Star Trek Discovery has been greenlit for a second season, so set your mind at ease.

However, before that happened, we found an analysis of the business model CBS appears to be using for its subscription service that made us wonder if it would happen. Here’s the breakdown:

It should surprise no one that while Star Trek Discovery was a big hit with the fans on its big debut night on September 25, 2017, the service handling its distribution is not exactly a hit with those same fans.

On Rotten Tomatoes, 87% of the critics liked it! Hurray! But only 65% of the fans did. The difference between the two can be accounted for by remembering that the critics are trying to do their level best to review the show itself without taking difficulties in actually viewing it into account. The fans are under no such restriction. Still, the Trek fans were very happy that there is finally new Star Trek in the world. And  for a brief, shining moment, it was. Now it’s not.

The reasons why may surprise you. Here’s how it all works.

CBS All Access is Tiny

[su_note note_color=”#70bcf3″ radius=”17″]A common response to this that we’ve encountered is that CBS says it’s had the biggest jump in new subscribers ever, on the night of the premiere. However, note carefully that they’re not saying exactly how big that jump was. When a company does a press release like this, without actual numbers, it’s always because posting the numbers would be bad. They did not pick up millions of new subscribers – more like a few hundred thousand.[/su_note]

Let’s start with how small CBS All Access actually is. An article in Variety from February 17, 2017 put CBS All Access subscribership at a bit less than 1.5 million subscribers in February of 2017. They claimed to have “almost doubled” that number, which means that they’re at not quite 3 million now.  with the vast majority of those present before the big push running up to the premiere of Star Trek: Discovery.  Since CBS seems focused on a U.S. marketing strategy (handing off Trek’s replay rights for the rest of the world to Netflix), let’s focus there too for a moment.

There are about 96 million customers of multichannel video programming distributors (MVPDs) in the United States. Most of them subscribe to services like Direct TV or Comcast.  There are about another 2 million subscribers of internet based services like SlingTV, Playstation Vue, and Hulu.

Now we can estimate just how much CBS is actually making from CBS All Access. CBS’ Les Moonves recently said that CBS gets paid “over $2” for each MVPD customer per month.

Now here’s where it boils down to actual numbers we can use: if CBS keeps about half of this money, it adds up to about $1.2 billion a year, which is pretty close to their public statements that the money they got from reselling their content was $1 billion in 2016, and rose 25% in the third quarter of 2017 over the same quarter last year. That means that CBS All Access membership has grown by roughly 500,000 subscribers.

While that seems like a big jump, compared to a total U.S. market of 96 million, it’s not — especially for a streaming service that’s been around for three years to date. Now pile on the advertising and infrastructure costs, and CBS All Access starts to look considerably less profitable than it would be just to license the shows to other services directly.

CBS All Access is a Negotiating Tool and Not A Real Business

So why in the world would CBS build all this in the first place, if it can’t possibly perform as well as direct licensing?

CBS All Access gives them a bargaining chip when talking with the cable and satellite companies. We can’t be in the room where it happens, but imagine a conversation between DirectTV and CBS on a monthly fee that DirectTV has to pay to CBS per subscriber.

DirectTV is going to start the conversation with something like “Why should we pay any more than ten cents a month per subscriber if all your stuff can be gotten for free by anybody with an antenna?”

See where this is going? CBS can now come back and say, with spreadsheet in hand, “Our subscribers pay between $5 and $10 a month, so let’s start there.”

The bargaining power this gives CBS is worth far more than everything CBS has put into their service, but they needed a tentpole to show that they had at least some compelling content that was driving customers to their service, or the argument would fall flat. Most of the CBS All Access portfolio is archives of shows that haven’t been on television for ten years or more.

Whither Star Trek Now?

So they got Netflix to pay for their tentpole, which they now get to keep and exploit as they see fit. They’ve basically talked Netflix into giving them free, permanent content. Netflix is no longer part of the equation as they’ve paid their money and gotten their value for it. The goal was never to make Star Trek and make a pile of money from it – it was to build up the paper tiger just enough to boost CBS’ overall bottom line. If anybody was wondering exactly how Star Trek was going to make CBS money even though it was put behind the paywall of a service that relatively nobody uses, this was how. They can expect to push company revenues up by about 10% to 12% a year, and they paid basically nothing to do it.

If you look at the price versus selection ratio, CBS All Access pricing is pretty poor, but CBS basically doesn’t care. It’s being run to break even, not make a profit. The profit comes in negotiating better prices for the rest of their catalog through other services. That’s the profit center in all this, and that’s why they needed something like Star Trek: Discovery in their stable. It didn’t have to be Trek specifically, just something big. Like the next Baywatch, or a TV series based on Fast and Furious, just anything to get people to sign up. It just happened to be Star Trek.

While we’re on it, there are a lot of rumors flying around about how Discovery is greenlit for Season 2, that they’re prepping for Season 3 already, that it’s planned to run for several seasons, and all sorts of other claims. Unfortunately none of those rumors are currently true. In a Hollywood Reporter article on September 26, Star Trek: Discovery producer Alex Kurtzman tells his interviewer that while they’re planning Season 2 now, there is currently no agreement to proceed.

The money quote here from Kurtzman is as follows:

We have a larger picture for season two — if we’re lucky to get a season two order.

It was never about the Star Trek fans, nor even about the money they could make directly from them (which is fairly insignificant, see our previous article), just the foot traffic they represented. CBS needed to identify a really strong property that they had the rights to that would generate a subscriber spike. Star Trek was it.  CBS head exec Les Moonves has said, 

I think Star Trek is the type of show that could bolster CBS All Access and put it on perhaps the same footing as Netflix or Amazon…[Star Trek’s fans] are some of the most passionate fans in the world, and we can see millions of them joining All Access.

They did not get millions, of course, but the language here is clear. Moonves is a businessman, and a shrewd one, and figured out how to play both Netflix and the fans themselves to improve his bottom line. It simply does not matter that millions of Trek fans are not flocking to the CBS All Access platform. They only needed some, and they don’t even need them all at once. The job is effectively done. Mission accomplished.

That’s why there’s no particular pressure to commence with a Season 2 of Discovery, and as mentioned above, Season 2 currently does not have a green light. CBS will be quite happily tooling up their replay sales over the next two years just based on what they already have. Even if they do greenlight the next season, Kurtzman is on record as saying that we won’t see any of it until at very least the first quarter of 2019, and probably not till the second quarter, assuming it happens at all. The longer we wait to hear, of course, the worse the odds. These things have a certain momentum, and if they wait too long, the moment will be lost, and they’ll move on to the next shiny object.

The technical information in this article, by the way, came from TVGrimReaper’s detailed breakdown of the economics of the situation. Follow this link for a more complete analysis.

Update: Second Season is a Go

Despite our apparently greatly misplaced pessimism, the second season of Star Trek: Discovery has finally gone through. We’re appropriately contrite over our lack of faith, but there is still no indication that it will be watchable by anybody in the United States without a CBS All Access subscription. Netflix apparently believes it is doing well enough for it to bankroll a second season, and so it will reach the rest of the planet via Netflix in 2019 as originally envisioned.

The green light not withstanding, the analysis of the CBS All Access business model provided by TVGrimReaper seems to us to still be very sound.


Gene Turnbow

Gene Turnbow

President of Krypton Media Group, Inc., radio personality and station manager of Part writer, part animator, part musician, part illustrator, part programmer, part entrepreneur – all geek.