COMPANY TOWN

CBS offers streaming service, a day after HBO's action

CBS is the latest programming giant to launch a streaming subscription service

The Internet video streaming business suddenly is a lot more crowded — and messy.

CBS became the latest programming giant to launch a subscription service that, for $5.99 a month, will enable viewers to stream live television and access on-demand shows like "NCIS" and "The Good Wife." It follows HBO's groundbreaking announcement that it will offer a stand-alone streaming service next year.

This is a win for consumers who are tired of paying hefty cable bills for hundreds of channels, some that they barely watch. The moves by HBO and CBS demonstrate how Hollywood's programming lions are determined to continue their dominance into the digital era rather than retreat to the sidelines.

Wall Street received the message.

Investors dumped shares of Netflix, long considered the leader in video streaming, at a breakneck pace. After missing its third-quarter growth targets, the stock plunged 20% on Thursday to $361.70, wiping out billions of dollars in market value in just a matter of hours.

The developments signal a big step toward creating an a la carte system where subscribers can pick and choose the channels they want. But, analysts say, don't expect the revolution to happen overnight.

"It's quite a messy transition," said Karen Berckmann, a senior analyst with Moody's Investors Service. "We are seeing a chipping away at the programming bundle."

The similarity between HBO and CBS is that both own much of their content, unlike the bulk of offerings on streaming services like Netflix and Amazon. This will help the networks control costs as they begin to roll out their own subscription pay-TV services.

But cable and satellite TV operators increasingly are nervous about streaming services that encourage consumers to cancel their monthly subscriptions.

Programmers recognize the risks of antagonizing their biggest partners, including DirecTV, Comcast Corp., Time Warner Cable, Cox Communications and Dish Network. For most media companies, the billions of dollars they receive each year in programming fees provide their most steady income, and help underwrite the high cost of producing TV shows and movies.

Cable companies are responding to the added competition. Satellite giant Dish, for example, is preparing its own streaming service, which will give customers access to a limited number of channels. Comcast recently introduced a lower-priced Internet service with about two dozen channels, including HBO.

Analysts said that if more people cut the cable cord, the media companies might raise their rates for high-speed Internet service to make up for revenue losses on the video side.

The issue is a prickly one in the television industry.

"The challenge for providers and programmers alike is to adapt to changes in consumer demand in a way that keeps the ecosystem in balance or risk losing meaningful advertising and affiliate revenue streams that could drive our collective businesses backward," DirecTV said in a statement Thursday.

Even CBS, which has relatively few cable channels, has carved out a lucrative revenue stream in fees from distributors for the right to retransmit the signals of CBS television stations. CBS expects these retransmission fees to hit $2 billion a year by 2020.

CBS' broadcast rivals also have been in the video streaming business for the last five years. NBC, ABC and Fox own Hulu, the video streaming service, which has long been a thorn in the side of the distributors who felt that Hulu was helping encourage more people to cut the cable cord.

CBS executives said they have been developing the new streaming service for nearly two years. Called CBS All Access, the service launched Thursday enables viewers to watch current episodes of hits and older shows, like "Melrose Place" and "Jericho." They'll also get access to marquee live events such as the Grammy Awards and "The Victoria's Secret Fashion Show."

The service also will have live streams of the programming on CBS-owned stations, including KCBS-TV Channel 2.

"We're seeing a real evolution," said Jim Lanzone, chief executive of CBS Interactive. "Our new product is meant to be an additional feature for super fans of our shows — it's not like we are laying down any gauntlets. We view this service as complementary to the existing television ecosystem."

A few years ago, CBS made available individual subscriptions for users to access segments from its "60 Minutes" news magazine. And then, for the last two summers, CBS offered a streaming service that enabled viewers to monitor the behind-the-scenes goings-on in the reality show "Big Brother" house.

Although the company declined to say how many people signed up for its "Big Brother" subscription service, it turned out to be a lot more than anticipated.

HBO said on Wednesday that it wanted to work with its traditional partners, and the company is not expected to offer the stand-alone service directly to consumers at a lower price than what is offered as part of a cable package.

Currently, an HBO subscription costs about $15 a month, and HBO splits the fee with cable and satellite TV providers since those companies are the ones that sell and promote the service. The HBO streaming service is expected to be priced at $13 to $16 a month, industry analysts said.

HBO Chief Executive Richard Plepler said the service would be an attempt to target viewers in the 10 million homes in the U.S. that have high-speed Internet but not a cable TV subscription. Consumers now must subscribe to a pay-TV package to gain access to HBO programming, whereas Netflix offers its service directly to consumers.

For now, analysts say they are not too concerned about the risk of cord-cutting by consumers.

"While pay TV is not a growth business, it's not a falling-off-the-cliff business either," Moody's Berckmann said.

"If people have to pay $6 for CBS and X amount for Netflix and then HBO, they might find that they are paying as much or more than they were for their cable package," she said.  "And if you want to get broadband Internet it costs more if you buy it separately than it does if you take it as part of a bundle."

Premium sports content is another reason people might cling to their pay-TV subscriptions.

Most media companies have huge financial incentives to protect the cable bundle, including the giants in sports programming — Walt Disney Co., which owns ESPN, 21st Century Fox, which this summer launched two cable sports channels, and NBCUniversal, which has the rights to the Olympics and is owned by cable giant Comcast.

ESPN, Fox Sports and NBC Sports all have rolled out applications to enable viewers to stream their sports content on digital devices. However, users must demonstrate that they subscribe to a pay-TV service to get the streaming rights to the ESPN and Fox Sports content.

CBS' newly launched Internet service provides streams of local TV stations, but it won't include video from NFL football games that CBS broadcasts, including "Thursday Night Football." That's because CBS doesn't have the rights to stream those NFL games.

"There are going to be rights issues with these different pieces of content," Lanzone said.

Follow me on Twitter: @MegJamesLAT

Times staff writer Saba Hamedy contributed to this report.

Copyright © 2016, Los Angeles Times
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