Showtime Networks does not make money through TV ads but rather through charging subscriber fees to cable companies like Time Warner and Comcast. Now why is that important? The recent deal between Fox and Time Warner Cable is indicative of how the erosion in TV ad dollars has led to changes in the long-established broadcast TV revenue model. Sustaining a broadcast network solely on ad dollars is becoming more challenging leading networks like Fox to now demand an additional revenue stream in the form of subscriber fees charged to cable companies. Other broadcast networks (CBS, ABC, NBC) face challenges similar to those at Fox.
CBS is particularly exposed to fluctuations in TV ad pricing since it is less diversified compared to other media conglomerates (Disney, News Corp). The CBS broadcast network accounts for nearly one third of CBS’s stock value. Showtime Networks, which makes money by charging cable companies, helps to reduce the sensitivity of CBS’s stock to TV ad pricing.
We expect Showtime’s average subscriber fee to rise from current estimates of $1.84 to $1.95 by the end of our forecast period driven by more exclusive programming on Showtime that will attract new subscribers.
