CBS is dying while Netflix is Booming

The numbers are demonstrating that streaming video is the future of television. Ratings at America’s only standalone broadcast TV network CBS (NYSE: CBS) are in terminal decline while Netflix’s (NASDAQ: NFLX) subscription rate is growing like a weed.

The number of Netflix subscribers worldwide grew from 117.58 million in 4th Quarter 2017 to 125 million in 1st Quarter 2018, Statista calculated. Netflix’s global subscriber base grew by 26.25 million between 1st Quarter 2017 and 1st Quarter 2018. Netflix reported 98.75 million viewers at the end of 1st Quarter 2017, and 125 million a year later.

That might make Netflix the world’s most popular TV network. Netflix is also America’s most popular TV network right with 56.71 million subscribers in the United States. Note: YouTube is undoubtedly more popular than Netflix, but Netflix is more like a traditional network that commissions its owns shows.

Sorry Baby Boomers Broadcast TV is dead

In contrast the most popular network TV show, CBS’s Big Bang Theory had just 18.6 million total viewers, The Wrap calculated. The second most popular show, Sunday Night Football averaged 18.3 million viewers.

Weekly viewership is even worse CBS averaged nine million viewers each week during the 2017-2018 TV Season. That made the eyeball the most successful US broadcast TV network. It also had an audience that was less than one fifth that of Netflix.

More worrying is the way ratings are plummeting at CBS. The Big Bang Theory’s viewership; among the key 18 to 49 year old demographic, fell by 11.56% between the 2016-2017 and 2017-2018 TV seasons.

All but one of the CBS scripted series renewed from the 2016-2017 viewing season experienced double-digit drops in ratings, data from TV Series Finale indicated. Most of those series saw ratings drops of over 20%.

The suspicion that nobody besides aging Baby Boomers is watching network TV is being provided correct. CBS also has serious problems because it had one only hit; The Amazing Race, and only one scripted show that experienced a ratings increase in the under 50 demographic Mom.

The ratings indicate that CBS is no longer capable of sustaining an audience. Investors will have to ask if CBS is sustainable or viable business. The ratings indicate it might not be.

Is CBS Making Money?

Surprisingly, CBS is still a viable business from a financial standpoint. CBS reported $3.761 billion in revenues for 1st Quarter 2018.

More importantly those revenues grew at a rate of 12.5% between 1st Quarter 2017 and 1st Quarter 2017, Stockrow data indicates. CBS generated $3.257 billion in revenues in 1st Quarter 2017.

CBS did make some money off that revenue it reported a net income of $511 million, an operating income of $761 million and a gross profit of $1.361 billion for 1st Quarter 2018. That performance was far better than 1st Quarter 2017, when CBS reported an operating loss of -$114 million and a loss of -$252 million. CBS is able to squeeze some cash out of its business it reported an operating cash flow of $717 million and a free cash flow of $687 million for 1st Quarter 2018.

It is obvious that CBS shows are still generating advertising revenue even if they are losing ratings. A big advantage CBS has here is that its older viewers are major purchasers of some big ticket items including drugs and vehicles. CBS also stands to rake in a lot of money in political advertising this fall.

The inability of advertisers to monetize streaming video, Proctor & Gamble (NYSE: PG) dropped YouTube last year also makes CBS’s network a little more valuable. So yes CBS is still making money and generating enough revenue to keep the network operating for another few years.

Netflix is Making a Little Money

CBS is doing better financially than Netflix which is making just a little money from its incredibly expanding platform.

Netflix reported an operating cash flow of -$236.76 million and a free cash flow of $-$284.72 million for 1st Quarter 2018. Despite those figures Netflix managed to generate a net income of $290.12 million and operating income of $446.58 million from $3.7 billion in revenues during 1st Quarter 2018. That gave Netflix a gross profit of $1.504 billion.

It looks as if Netflix’s massive digital platform has finally begun to pay for itself. That’s problematic for CBS, because Netflix’s operation and expansion costs are lower than CBS’s. There are no commercials, no stations, no news department, and little need for production facilities.

A greater problem is that Netflix can add programming at the touch of a button. If CBS cancels a popular show, Netflix can simply pick it up in a second. For example Netflix just picked up the weird Fox series Lucifer for a fourth season after Fox cancelled it.

That practice might force networks like CBS to keep making low-rated shows to keep Netflix or Amazon from picking them up. It might also force CBS to keep some turkeys going on its digital streaming service just to keep them off Netflix.

The rumors are true, broadcast TV, the problem is that CBS has not figured that out yet. The great problem facing CBS and the other broadcast networks will be how to wind down broadcast TV in a profitable manor. CBS might have solved that problem.