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CBS All Access to expand footprint to Canada, other global markets in 2018

With its CBS All Access and Showtime OTT streaming services pacing to exceed five-year subscriber projections, CBS Corp. will push the former into international markets in 2018, and will also introduce a streaming sports service by year-end.

CBS Chairman, President and CEO Les Moonves, speaking on the company's second-quarter earnings call Aug. 7, told analysts that CBS All Access and the Showtime / TMC / Flix (US) OTT service are set to exceed a combined 4 million subscribers by year-end and the company, which is only in the second of five-year plan that it detailed in March 2016, is already "more than halfway to our goal of 8 million subs by 2020, which is obviously quite conservative now."

Moonves said the services are only starting to hit their stride with more programming to come on CBS All Access in the way of the new "Star Trek: Discovery" series, which is scheduled to lift off next month, the sophomore season of "The Good Fight," and three new other original series, in addition to access to CBS’s current fare and content library.

That expanding content base will be available in Canada in the first half of 2018, before CBS All Access becomes accessible in other countries and continents shortly thereafter. Moonves said CBS is very aware of the success Netflix Inc., which he said has some 50 million international subscribers, is enjoying abroad, and wants to tap international opportunities.

The subscription costs $5.99 a month in the U.S., with a commercial-free tier available for $9.99 a month. CBS will announce prices for non-U.S. markets in the future.

At Showtime, Moonves said the upcoming pay-per-view matchup between Floyd Mayweather and Conor McGregor will be sold directly to consumers, marking the first time a PPV event will be available on an OTT basis. He said consumers, even if they are not Showtime subscribers will be able to order the fight from the network’s app or web site and they will then receive a free trial to Showtime OTT, which he said will drive new subscriber growth.

Encouraged by the success of its digital news service CBSN, which saw its streams jump 38% in the second quarter and is now broadening its reach as part of CBS All Access and as a stand-alone channel in skinny bundles, CBS plans to kick off a new 24/7 streaming sports service later this year.

Details were scant about the yet-to-be named service, but Moonves noted the company holds rights to the NFL, college basketball and football, including the Southeastern Conference, and PGA golf.

Total revenues during the second quarter, ended June 30, reached $3.26 billion, up from $2.98 billion in the second quarter of 2016.

A breakdown of revenues by type shows that advertising increased to $1.30 billion from $1.25 billion. Affiliate and subscriber fees climbed to $848.0 million from $733.0 million, while content licensing and distribution revenues advanced to $1.06 billion from $943.0 million.

At its entertainment segment, comprising the network, CBS Television Studios, CBS Studios International, CBS Television Distribution, CBS Interactive and CBS Films, second-quarter revenues grew 12% to $2.18 billion from $1.95 billion in the prior-year period. The growth was driven by a 38% rise in sub fees tied to higher station affiliate fees and gains from CBS All Access.

Ad revenues improved 6%, stemming from the broadcast of the NCAA basketball tournament's semifinals and national championship game on CBS (US). Content licensing and distribution revenues advanced 12%, benefiting from more licensed TV activity, despite a comparison that reflected international licensing sales of five "Star Trek" franchises.

On the cable side, composed of Showtime Networks, CBS Sports Network (US) and Smithsonian Networks, revenues increased 7% to $571.0 million from $536.0 million. The results here were boosted by higher affiliate and subscriptions fees, led by Showtime’s OTT offering, as well as higher international TV licensing sales of the premium network’s original series.

Local media, the CBS TV stations and CBS local digital media, registered a 4% gain to $412 million from $396 million a year ago, buoyed by higher retransmission revenues. Local ad revenues slipped 2%, reflective of lower political sales, offset to some extent by the aforementioned "March Madness" basketball matchups.

Publishing revenues in the period grew 10% to $206 million from $187 million for the same prior-year period. The increase at Simon & Schuster reflected gains in both print book and digital audio sales. Best-selling titles for the second quarter of 2017 included "Lord of Shadows" by Cassandra Clare and "I Can't Make This Up" by Kevin Hart.

The company reported a year-over-year drop in second-quarter net earnings to $58 million, or 14 cents per share, from $423 million, or 93 cents per share, in the comparable 2016 period. Results reflected a noncash charge of $365 million in discontinued operations to reduce the carrying value of CBS Radio to the value indicated by the stock valuation of Entercom Communications Corp.

Entercom earlier this year agreed to combine with CBS Radio in a pending tax-free merger. CBS Radio is currently classified as held for sale by CBS Corp. CBS COO Joe Ianniello said on the call said the deal is on track to close in the fourth quarter, as the Federal Communications Commission has completed its review of current filings and the parties are awaiting Department of Justice approval.

The second-quarter S&P Capital IQ consensus estimate for GAAP EPS at CBS Corp. was 98 cents.