by VINCENT LETANG. Published by RTL ADCONNECT on July 12, 2018.
2017 may go down as a tipping point: a year when several existing trends in media consumption and TV advertising market reach tipping point and suddenly accelerated. The U.S. television industry is facing unprecedented challenges and uncertainty as the media ecosystem is going through complex, rapid transformations.
Cord-Cutting: The Cable slump.
The near universal availability of smartphones and over-the-top TV connections are causing dramatic changes in media behavior, and it’s no longer restricted to younger generations. The rate of “Cord Cutting” – households cancelling their subscriptions to cable/satellite pay TV (Multichannel Video Providers Distributors or MVPDs) – suddenly accelerated in 2017 as the MVPD industry lost more than 3.5 million households (dropping from 100.5 to 97 million homes). MVPDs and broadcasters have designed “skinny bundles” of cable networks, available online (e.g. Dish’s “Sling”), to win back cord-cutters with the concept of linear TV bundles. They’ve had some success, but it did little to mitigate the decline in the penetration and reach of many cable networks in the last three years.
Linear TV: low consumption, high ad demand.
The decline in linear TV consumption continued in 2017. Typical ratings on broadcast networks are half of what they were just five years ago, and, by the end of the current broadcast season, MAGNA expects the average primetime rating (adults 18-49) to be under 1.0. In 2008, the average American between 18-49 was consuming 35 hours of video entertainment per week, 32 hours of which were live television (an all-time high). In 2018, Americans consume 55 hours of video on various screens, live linear TV down to 18 hours, while on-demand video consumption is growing (64% of households subscribe to at least one SVOD service).Meanwhile, the demand from advertisers remains robust. In fact, in 2017, a number of TV-centric verticals (food, drinks, personal care, pharmaceuticals, film releases) not only maintained the share of national television in their advertising budgets but increased it. Shrinking supply and stable demand mechanically leads to CPM inflation and, indeed, we’ve seen CPMs grow by an average of 10% per year across national TV over the last five years. In a good year (e.g. 2016) double-digit CPM inflation would offset double-digit rating deflation, stabilizing advertising revenues as a result. But that wasn’t the case in 2017 as the ratings crisis worsened.
Cyclical Ad Spend Rescues TV Revenues.
National television advertising sales were down -2.2% at $42 billion last year, according to MAGNA estimates (excluding the incremental ad sales generated by cyclical events e.g. Summer Olympics of 2016). No industry segment was spared: English-speaking broadcast networks’ Net Advertising Revenues (NAR) decreased by -3%, Spanish networks by -7%, and cable networks by -2%. Local television ad revenues declined by -14% at approx. $20 billion, mostly due to the lack of political spending (following the election cycle of 2016) but non-political ad sales decreased too, by approx. -4%.This year (2018), MAGNA anticipates that television broadcasters and stations will benefit from additional ad spend generated around cyclical events: Mid-Term elections ($3 billion of political spend), Winter Olympics (600 million) and FIFA World Cup (200 million). This will help national TV stabilize its ad revenue (+0.2%) and local TV grow its ad sales by nearly 10%. Television sales houses can mitigate the stagnation in traditional linear ad sales by better monetizing digital on-demand viewing platforms (e.g. Hulu and Full Episode Players on mobile devices and OTT). MAGNA estimates TV advertising sales houses generated approx. $1.7 billion of NAR from those platforms in 2017 (+12%). That growth, however, is not enough to offset the bigger erosion in traditional TV ad sales and stabilize total, cross-screen television advertising revenues.
In terms of programming there have been few winners in the 2017-2018 season so far. The number one show was, yet again, The Walking Dead on AMC. The Walking Dead made television history in 2012 when it became the first cable show ever to top the year’s ratings, beating broadcast shows. However, with an average rating of 3.4 (live+same day, ages 18-49 with 7.8 million viewers – 11.7 million when adding DVR), season 8 was down by -30%, showing that not even popular shows are immune from the general and dramatic fall of ratings.The reboot of Roseanne on ABC in March 2018, bringing back the same cast 20 years after the first series, was the top rated new sitcom this year. It’s been the most successful reboot by far in the long list of trials over the last few years (X-File, McGyver, Will and Grace, Hawaii 5-0, 24 etc.). The Roseannereboot also made headlines as an attempt to target white working class families who, some have argued, had been under-served by TV programming in recent years while several shows focused on minorities with some success (ABC’s Black-ish and Fresh Off the Boat). Roseanne was nevertheless cancelled by ABC in May, following a racist tweet from the star of the show Roseanne Barr. That was the latest example of television programming getting embroiled in the bitter “culture war” and toxic political environment affecting the US in the last two years, as Roseanne Barr, a left-leaning working-class actress twenty years ago, went on to embrace Donald Trump’s politics and rhetoric.Among other successful new shows are The Good Doctor on ABC (highest rated new drama) and Young Sheldon (a Big Bang Theory spin-off) on CBS. Meanwhile, the highly emotional drama This is Us on NBC remains the second highest rated show on broadcast TV and one of the very few shows whose ratings grew over the previous season despite the general ratings erosion.
Traditional Media Consolidates Against the “Duopoly”.
2017 also kicked off an unprecedented wave of mergers and acquisitions in the television industry, which remains, for now, less concentrated than most European media landscapes. ATT/DirecTV just won the court approval to acquire Time Warner (Turner, HBO, Warner Bros, etc.) for $85 billion, despite the opposition of the Department of Justice (DOJ), and this decision is likely to trigger more consolidation in the industry. Producers and broadcasters of premium television and movie content need to increase scale to fend off the multiple threats of Netflix, YouTube and Facebook. Disney seems set to win a bidding war against Comcast/NBCU to acquire most of Fox’s assets for $71 billion, after getting approval from the DOJ. The Burbank company is keen to strengthen its catalogue before launching its SVOD service in 2019, when Disney movies and series will no longer feature on Netflix. Discovery bought Scripps. Meanwhile the MVPD sector has consolidated around Comcast, Charter and ATT (66% of the combined market share) and local television has consolidated around Sinclair.
“Advanced TV” advertising sales in 2018
In the works: Advanced TV and Real-Time Monitoring.
A consolidated television industry may have the resources and scale to successfully develop new, more sophisticated advertising products which would enable brands to leverage consumer data in linear television campaigns, as they do today with digital media formats. MAGNA forecasts that “Advanced TV” advertising sales will grow by +40% this year to reach $2 billion. That includes 800 million dollars in household-addressable linear dynamic insertion campaigns served by MVPDs through set-top boxes on the two minutes of cable network airtime that they control (enabled in 52 million households). Meanwhile, smart TV manufacturers (Samsung) and system operators (Roku, Sorenson) are developing the capability to serve targeted commercials alongside or within linear TV feeds, with real-time monitoring. This will allow any television provider to offer addressable campaigns and tap into “programmatic” ad budgets, beyond the traditional two minutes of locally-inserted commercials on cable networks.