Needham: CBS Is Building The Next Netflix

CBS Corporation CBS could be sitting on the next Netflix, Inc. NFLX and it hatches in 2020.

That’s the take from Needham analyst Laura Martin, who said in a Wednesday note that the firm projects that CBS’s All Access streaming service and Showtime’s over-the-top channel will reach more than 8 million subscribers by 2020.

All Access and Showtime could generate revenue of $1.2 billion in 2020. Using Netflix’s 6x revenue multiple, this would equate to almost 30 percent of CBS’s market capitalization, Martin said.

Needham maintains a Buy and $80 price target on CBS.

The Eye Network is believed to have a “nesting strategy” for its OTT portfolio, according to Needham.

All Access includes entertainment, news from and sports; CBS Sports, which has been announced but has not gone live, is a “silo within news,” Martin said.

“In every case, CBS has this programming already but is not monetizing it,” Martin said, adding that OTT “gives CBS the ability to generate revenue from a historical cost center.”

An Emerging Player In Streaming

CBS’s over-the-top services have a “hidden value,” Martin said.

All Access has cost $6 per month since its launch, but has added more content since then: 6,500 episodes from the CBS library, the NFL and 98 percent of affiliate programming, according to Needham.

By 2020, All Access is projected to produce roughly five original television series of about 10–13 episodes each, Martin said (see her track record here).

“We expect that CBS will release one episode per week on its OTT services and start a new original series one to three weeks before another series ends. This maximizes the likelihood that consumers pay the bill every month for a year.”

Content is the driver of new subscriptions for CBS, according to Needham. The addition of NFL rights to the All Access service was estimated by the research firm to have driven 75 percent year-over-year subscriber growth.

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