Linear TV is Going Places.
First, the bad news: Cord-cutting is accelerating, audience measurement methodology is in flux, networks are dying, and pay TV companies like DISH, Verizon Fios, and others, continue to do battle with content providers over subscriber fees (which never seem to go down).
Let’s take these one at at time, starting with cord cutters/nevers.
All the data points to an increase in consumers who no longer want to pay for cable TV. The number of people who say they will never pay for cable TV (the cord-nevers) is increasing as well. Nocable.org has some interesting data on this topic for 2020, and the trend is clear as day – millions of people are either dropping their cable or satellite TV packages, or are never going to buy them in the first place. That may not seem like breaking news today, but it wasn’t that long ago, in the grand scheme of things, that at least industry leader dismissed the notion of streaming services poaching customers. (To be fair, a lot has changed since 2013).
This doesn’t mean people don’t want linear TV. It just means they want to pay less for it. And households are willing to pay for multiple streaming services to get what they want, and presumably eliminate some of the network clutter. Last October, Parks Associates released a study on this topic, the results of which were reported by Deadline. The bottom line: the trend in cord-cutters or cord-nevers doesn’t mean people are flocking to just one service. The rise in households paying for multiple services tracks pretty well with the rise in people leaving cable and satellite behind. Full disclosure – mine is one of these households. We have YouTube TV, Netflix, CBS All Access, Amazon Prime, AppleTV+, and now HBO Max.
Now that I write that, I need to have my head checked. Some of those are gonna have to go.
Many of the services in the market today have linear networks as part of their offering, the most notable exception being Netflix. Disney+ subscribers can get linear networks by bundling Hulu + Live, and HBO Max includes the HBO linear networks if you add the services to your YouTube TV subscription. Side note here – not only is HBO Max via YouTube TV the same price as the stand-alone HBO Max service, this makes it available on Amazon’s FireTV as well, as part of the YouTube TV app.
While it seems like a new streaming service hits the market every month, there’s just some content you want to watch live, namely sports, and that content usually comes with heavy licensing fees that large media companies are able to afford. There are exceptions, like Amazon’s (very limited) NFL offering, and DAZN’s exceptional collection of boxing cards, but ultimately if you want to watch major league sports live, you’ll need a service with linear TV channels. The same is true if you want a full slate of college sports, although direct-to-consumer may be a growth area for some athletic associations or conferences.
And if sports isn’t your cup of tea, then consider news. One could argue there are flaws in the 24/7 news cycle, but these linear networks give us the ability to see the bigger picture, and follow live, developing stories in a more comprehensive and first-hand way than any social media platform can do, as yet. In the midst of nationwide protests, outbreaks of violence, a raging pandemic, all while approaching a national election, linear news networks are proving their worth, no matter which slice of the political spectrum you favor.
Bottom line – viewers may be cutting the cord or avoiding it altogether, but that doesn’t mean they’re ditching linear TV. If you doubt this, then explain how four guys playing golf in the rain managed to set a cable TV ratings record. “The Match 2020” brought in huge numbers, possibly inflated by a dearth of live sports during the pandemic, but that only supports the point – people will follow the content they want, and in this case, it was a charity golf match. By the way, if you want a quick but interesting read on “The Match 2020” ratings, check out author Geoff Shackleford’s excellent piece on ratings and millennial viewers.
One important question: how does the movement toward streaming services impact advertising?
It really comes down to how you measure an audience and, as a result, how much advertisers pay. In other words, it’s all about the data.
I’m not going to go into detail about TV advertising in the digital age – the good people at Wingman Media have already done this, so if you want a deep dive, there it is. Given the complexity of the advertising game these days, it’s worth a read.
Data is more than just a value-add for content providers to deliver to advertisers, it’s money in the bank. Know your audience, know their habits, their likes and dislikes, and you’ll be able to deliver ads that resonate, as well as deliver the audience your advertisers want to target. We’re already moving beyond the “18-49” demo as the gold standard.
Data, and ever more intelligent use of it, is enabling new frontiers in advertising. Addressable TVs, connected devices, and Automatic Content Recognition (ACR) are just some of the ways content providers and platform owners can enhance ad revenue and improve ad performance.
Way back in 2018, Alan Wolk wrote a great article for Forbes on the topic of ACR on Smart TVs – hindsight is 2020, so it’s easy for me to disagree with some of his predictions today, but the article is still a good read, and ACR will still be a game changer, I just don’t think the Smart TV revolution has ever really taken off. I’m speaking anecdotally – I have two smart TVs and never use their smart features, and the same is true for most of the people I know who have them. With that said, Wolk’s conclusion that ACR “should help get the industry to the holy grail of fewer, better-targeted ads that brands will pay more money for” is spot-on.
The move away from ratings towards impression-based measurement is good for everyone in the industry, including the consumer. Content providers, including local broadcasters, will have more accurate data about their audience, advertisers will spend their money more effectively, and consumers will (presumably) have a better linear viewing experience via more appropriately targeted ads.
And yet, as most people understand, advertising isn’t the only way linear networks make money. Subscriber fees are both the best and worst thing to happen to television since the invention of the remote control. These fees, paid to content providers by services that carry their networks, drove the explosive growth in the industry as cable expanded to more and more households.
Unfortunately, these fees have been going up ever since, and have caused tremendous friction between cable companies and content providers during contract negotiations. You don’t have to look far into the past to find examples of pay TV operators and networks duking it out, publicly, as they failed to come to terms. Comcast, in its fight with Starz, pointed to that network’s “making its content available a-la-carte on Amazon Prime and Roku and selling its service direct to the consumer through the Starz app” as a core component of their dispute.
These battles, even as pay TV subscriber numbers are declining, is multifaceted. Some networks are killed off because they’ll never be profitable (R.I.P. Esquire), that’s pure economics – not enough eyes on the screen, not enough money to survive. And remember the fallout from DISH’s battle with Univision in late 2018? Nine months, and 360k+ lost subscribers later, they made a deal. The consumer, when it comes to these fights, either loses content (Univision had news and sports their viewers loved, in addition to entertainment content) or pays increased rates, or both.
These fees exist for linear networks on streaming services, but these services, like YouTube TV, tend to have fewer networks and, based on the Comcast vs Starz throw down, one could infer the fees are lower. Sling (formerly Sling TV), a DISH product, has organized their offering into tiers designed to appeal to segments of the total TV audience. I personally couldn’t make that tier system work for my household, but plenty of other people have.
I wouldn’t call these offerings, other than perhaps Sling’s smallest tier, “skinny bundles,” although that term can be loosely applied to all of them since they tend to offer fewer networks than traditional cable and satellite operators. Whatever you call it, these new services provide a more focused offering for the consumer, getting viewers closer to a world in which they pay for what they want, and not for what they don’t.
These new services offer easy service start and cancellation, with no contracts, something that still isn’t true for cable TV, another positive for the consumer.
One problem I see, as a former Hulu + Live and now YouTube TV customer – empty ad pods. This should never happen, and yet it happens with great frequency. The reasons can vary, and I could spend (and probably will spend) an entire article on this topic alone. Suffice it to say these are lost dollars, and lost dollars have to be made up elsewhere. You can’t leave money on the table in one of the most competitive games on the planet.
A final topic before my summary – the Comcasts of the world have a competitive advantage, a way to maintain, even increase, revenue as they lose pay TV subscribers.
What traditional cable providers have, that these services don’t, is connectivity. While YouTube TV provides my linear TV, cloud DVR service and OnDemand TV, Xfinity is my internet service provider (ISP). And for now, they’ve got a virtual lock on my business, and not because they’re the only, or cheapest, provider in my area. They give me all the stable bandwidth I can possibly use, and make it easy for me to get it.
Only a few streaming service providers can make money on both sides of the coin. ATT, as an ISP, had 15.8 million broadband subscribers in 2018 and their HBO Max, to which I subscribe, looks to me like a hit, despite some early issues with branding and availability. WarnerMedia, backed by parent ATT, has deep pockets and will fix their issues in due course. If ATT can bring more customers into the fold via this offering, that 15.8 could grow quickly, especially with the promise of 5G on the horizon.
Comcast is an altogether different beast. After adding an astonishing 442,000 broadband subscribers in Q4 2019, against a loss of 149,000 pay-TV subscribers, Comcast’s gain in broadband subscribers for the year clocked in around 1.2 million, bringing their total broadband subscriber number to somewhere north of 28 million. This puts their broadband revenue of $4.8 billion to within striking distance of parity with their pay-TV revenue of $5.5 billion. You can read more about this on FierceTelecom. No wonder then that Comcast is entering the streaming game with their “Peacock” service. Will Peacock be a winner in the streaming wars to come? Maybe. Does Comcast have the deep pockets to ride it out until other services fail? Absolutely. That’s why they made it free for Xfinity Internet customers, like me. Which begs the question, which subscription service will I drop if I end up liking Peacock?
Cord-cutters and cord-nevers are increasing, but this doesn’t cut cable companies out of the game. Frankly, being an ISP looks more profitable, especially for cable companies with an already large customer base. This trend will continue, but some streaming services will get buried by the avalanche of cash some players can bring to the fight. It doesn’t matter if you have the best hand when you can’t call the bet.
A combination of new advertising models and technology will continue to arise from the move to streaming from traditional broadcast/cable, giving linear networks new ways to better target their audiences with both ads and content. This will provide new sources of, or incremental growth in, revenue for content providers. The key will be solid, detailed, actionable data, and a tech stack that can take advantage of it, both on the provider side and the platform side of the equation. Companies that make this happen will be building a better mousetrap, and everyone will win.
Subscriber fees will continue to be problematic. Costs go up all the time, and the cost of content is no exception, which is why it makes sense for content providers to want more for their networks. It’s a vicious cycle – great programming can cost big bucks, on top of the cost of delivering that content to the operator. But consumers have shown a willingness to pay for content they want, and streaming services may have already shown the way forward – more focused offerings, either through fewer networks or via tiered offerings. I’m not advocating for an “a la carte” model, but give me the ability to pay for just what I want, in a broad sense, and I’ll take that deal. I think enabling customers to choose sports bundles, movie bundles, news, etc., is already happening, to some extent, either within a service, like Sling, or by building a custom bundle of streaming services, similar to what Disney is offering via their ESPN+, Disney+ and Hulu bundle. This trend will continue and expand. For what it’s worth, if they offered live college football on ESPN+, I’d already be a customer of this bundle, but at $12.99 per month, I don’t see that happening any time soon – the dollars don’t make sense. One could argue that this is possible simply by adding Hulu + Live to the bundle, instead of Hulu, but that blows the entry-level price point out of the water. Still, if the price where right, I’d consider it.
Which brings me to my last point – it’s a great time to be a TV viewer. The options are growing, even as some networks die off. There’s more content than can possibly be consumed, and more ways than ever to consume it. All of which means one thing – linear TV isn’t going away, it’s expanding to new platforms and services. No matter how many of these platforms fail or survive, linear TV will still be with us.
We’ll just be watching in different places.
Coming Soon: Streaming Media – this time, it’s personal.