Viewer Watch 2018: Why TV’s Golden Age Isn’t a Gilded One

As viewers and advertisers shift to streaming, expect the disruption to continue apace
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In yet another sign that digital media has firmly come of age, digital advertising is expected to hit $95.2 billion in 2018, easily eclipsing the $64.0 billion that will be spent on TV.

And the digital advertising industry is expected to hit $124.6 billion by 2021 — just three years from now — more than doubling the TV advertising market, according to forecasts from Magna Global.

“The economy is doing well, the stock market is high and consumer confidence is good, so total ad sales are coming in higher than expected,” Magna senior analyst of market intelligence Michael Leszega said. “But when you look closer at the various media, the outlook is not as good. More than 100% of the gain is coming from digital media, and traditional media are declining more than expected.”

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Video streaming has also firmly established itself as a mass-market phenomenon. Consulting giant PwC predicts total over-the-top/streaming revenue from subscription video-on-demand and transactional viewing will hit $15.3 billion in 2018, while Magna estimates the digital video ad spend will vacuum up another $11.3 billion. That combined total of $26.6 billion exceeds the $23.1 billion PwC expects will be spent on cable network advertising.

“Streaming SVOD services, OTT video … are all part of the way consumers watch video and now a major part of the business,” Howard Horowitz, president and founder of Horowitz Research, said.

Maturity also brings new responsibilities and some thorny problems.

Fake Data?
For one, data on digital media usage has its downsides, to be sure. In addition to the hue and cry over charges that digital media platforms such as Facebook and Twitter had endangered democracy by profiting from the proliferation of “fake news” in 2017, ad agencies and advertisers also launched pointed critiques of existing digital measurement and some of the entrenched business practices of both Google and Facebook.

In 2017, those complaints prompted a number of major brands to pull ads from Google’s YouTube after reports of their ads showing up alongside extremist videos; both Google and Facebook also came under fire for the accuracy of their data. Separate reports from Pivotal Research Group and the Video Advertising Bureau (VAB) claimed Facebook had greatly overstated the reach of its ads.

The VAB report noted that Facebook metrics showed its ads reach more people in every state than the actual population of those states.

Meanwhile, there were some encouraging signs that more traditional TV players were taking major steps to better compete with digital media, improving ad sales measurement and digital products for dissatisfied pay TV subscribers and revamping their technical infrastructures.

On the ad side, “TV is battling back against Google and Facebook with new studies showing the effectiveness of TV,” Jane Clarke, CEO and managing director of the Coalition for Innovative Media Measurement (CIMM), said. “They’re saying we can show some of the same data for TV that digital can.”

Read More:Download the Complete Viewer Watch 2018 Report

Multichannel video programming distributors are also working to operate more like digital companies, with next-generation set-top boxes and video offerings, such as Comcast’s X1 platform.

“There is so much great content being produced inside and outside of pay TV,” Comcast Cable vice president of entertainment services Daniel Spinosa said. “So our No. 1 focus has been to bring all that content together” with the cloud-based X1 platform that allowed the operator to offer Netflix, YouTube, Pandora and other OTT content on the same platform as its pay TV lineup.

Similar thinking can be found at Atlantic Broadband. Heather McCallion, vice president of programming at the Quincy, Mass.-based operator, said its 2013 decision to launch the next generation of the TiVo platform has allowed Atlantic to launch OTT apps such as Netflix and offer greatly improved search, she said.

“As customers’ perception of a traditional video product dramatically changed, we had to rethink our view of the video product,” she said.

Flanker Brands
Some operators have also capitalized on the rise of OTT video by launching their own virtual MVPDs, such as Dish Network-owned Sling TV and DirecTV Now from AT&T’s DirecTV.

“With Dish and Sling, we basically have a product for everyone,” Sling vice president of product marketing and management Jimshade Chaudhari said, allowing Dish to reach consumers who want a traditional pay TV experience with satellite TV and cord-cutters with Sling.

Read More: Viewer Watch 2016-2018

Hulu’s expansion from a library of on-demand offerings to include live channels has also tapped into growing consumer demand for streaming media, vice president of product Richard Irving said. “We have seen a 98% increase in signups since we launched the live product,” he said, along with greater usage. “Since the launch of the fall season, with the new network programing and football, we seen a 70% increase in viewership of live content.”

CBS Interactive reported that use of CBSN, its 24-hour streaming news service, was up 35% in the first three quarters of 2017, CBSI president and chief operating officer Marc DeBevoise said. The jump was particularly notable given the record-breaking news audiences since the 2016 presidential election.

OTT services are exposing younger viewers to established TV brands. SVOD service CBS All Access, which has more than 2 million subscribers, has an average viewer age of 43; the average age of CBSN viewers is 38.

“The two products are really younger than the typical audiences and, in that respect, it strengthens us for the future,” DeBevoise said.

More of the Same
The success of some operators and programmers in streaming video doesn’t mean the age of digital disruption is over, though.

“No one likes to hear this, but the pace of disruption is just accelerating,” Magid Advisors president Mike Vorhaus said, citing survey data showing 6.1% of pay TV subscribers intend to cancel their video subscription in the next 12 months and not get a new one, up from 1.9% in the 2011 survey. “That’s the highest percentage we’ve seen,” he said.

Others agree that the decline in pay TV subs is accelerating, but disagree about what that might mean. “The first quarter, second quarter and the third quarter all had rates of decline that were higher than a year earlier,” SNL Kagan research director Ian Olgierson noted. “We haven’t seen those kinds of losses before. We’re plowing new ground here.”

However, SNL Kagan doesn’t include virtual MVPDs like Sling TV in its pay TV subscriber count.

“If we don’t include those virtual MVPDs, it creates a more dramatic decline and a very different narrative about the industry’s future,” Leichtman Research Group president and principal analyst Bruce Leichtman said.

Magna, for instance, predicts there will be only 74.7 million traditional pay TV homes in 2021. But add that figure to its forecast of 28.9 million virtual MVPD subscribers, and the total count of 103.6 million households in 2021 is actually higher than the 100.9 million total pay TV subscriber count reported in 2012.

Even so, the economics of the industry are worrisome.

“This is certainly the golden age of TV and continues to be,” Horowitz said. “But the finance guys are saying, ‘We aren’t seeing that. We are pulling our hair out on how we can make money on our business models.’ ”

Big Brand Woes
One big factor is the health of the TV ad market. “The top 200 advertisers that are 90% of network spending and 60% of all TV are struggling right now,” Pivotal Research Group senior research analyst for advertising Brian Wieser said. “You have what I suspect is a perpetual weakness and that is something the industry needs to be thinking about.”

Other problems stem from the economics of streaming media.

Major players are reporting rapid increases in the use of streaming video in the third quarter. In the third quarter of 2017, Roku reported that its active accounts hit 16.7 million, up 48% from a year ago. Streaming hours were up 58% year-over-year, to 3.8 billion.

Researchers such as Nielsen are also reporting big spikes in usage. “Adults are watching about the same amount of video as they had in the prior year, about six hours a day, but there is a shift in how that video is being accessed,” Nielsen executive vice president of client solutions and audience insights Sara Erichson said.

About 60% of U.S. homes have an SVOD service, Erichson noted. “For the first time, more homes have an SVOD service than a DVR, which is a real milestone,” she noted.

In contrast, Nielsen data shows a decline in the amount of time spent with traditional live and on-demand TV viewing by viewers 2 and older, from 29 hours and 18 minutes a week in second-quarter of 2016 to 27 hours and 44 minutes in Q2 2017.

The rise of streaming has been good for some OTT providers, such as Netflix, which had a market cap of around $82 billion in mid-December. But its profits remain skimpy. “Netflix has everyone in a tizzy,” Leichtman said. “It has a market cap bigger than Time Warner. But does that model actually work for another company? I think it is a very challenging model.”

These changes are also putting stress on the economics of programmers and producers.

Todd Supplee, a partner with PwC’s Entertainment & Media practice, said that on the production side, “the growth of OTT and streaming services are generating new demand for content,” with Amazon expected to spend about $4.5 billion in 2017 and Netflix planning to spend $8 billion on content in 2018. But the proliferation of these services accelerates ongoing audience fragmentation, making it harder for networks to build brands or fund new content.

“The whole cost model of production has to change,” he said.

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