access, the company would be using content acquired at an implied $0.75 plus transaction premium price, to drive a $4 gain in its per subscriber subscription revenue for any incremental subscriber. This would be off a stable existing affiliate revenue base and therefore would have limited investment risk."
With its stock down 5 percent since reporting its second-quarter earnings last week, CBS Corp. is among a number of programmers and pay-TV companies getting sudden, intense investor scrutiny over cord-cutting.
Driven by hit original series such as the just-departed Mad Men--which commanded $1 million per 30-second commercial for its May 17 finale--AMC posted earnings from continuing operations of $83 million in the second quarter, compared with $60 million in the year-ago period.
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CBS All Access has now signed up 40 affiliates, covers 75% of U.S.