Who's the 800lb gorilla of TV?
Updated: Dec 23, 2018
The death of broadcast TV has been one of the most overhyped narratives of recent times, with most focusing on the rise of Netflix at the expense of traditional terrestrial and pay TV. This post sees if the numbers stack up, and how TV's traditional advantages are holding up to this massive change.
It's worth noting at the outset that not everyone is doom and gloom about broadcast's future. Michael Nathanson has been arguing for perspective for some time, observing that “Currently, Netflix is a source of industry pain, but not necessarily a cause of industry death”.
One of the reasons behind this rare show of optimism might be three of broadcast's traditional strategic advantages; huge scale, live broadcasting and an immersive experience.
These advantages have guaranteed and captivated audiences for decades, and have been relatively unchallenged until the rise of streaming video (SVOD) about a decade ago. This post looks at the impact of streaming TV impact on broadcast’s hitherto untouchable advantages – and if Netflix really is the 800lb gorilla of the industry many make it out to be.
Size still matters
Broadcast delivers scale. Major live events are at the top end, with the 2006 FIFA World Cup Final boasting 260m viewers, and the 2015 Super Bowl 144m (not including streaming or out of home viewing). However TV shows are probably a better comparison between broadcast and streaming TV.
Below is a table I constructed using Symphony's VideoPulse measurement tool for US 18-45 year old audiences over a 35 day period following an episode’s launch in 2016 (this includes DVR, on-demand and streaming data as well as live viewing).
As you can see, Netflix’s top show of marvel’s Jessica Jones doesn't event make it into broadcast’s top ten. However, the sheer number of hours delivered by streaming video services (29 billion hours in 2015, or 6% of Neilsen’s total US live-plus 7 TV viewing) has reduced broadcast’s total audience by around 3%.
Live OTT / internet sports is a game-changer
Not only does TV generate scale, it does so at a specific times. Live programming commands a premium as it acts as a platform for real-time audience interactions, social commentary and voting – especially using the second, or third, screens. Securing audiences at specific times also makes advertising campaign planning easier, the results more reliable and enables TV campaigns to be run in sync with digital and offline campaigns.
Live sports content hasn’t been as impacted by streaming services as entertainment because most of the major deals were struck before OTT (Over The Top) video became a technological and commercial reality. As these agreements expire, sports will increasingly look to OTT distribution to cut new, better value deals for themselves as well as access new audiences.
The big date is 2022 PTA (Post Trump Era) when the NFL’s contract expires with most major networks. However, free games and low cost packages are already here, including Yahoo and the NFL, PGA Tour Live ($5 / month), WWE Network for wrestling ($9 / month) and the UFC Fightpass ($10 / month). Pure play OTT networks like FloSports are already offering a wider range of niche sports like netball, climbing and volleyball on a subscription basis.
In 2015 according to Cantor Media, sports programming generated $8.47bn (or 37%) advertising revenues for the big four: ABC, NBC, Fox and CBS. This is the glue that holds pay TV together, and the changes to the industry will be significant if that starts to come loose.
Take ESPN. They have lost 7m subscribers over the last three years, and in 2016 subscriptions are expected to decline by 4% per year. According to ESPN's owners Disney’s, Q4 2016 advertising revenue was also down due to fewer impressions and lower advertising rates. Double impact.
New bidders with deep pockets like Amazon are expected to raise market prices prices for live sports programming, putting even more margin pressure on broadcasters, who are already cutting salaries and production costs aggressively.
This structural change in the broadcast industry has the potential to change the economics of sports TV fundamentally – and alter the sports sponsor ecosystem for leagues, teams and players alike.
TV also provides an immersive experience that enables storytelling. Large screens and surround sound combine to create an immersive, theatre-like experience for long form content that fully engages the emotions.
A great deal of TV advertising, especially for aspirational brands, relies on these emotional responses to create brand preferences that are converted into sales down the line. If you don’t believe me, watch the Adidas ad by a student below and see if you don’t want to get up and cheer (if not go for a run).
Of course much streaming TV still comes via the big screen, but the thrill of Avatar’s helicopter scenes, the crags on Freddy Kruger's face or the tension of a penalty shootout just aren't the same on an iPhone. And this is where much of the younger TV audience spend their time and non-TV households get their fix.
Mobiles, tablets and laptops deliver the ultimate convenience, personalisation and freedom of location – but are limited in advertising value by small screen sizes, a lack of control of surrounding content, bandwidth, and a host of other applications competing for attention, like push alerts, phone calls and emails.
While multiscreen isn't challenging the core TV experience in terms of storytelling power, the TV experience has been fragmented by the ease of timeshifting, the ownership of multiple video enabled devices and the mobility of phones, tablets and phablets. This has also created a generational divide in TV consumption patterns that is fragmenting the social act of watching TV together.
Erosion, not implosion.
The below chart shows the decade-long decline in major US broadcaster ratings from 2006 to 2016.
Ten Year Ratings Track – major US networks. Primetime adults 18-49
Source: Ad Age April 18, 2016
2007 was the year that Netflix announced the delivery of its billionth DVD and also the launch of a streaming video service (that ultimately consigned physical media to the annals of history). Contributing to the “Netflix” effect was YouTube, acquired by Google and already the world’s 5th biggest website with 100m video views per day.
That same year also saw Steve Jobs bring us the video friendly, app centric iPhone that arguably launched the multi-screen revolution. A combination of technological advances, user-focused design and a new generation of tech-savvy, on-demand consumers had set the wheels of change in motion.
This kind of narrative has meant the death of traditional TV has become one of the most overhyped memes of the last decade. However pronounced the slide in ratings, pay TV subscriptions still dwarf streaming services globally, and in the UK traditional TV (live, catchup and on-demand across screens) represented 76% of total video viewing in 2015, and youTube just 4.4%.
The impact of streaming video services on broadcast TV looks more like erosion, than implosion – at the present time. However, fundamental change is underway and is set to continue.