Trekkies everywhere rejoice! There's a new installment of Star Trek on its way in just over a year. The new television series is slated to start airing in January 2017 on CBS (NYSE:CBS), but there's a catch. You'll only be able to watch episodes on CBS's streaming service, CBS All Access.
The new series will be CBS's first All Access exclusive, and it represents a serious push from CBS to promote its over-the-top service instead of the cable bundle. CBS also recently started offering Showtime as a stand-alone streaming service to compete with Time Warner's (NYSE:TWX) HBO and Netflix (NASDAQ:NFLX).
The Netflix approach
With its first streaming exclusive, CBS is taking an approach other streaming services like Netflix and Hulu have taken before. It's reviving a cult classic. Netflix did it for Arrested Development, and Hulu did it for The Mindy Project. While CBS isn't exactly reviving an old show, Star Trek has a huge cult following that is sure to attract some viewers to its stand-alone streaming service.
Similar to Netflix and HBO, CBS All Access provides unlimited access to its back catalog of content including over 7,500 television episodes. Additionally, subscribers can watch episodes commercial-free for select shows in the archives. These are benefits cable subscribers don't get with CBS's TV Everywhere package, which comes with most pay-TV subscriptions.
Still, it's hard to justify paying $6 per month for access to reruns of Big Bang Theory, especially when you can watch CBS for free over the air. That's why the added value of original series is key. Netflix saw a dramatic rise in average watch time as it added more original shows, eventually enabling it to increase its subscription price. CBS is hoping the additional value of original series justifies its current pricing.
But why does CBS want people to subscribe in the first place?
Like every other television network, CBS collects carriage fees for its channels from pay-TV providers. With CBS All Access priced at $6 per month, the company can use it as leverage to charge pay-TV companies more to carry CBS. If cable companies don't want to pay up, it has a back-up plan to attract viewers.
CBS currently receives around $1.50 per subscriber per month from pay-TV companies. CEO Les Moonves is targeting $2 billion ($1.67 to $1.75 per subscriber per month) in annual retransmission fees by the end of the decade.
But there's another reason to build a subscriber base that cannibalizes its existing business. It acts as a hedge against the growth of cord-cutters and the potential for an a la carte cable system.
CBS is already arguably in the best position to go a la carte compared to other television media companies. The vast majority of its revenue comes from CBS, CW, and Showtime. Time Warner, comparatively, is almost completely invested in the cable bundle save the CW -- a joint venture between Warner Bros. Entertainment and CBS Corp. -- and HBO. Other companies are entirely composed of channels in the cable bundle and largely rely on the bundle to support their revenue growth.
Many people believe we're headed toward an a la carte system of over-the-top services. If that's the case, CBS is well-positioned already to adapt to such an ecosystem. Growing its subscriber base for All Access will only strengthen that position.
The unnamed Star Trek sequel is the first series that will be exclusive to CBS All Access, but it probably won't be the last. It's a good choice for the first series since it has a cult following and is aimed at a demographic with the ability to subscribe to another service. It could go a long way toward kick-starting subscriptions for CBS All Access.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool recommends Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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