How buying Viacom could help CBS fight Netflix and Disney in the streaming wars - and hurt it
CBS All Access
- After 13 years apart, CBS is preparing a bid to buy its sister company, Viacom, The Wall Street Journal reported on Tuesday.
- The deal, if it happens, could bolster CBS's streaming initiatives, Wall Street analysts and a media strategist told Business Insider.
- A combined CBS-Viacom wouldn't have the global footing of Netflix or the brand power of Disney. But it would have more advantages than either CBS or Viacom has on its own today.
- Click here for more BI Prime stories.
A marriage with Viacom could give could give CBS an edge in streaming video.
After 13 years apart, CBS is preparing a bid to buy its sister company, Viacom, in what would be the third attempt to combine the two media conglomerates, The Wall Street Journal reported on Tuesday, citing people familiar with the situation.
There are corporate reasons to merge the two companies, which are both majority controlled by the Redstone family through National Amusements, Inc.
But the deal, if it happens, could also bolster CBS' streaming initiatives, Wall Street analysts and a media strategist told Business Insider.
A combined CBS-Viacom wouldn't have the global footing of Netflix or the brand power of Disney. But it would have more advantages than either CBS or Viacom has on its own today. The companies, together, could reach a wider audience, build a broader catalog, and have more negotiating power with the help of Viacom's Pluto TV.
Where CBS fits into the streaming wars
CBS has largely been overlooked in the streaming wars this past year as legacy media giants Disney, WarnerMedia, and NBCUniversal prepare new streaming services that could pose threats to incumbents Netflix and Amazon.
Yet, CBS - which is still the most-watched network on TV - also has two standalone streaming subscriptions, CBS All Access and Showtime. The two platforms reached a total of 8 million subscribers at the end of last year, and CBS raised its goal to 25 million subscribers domestically by 2022, up from a target of 16 million. That would be a little smaller than Hulu today, across its on-demand and streaming-TV offerings.
CBS also has free, ad-supporting streaming sports and news networks, including CBS Sports HQ, CBSN, CBSN Local, and ET Live. Its studios, including CBS TV, produce some programming for other streaming services as well, such as "Dead to Me" on Netflix.
The advantages of a Viacom deal
A combined CBS-Viacom could be a more compelling streaming contender.
Viacom's streaming and production assets would open up CBS to a broader audience. While CBS is known for having the oldest audience in network TV, Viacom's networks like Comedy Central and MTV, and its children's channel, Nickelodeon, cater to younger crowds.
"It would give CBS the cradle to the grave now, literally," Mary Ann Halford, a senior adviser at the strategy consulting firm OC&C Strategy Consultants, told Business Insider. "It gives CBS more balance."
CBS and Viacom would have a broader international footprint together, and could use each others' programming -rather than buy from outside studios - in places like the UK, where Viacom is more established, and Australia, where CBS has a bigger presence.
A combined CBS-Viacom would also have a larger catalog and production output, which its could use to fill its own platforms and license more programming to other services. Viacom's studios, like CBS', also produce series now for other streaming services, like Paramount TV's "13 Reasons Why" on Netflix, "Jack Ryan"on Amazon Prime Video, and MTV Studios' "The Real World" reboot on Facebook Watch.
"They could fill a hole that is being created by Disney," Ryvicker said, referring to Disney's all-in streaming strategy, which has resulted in it pulling content from Netflix.
Viacom comes with baggage
Viacom would come with some baggage that could hold CBS back in the streaming sphere.
Not all of CBS and Viacom's brands fit neatly together. Viacom's cable networks have struggled with the consumer shift away from traditional TV services as well.
The children's networks have had a particularly tough time, as more kids watch programming on place like Netflix and YouTube, instead of cable TV. Nickelodeon lost nearly 30% of its viewers in 2018, according to Nielsen data published by IndieWire.
"We don't believe the concept of a fully distributed kids' linear network will exist for much longer," analysts from Bernstein, a Wall Street firm, wrote in January, in a note that argued against a CBS-Viacom merger.
An acquisition of Viacom would expose CBS to more risk from Viacom's cable channels. But the combined company would also have more opportunities to repackage its programming, with its mix of standalone subscriptions, ad-supported services, and across Pluto TV.
"[Nickelodeon] has to be repackaged in some way," Marci Ryvicker, an analyst at Wolfe Research, which upgraded its price target for CBS in May on the condition of a deal with Viacom, told Business Insider. "Kids has been one of the first types of programming that has been replaced by streaming."
Viacom has a few standalone streaming offerings in the US, including Comedy Central Now, Noggin - for pre-school aged children - and an upcoming BET subscription service. It also has a free, ad-supported TV service, Pluto TV, which Viacom acquired in January for $340 million.
Leaning on Pluto TV
Pluto TV has been a bargaining chip for Viacom, and could also be an asset for CBS. Viacom recently struck a deal with cable operator Comcast to get the free, ad-supported TV service with more than 100 channels - including at least 14 networks with Viacom content - on the Xfinity X1 platform.
"What it's helped Viacom do is help guarantee Viacom carriage with distributors who are difficult to negotiate with," Ryvicker said.
Pluto TV also had about 16 million monthly active users at the end of April, up 31% from December 2018, Viacom reported. That's an audience CBS and Viacom could build on. CBS could offer its subscription services like CBS All Access and Showtime as add-ons to the free Pluto TV service, for example.
"It's a promotional platform for you then to upsell people to buy a paid service, like CBS All Access," Halford, the advisor, said. "Those are things that can become very interesting, if CBS ends up moving from a broadcast world to an IP TV on-demand world."