CBS, the storied network that’s been around since before the invention of television, may be moored in history and tradition — but it also has a strong history of blowing up tradition in order to move itself, and the TV industry, forward. That revolutionary ethos was on display once more last week with the announcement that the network, through a subscription service called CBS All Access, was becoming the first American broadcaster to sell its content directly to consumers without a cable- or satellite-company middleman. Whatever the actual impact of the move — which came a day after a similar move by HBO to “unbundle” HBO Go — the symbolism was staggering: The home of Paley and Murrow had embraced an idea that could lead to the end of network TV as we’ve known it.
To be sure, the key word here is symbolism. CBS All Access, in its current iteration, isn’t going to change much about the TV business, and CBS isn’t claiming otherwise. During interviews last week, network execs were quick to describe the service as “additive” to the current TV ecosystem and a way to reach folks who are really into the network’s current programming (NCIS, Survivor) and library titles (Star Trek, Cheers). “This is geared to the super fan,” CBS Interactive CEO Jim Lanzone told Forbes. Industry analysts such as BTIG’s Rich Greenfield were also cautious about reading too much into the plays by the Eye and HBO to make their programming available as stand-alone — or “over the top”— offerings. “We may very well see the cable bundle unwind and mass cord cutting begin over the next several years,” Greenfield wrote. But the CBS and HBO plays, in part because of their expense (CBS is charging $5.99 a month and HBO is expected to ask for $15), “appear to be examples of each company dipping their toe in the water.”
And yet revolutions at CBS, and in TV generally, have often started with toe-dipping. In 1952, CBS began producing a version of long-running radio soap opera The Guiding Light for its fledgling TV network, but it didn’t fully commit to the newer medium: The radio edition of the daytime drama continued for another five years. Similarly, long before ABC and NBC saw the revenue potential in focusing on younger viewers, CBS execs in the early 1970s foresaw the coming demographic revolution and ditched massively popular, rural-skewing shows (Green Acres, Gomer Pyle) to make room for more sophisticated and profitable, fare (All in the Family, M*A*S*H). CBS founder William S. Paley also jumped into cable before any of the big broadcast owners, launching the art-focused CBS Cable in 1981; it didn’t work, but it was a sign of things to come.
Revolutions in the digital age have similarly started with small steps. Take ABC’s 2005 decision to let viewers download a handful of TV shows on Apple’s then-new iTunes Store: It made for a splashy announcement, but it didn’t immediately change much about the way we watched TV. Within a few years, however, Apple’s downloads evolved into streaming on network websites, then Hulu, then Netflix, and now a slew of other on-demand options. So while it’s probably a good idea not to get too worked up about what happened last week, it would also be a mistake not to at least acknowledge the possibility that we may look back at October 2014 as a tipping point for the decades-old linear TV model. Current CBS chief Leslie Moonves, who occupies Paley’s old office at the network’s New York headquarters, told CNN that networks like his needed to be ready to evolve, and quickly. “You don't want to be beholden to anybody," Moonves said. "You don't know where the world's going to go." We don’t pretend to know exactly where the TV world is headed, either. But last week’s embrace of cord-cutting by HBO and CBS does offer a few hints about what’s to come. Among the takeaways:
You’ll be able to spend a lot less for TV — if you’re willing to make some compromises.
Advocates of unbundling TV content— letting viewers buy only those channels they want, rather than large packages larded with channels they’ll rarely or never watch — like to talk about how it will lead to folks paying less for TV. What seems more likely, however, is the creation of different classes of television consumers, a sort of TV caste-system built on how much you watch and when. Those who care about a handful of shows, watch a lot of broadcast TV, or tend to catch up on buzzy series months or even years after they’ve debuted will be able to cobble together a pretty decent TV ecosystem on the cheap. In fact, with the launch of CBS All Access, that’s possible now: For under $25 a month, a combo of the Eye’s new service and Hulu Plus, along with Netflix, will get you access to most next-day episodes of network and many cable shows, plus a host of past seasons (and some buzzy originals) via Netflix. Adding Amazon for $99 a year (or $8.25 per month) keeps your TV bill under $35 and gives you access to past seasons of almost every big TV show (plus some original content and free shipping). And assuming the new stand-alone HBO Go is priced, as expected, at about $15 per month, you should be able to cut the cable cord and not miss much beyond sports and news for just under $50 — well below half the $123 average cable bill at least one analyst is forecasting for next year and the $65 or so most people now pay for just expanded basic cable (sans HBO).
But if you want to be able to watch all the major networks live, or see big sports events, or just randomly surf through dozens of channels hoping to find some unexpectedly great reality show on a tiny new network (like FYI’s Married at First Sight), there’s no indication — yet — that unbundling will make a difference. Even if every broadcast network imitates CBS and starts offering live streaming to anyone, even without a cable subscription, signing up for all five services could run over $20 a month; if you need to be able to watch Mad Men or American Horror Story (or future lauded shows) on potential unbundled AMC or FX services, that’ll be even more money. Before you know it, it’s easy to see how the cost of so many separate subscriptions could far exceed the cost of a standard cable bill. Plus, in an unbundled world, viewers need to deal with different apps for different networks, not knowing when exactly a show will appear online (unless it includes live streaming) and, not unimportant, a slew of different bills to pay. BTIG’s Greenfield argued in a report this week that for most heavy users of TV content, “Unbundling does not appear to be the answer. The consumer does not want to choose from relatively highly priced, small content packages. Rather, people want the ability to choose from more content and not have to make choices about what to pay for and what they don’t want. That decision will be confusing, paralyzing, and ultimately lead to more dissatisfaction.”
Greenfield’s probably right, but that doesn’t mean there’s not a market for unbundled services. Consider that even TV’s biggest shows, such as The Walking Dead or NCIS, only draw a weekly audience of around 20 million viewers, including those who time-shift within a week of air. That leaves tens of millions of more casual viewers, folks who are too busy working multiple jobs or raising families to worry about live-tweeting The Voice or Scandal. There are millions of millennials (and even younger viewers) who’ve never even found a need to get a cable subscription but might be willing to give up stealing torrents of shows if a few of their favorite networks were available à la carte. This is where big companies with cable networks boasting strong brand identities could make a move. Viacom, for example, could bundle Comedy Central, MTV, VH1, and BET together for $6 a month and satisfy a lot of 25-year-old couples addicted to those networks’ respective male- and female-skewing shows. Such a move would’ve been seen as unthinkable just a few years ago, since cable providers (Cox, Time Warner) would’ve balked. There still could be resistance to such a move, but the recent actions by HBO and CBS suggest there might be room for experimentation.
Networks will try to own even more of their programming.
Muted by all the hype surrounding the launch of CBS All Access was what’s not on the new streaming service. You won’t be able to watch NFL games, and you’ll only be able to catch up on a few recent episodes of the Eye’s biggest hit, The Big Bang Theory. That’s because CBS doesn’t control either property, and this underlines a key reality of TV’s new era: You can’t fully exploit the shows on your network via other platforms if they belong to someone else. This is not a particularly new insight, of course. Broadcasters have been interested in producing the shows they air ever since the FCC started easing rules governing ownership of programming in the 1980s (and then got rid of all regulation in the ‘90s). Ownership lets networks control revenue streams from cradle (advertising from initial broadcasts) to grave (syndication on cable, international sales, digital streaming).
Historically, the need to maintain strong overall ratings has served as a check on networks getting too greedy and trying to own everything. When ad revenue provided the vast majority of revenue, it didn’t matter than NBC didn’t produce Friends or ER, since the money it made selling 30-second spots on the hugely popular shows trumped all other interests. That’s still the case today if a show is really, really big: CBS didn’t hesitate to renew The Big Bang Theory for three more years even though it’s from Warner Bros. TV. But while networks all insist they’ll continue to buy projects they don’t produce, it’s going to become much less common in coming years. For one thing, ownership allows programers to be more nimble experimenting with different business models, since outside players don’t have to sign off on how many back episodes can be streamed. (In contrast to the big gaps in CBS All Access, HBO is able to pack HBO Go with virtually every show that’s ever run on the network over the past two decades since it’s made producing its own programming a priority.) Another reason it’s better for networks to own than rent: Digital streaming and the rise of video on demand means it’s easier than ever for successful shows to have a long profit tail — witness Warner Bros.’ recent (and almost certainly lucrative) deals to put long-gone shows such as Friends and Gilmore Girls on Netflix, or the way Rupert Murdoch’s empire has found a new way to exploit The Simpsons via the Simpsons World app and website. Which leads us to our final lesson from last week ...
One way or another, the biggest TV networks will still find a way to get paid for their programming.
Subscription-based HBO and advertiser-supported CBS have two very different business models, but their moves last week had a similar short-term motivation: using technology to open up new revenue sources. This is particularly true for CBS, which, like all broadcast and basic-cable networks, has seen its historic cash cow — advertising — come under attack in recent years from a lethal combination of competition (i.e., the explosion in original programming) and commercial-skipping (via DVRs). Despite all the spin about delayed viewing and “live plus seven” data, the way we watch TV today is having a real impact on networks’ bottom line: So-called “upfront” commitments by advertisers dropped between 5 and 10 percent each of the past two years, causing a collective loss of hundreds of millions in revenue. (Cable networks have been hurt, too.) Meanwhile, even though HBO hasn’t taken anywhere near the same sort of hit from tech changes, the explosive growth of Netflix — and the rise of cord-cutters and cord-nevers — clearly threaten to limit (or even reverse) its subscriber growth in coming years. Finding new ways to generate income has become a matter of survival.
The hunt for alternative revenue streams isn’t new, of course. For several years now, broadcasters have been demanding (and getting) compensation from distributors such as Time Warner Cable for the privilege of carrying their signal, even if it’s still available for free to anyone with an HD antenna. NBC, ABC, and Fox invested in Hulu because it lets them get at least modest amounts of ad revenue through next-day reruns of their shows (ditto video on demand airings of shows, which don’t let consumers fast-forward commercials). And the need for revenue diversification explains why CBS and other networks are striking lucrative deals with Amazon and Netflix to allow ad-free reruns of episodes to stream just days after their TV premiere. Last week’s announcements of direct-to-consumer subscriptions, then, are at one level just the opening of another front in the Battle to Get Paid. And now that CBS and HBO have jumped in, it seems more likely that a flood of other outlets will follow. Yes, in the near term, it’s likely “over-the-top” TV will account for just a small portion of most networks’ overall revenue streams. But rather than be boxed in by fear of upsetting the old order, networks are now willing to make like Willie Sutton and go wherever the money is.