CBS explores the digital frontier with ‘Star Trek: Discovery’

When CBS Corp. launched a stand-alone streaming service three years ago, some analysts wondered why consumers would spend nearly $6 a month to watch a TV channel that they could get over the air for free.

CBS soon will answer that question by making its big-budget bet, “Star Trek: Discovery,” available exclusively on its CBS All Access streaming service. The pilot episode will air on the CBS broadcast network Sunday night but after that, fans must sign up for the streaming service to see subsequent episodes.

CBS is, to borrow a Trekkie phrase, boldly going where no broadcast network has gone before by placing one of its highest profile and most expensive programs on a digital platform that reaches just a fraction of the network’s audience. The gambit illustrates just how quickly the rules of television are shifting. If the experiment works, CBS could be at the forefront of a new trend, particularly as Walt Disney Co. and others create their own streaming services to capture viewers who have been turning away from linear television in favor of Netflix and Amazon.

“The changes are happening so rapidly,” CBS Chief Executive Leslie Moonves said Friday. “Streaming is going to be a big part of our future — and the future of television — and it is important to have premium content.”

CBS isn’t the only traditional media company testing the streaming waters. HBO, Starz and CBS-owned Showtime all have direct-to-consumer offerings. Disney plans to roll out an ESPN-branded subscription service next year, and a Disney entertainment option in 2019. CBS is planning a sports offering, which could be ready in a few months. Meanwhile, 21st Century Fox’s FX channels have been exploring new ways to deliver their premium content to cable subscribers.

“You’ve got to grow and change if you want to be successful in this business,” said FX Networks Chief Executive John Landgraf, who has been working with pay-TV operators to offer an ad-free FX+ channel featuring such FX titles as “The Americans” and “Sons of Anarchy.”

The experiments come as consumers have been ditching their jumbo pay-TV packages in favor of smaller bundles of TV channels or streaming services such as Netflix and Hulu.

As traditional audiences scatter, and TV ratings fall, networks are under pressure to mine new revenue streams so they can continue to produce high-quality and expensive original content.

“CBS always considered ‘Star Trek’ to be one of the crown jewels of the company,” said Jim Lanzone, chief digital officer for CBS Corp. “It’s a big investment but we wanted to do it right.”

“Star Trek: Discovery,” was “the perfect asset,” to elevate CBS All Access, Moonves said. CBS launched the streaming service in 2014 with modest expectations, viewing it as a complement to the flagship broadcast network, which is available in more than 110 million homes in the U.S. CBS All Access currently has about 2 million subscribers, but that number is expected to double within two years as it adds more original content.

“Star Trek: Discovery,” which costs about $8 million an episode to produce because of its large cast and elaborate special effects, should help lure new subscribers, analysts say.

“It’s a really smart strategy,” said Doug Creutz, media analyst with investment firm Cowen & Co. “It’s important to have exclusive content for these services — you need a few things that people can’t get anywhere else.”

“Star Trek” has a built-in base of curious, digitally savvy fans. In recent weeks, some have taken to the internet to watch trailers and dissect the new look of the series and fret over the fact that, in this incarnation, Klingons have no hair — not even eyebrows.

CBS sold the international rights for “Star Trek: Discovery” to Netflix, which agreed to pay CBS about $6 million an episode. That rich license fee enabled CBS to produce a high-end program for the digital service without losing a lot of money.

“Star Trek: Discovery” is set around the year 2255, a few years before Capt. Kirk helmed the Enterprise in the original NBC series that ran from 1966 to 1969. The latest installment features an African American actress, Sonequa Martin-Green, in the leading role as well as the first gay couple in the long history of “Star Trek” spinoffs.

Showcasing “Star Trek: Discovery” on the streaming platform rather than the flagship broadcast network has other advantages. The digital version can be serialized, a format that works better in the streaming world where viewers prefer to binge episodes, rather than on old-school network TV.

And “Star Trek has had a mixed track record in drawing big audiences on television,” Creutz said. “But there is a passionate fan base and if CBS can get a couple million devoted ‘Star Trek’ fans to sign up for this service, that will be great.”

CBS has long been an outlier among the big broadcast networks in its digital strategy. The New York-based media company remained on the sidelines a decade ago when rivals Fox and NBC formed the online TV venture Hulu as a digital outlet for their prime-time shows. Disney also joined Hulu’s ownership group, and last year, Time Warner Inc. acquired a stake.

All the while, CBS maintained its independence, which gave the company the freedom to tailor its own digital strategy.

CBS All Access wasn’t meant as a replacement for traditional TV — or a motivation for consumers to cut the pay-TV cord. It was originally designed as an online extension for heavy users of TV, a group that CBS calls “super fans.” Viewers could catch up on current prime-time shows, such as “NCIS” and “The Big Bang Theory,” or rediscover classics from CBS’ deep library, including “Cheers,” “The Brady Bunch,” “I Love Lucy” and “Perry Mason.”

“The service has exceeded our expectations ... but it is early days,” Lanzone said.

The service got a lift late last year when CBS added NFL football games. Now, about 30% of the platform’s viewership is for a live feed of a local CBS station, including news and football. Last Sunday marked one of the busiest sign-up days as new subscribers wanted to watch NFL football and the prime-time Emmys award show.

Three-quarters of the subscribers watch the content on connected televisions, such as Apple TVs and Roku devices, which demonstrates that most people still want to watch premium shows on a big screen. The median age of the audience is around 40 — about 20 years younger than for the broadcast network.

In addition to the standard option with commercials, subscribers can select a $9.99-a month ad-free plan. CBS announced that it would offer All Access in Canada next year, and Australia after that. The company also plans to incorporate its 24-hour digital CBS News into the streaming service.

Although it might seem counterintuitive to encourage people to find alternatives to traditional TV, CBS has a financial incentive.

The company collects $5.99 a month from its digital subscribers, compared with nearly $3 a month per customer home from cable and satellite-TV companies that pay for the right to retransmit the signals of CBS-owned stations.

“That is significantly more profit than what they get from cable operators,” Creutz said. “If the cable bundle really does fall apart, then CBS has a backup plan that’s all ready to go. Whatever the future holds for this industry, they are prepared.”

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