CBS (CBS, Financial) reported third-quarter results recently and met expectations. Revenues for the quarter were $3.26 billion versus $3.37 billion for the same period last year.
The revenue decline of 3% was "driven by 8% lower content licensing and distribution revenues, primarily from the timing of television licensing sales, and decreases in lower-margin revenues, including the nonrenewal of a sports programming contract and lower revenues from pay-per-view boxing events. Total revenues benefited from growth in network advertising, which increased 1% despite fewer sporting events broadcast on the CBS Television Network, as well as 50% growth in CBS Television Network affiliation fees ('station affiliation fees') and retransmission revenues.” Operating income was up 1% to $753 million, and EPS was up 19% year over year to 88 cents.
A big announcement that came out along with the quarterly results was that CBS would air a brand-new "Star Trek" television series in January 2017 to commemorate the show’s 50th anniversary. The first episode of the new show will premier on the CBS Television Network. All subsequent episodes will air exclusively in the U.S. on the CBS All Access streaming service which costs $5.99 per month. You can read more about the new series here.
Since the company is offering the new "Star Trek" exclusively on CBS All Access, I thought it would be interesting to guesstimate the amount of revenue that the show would generate in subscriber fees.
My first steps were to find a number of reference points.
- Netflix (NFLX, Financial) had 43 million subscribers as of the third quarter
- Showtime (owned by CBS) has approximately 23 million subscribers
- The Showtime figure in particular gives me a realistic upper ceiling for total potential subscribers
I then researched the most recent "Star Trek" film.
- In 2013, “Star Trek: Into Darkness” grossed $228,778,661 domestically at the box office
- The 2013 average movie ticket price was $8.13
- That means there were approximately 28 million viewings at the theater.
- This gives me an idea of how many people were interested enough to pay $8 for the last "Star Trek" movie.
My next step was to research statistics on previous "Star Trek" series. There are five existing versions of the "Star Trek" TV series: The original series, "Next Generation," "Deep Space Nine," "Voyager" and then "Enterprise." I chose “Next Generation” and “Enterprise.” I’m not a Trekkie so maybe this reasoning is off, but “Next Generation” seemed like the most popular out of the bunch. The “Enterprise” series was chosen because it was the most recent. It aired from 2001 to 2005.
- Per Trektoday.com, "Star Trek: The Next Generation" was tuned in by the following number of households during the below years.
- Fall 1987 to spring 1988: 8.55 Million
- Fall 1988 to spring 1989: 9.14 Million
- Fall 1989 to spring 1990: 9.77 Million
- Fall 1990 to spring 1991: 10.58 Million
- Fall 1991 to spring 1992: 11.50 Million
- Fall 1992 to spring 1993: 10.83 Million
- Fall 1993 to spring 1994: 9.78 Million
- Fall 1994 to spring 1995: 7.05 Million
- Fall 1995 to spring 1996: 6.42 Million
- Fall 1996 to spring 1997: 5.03 Million
- Fall 1997 to spring 1998: 4.53 Million
- Fall 1998 to spring 1999: 4.00 Million
- The premiere of “Enterprise” in 2001 had 12.5 million viewers.
Armed with the above reference points, I took a guess at incremental "Star Trek" subscription revenue. I’m assuming the new "Star Trek" will have 10 episodes per season. If aired on a weekly basis, that would span over three months.
Scenario 1 (bullish)
- Assuming some people will keep CBS All Access for an average of six months at $5.99 per month.
- This assumes that people will keep their subscriptions even after all "Star Trek" episodes air.
- 11.5 million subscribers. This seems like a good number given that the peak of “Next Generation” was 11.5 million viewers and the premiere of “Enterprise” was 12.5 million.
- $414 million for 2017
Scenario 2 (base)
- Assuming average of four months of subscriptions at $5.99 per month.
- Some people will stick around longer than the entire "Star Trek" series
- Some will watch all episodes as released and then cancel service immediately
- Others will binge watch and only pay for one month of service
- 8 million subscribers
- Piracy and password sharing risk taken into account
- $192 million for 2017
Scenario 3 (bear)
- Assuming average of three months of subscriptions.
- Some will watch all episodes and then cancel service immediately
- Others will binge watch and only pay for one month of service
- 6 million subscribers
- Piracy and password sharing risk taken into account
- $108 million for 2017
Final thoughts
As a CBS shareholder, I wanted to do a ballpark guess as to what the new "Star Trek" could add to the bottom line. The average "Game of Thrones" episode costs $6 million to make. The recently aired "Supergirl" pilot is rumored to have cost $14 million to make. "Star Trek" is the company’s crown jewel, and my guess is that CBS will invest heavily.
Let’s say the new "Star Trek" season 1 averages $6 million per episode and has 10 episodes for a total cost of $60 million. Taking my base case for subscription revenue and then subtracting episode costs ($192 million - $60 million) would net $132 million for 2017 domestic subscription income. That’s not taking into account other forms of monetization like advertising fees or international distribution.
As of the third quarter, there were 480 million shares outstanding which means that the new "Star Trek" would add 27½ cents to EPS if my assumptions are correct. That’s not bad considering that the current dividend is 15 cents per quarter. Of course, I’m guessing and might be way off base. I would be interested in reader feedback.
Disclosure: Long CBS
