MEDIA TRENDS THOUGHT LEADER - By Andrew Wallenstein, Co-Editor-in-Chief, Variety - Morgan Stanley
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PREMIER THOUGHT LE ADER Thought Leader is a series of quarterly industry reports written by Variety’s senior editors exclusively for Variety Premier subscribers. MEDIA TRENDS THAT WILL DEFINE 2018 By Andrew Wallenstein, Co-Editor-in-Chief, Variety
I
t’s fitting that a group of stocks known on Wall sumption moves to mobile platforms,
particularly from coveted young con-
Street as FANG has taken quite a bite out of the sumers. Because the tech giants con-
entertainment industry. Two of the letters in that trol the app world, media companies
acronym stand for Facebook and Alphabet-owned are finding mobile is the farthest thing
from playing on a level playing field.
Google, which have sunk their teeth deeper than A conglomerate like Disney knows
ever into the advertising revenue that keeps the entire it can’t afford to be complacent. That’s
why CEO Bob Iger made one of the
media ecosystem afloat, from TV to newspapers. The sector’s boldest move of 2017 by an-
other two letters belong to Netflix and Amazon, owners nouncing plans to take his biggest
of the reigning subscription VOD services. 2017 saw brands into the OTT space. It’s a re-
markable pivot, an acknowledgement
an acceleration in their already exorbitant spending on of how tightly the FANG quartet has
original TV and film content, saddling the traditional U.S. clamped down on the core business of
pay-TV business and box office with major competition. It’s Hollywood: linear cable channels.
Ratings are dropping, which will
not an understatement to label them an existential threat. bring advertising revenue down with
it. And the other of Hollywood’s twin
gether. Sony and MGM will never es- revenue pillars, affiliate fees, is seeing
cape those rumors that deals will its growth trajectory lose momentum
1 THE WATCHWORD OF THE
YEAR IN MEDIA IS: SCALE
While none of the FANG foursome
eventually dwindle the number of
companies left in the content business.
And then there’s Liberty Media’s John
as cord-cutting begins to reach sig-
nificant numbers. The advance of vir-
tual MVPDs like DirecTV Now and di-
even identifies themselves as media Malone, who is always good for an un- rect-to-consumer plays like CBS All
companies they are co-opting Holly- expected move. Access are softening the blow, but so
wood’s core competency — video con- While the business-friendly Trump far by only so much.
tent — as a key weapon in their own administration was always expected to Also struggling to grow again is the
war with each other to keep billions usher in an era of aggressive dealmak- theatrical business, which has just be-
of users worldwide on their respective ing, another pact risks being derailed gun to feel the creeping advance of
platforms for as long as possible. by the Justice Department: The con- Netflix and Amazon. And they may not
Sure, the media biz wasn’t as tumul- tested union of AT&T and Time Warner even be the only ones ready to make
tuous as politics was in 2017. But both will be headed for the courts in March. movies. The other half of the acronym,
worlds reeled from the impact of a But in other ways, Washington D.C. Facebook and Google, may be better
fearsome outside force breaking in, re- is sending far less ambiguous signals known as a threat to advertising, but
solved to change the rules of an anach- that media businesses are welcome to they too have stepped up their own
ronistic game. Much like Donald Trump reconfigure itself as they please. The content investments via Watch and
rocked Capitol Hill, tech giants have new Republican-led FCC has been driv- YouTube Red, respectively. Still more
upset Hollywood’s own apple cart. ing deregulation at breakneck speed. companies are competing for premium
To take on these interlopers, the That’s going to clear the path for grow- programming: Verizon, Snapchat and
watchword in media this year is scale. ing giant Sinclair to close its own deal Twitter want more video ad dollars.
M&A has been the order of the day to to snap up Tribune Media in a station And for those who understand the
appease an increasingly skeptical Wall business bound for some serious con- tech sector as FAANG, the extra A will
Street, from the stunning $52.4 billion solidation. And the owners of the dis- soon make its presence known with
absorption of half of 21st Century Fox tribution pipe are also getting a gift in Apple pledging to bring at least $1 bil-
by Disney to the long anticipated union the erasure of Obama-era policies pro- lion to its own budding original content
of Discovery and Scripps. tecting network neutrality. efforts in the coming years. It doesn’t
There is no question that there are Streaming is the name of the game matter how many letters are in the
more such deals coming. Viacom and given the sea change in audience be- word; they spell big challenges ahead
CBS could eventually come back to- havior right now as more video con- for the media sector just the same.
22 IT’S THE END OF NETWORK
NEUTRALITY AS WE KNOW IT
As expected, network neutrality got
gutted before year-end by a Republi- Regulatory Outlook: FCC
3
can-led FCC seeking to overturn tighter
regulations put in place during the final Giveth and Taketh Away
years of the Obama presidency. There
are fears that by giving ISPs the ability FCC chairman Ajit Pai has moved dia, which will make it the largest
to disadvantage new video and com- swiftly to roll back decades of re- station owner in the country. But
munications services seeking to oper- strictions keeping media compa- Sinclair has come under consider-
ate on their networks, companies that nies from getting too much power able scrutiny for propagating po-
might have otherwise been poised to by scaling up through acquisitions. litically conservative viewpoints
become the next Netflix or Skype will While intended to thwart the kind through its stations at the same
be hobbled with payments they can’t of concentration in media own- time that it has taken the indus-
afford that are required to gain prefer- ership that could diminish the try’s lead to push through ATSC
ential treatment to protect bandwidth. diversity of voices in the TV mar- 3.0, a new, more innovative broad-
Netflix, YouTube and Amazon are big ketplace, others have argued the cast standard with the potential to
enough to handle any additional fees restrictions give these companies put the station business on a more
that might be imposed, but the next a competitive advantage at a time even playing field with tech giants.
generation of services may not be so when a new breed of bigger rivals The TV station business has
lucky, particularly as the migration to have emerged in the form of tech been under a cloud on Wall Street
4K video makes streaming more band- companies that have already be- for many of the same reasons that
width-intensive. gun luring away video ad dollars have impacted the entire media
Title II could also impact consum- even at the local level. business. But its death has been
ers if ISPs are allowed to discriminate Sinclair Communications is the greatly exaggerated. For one
against existing streaming services perfect test case for the strategic thing, stations aren’t as impacted
that present a competitive threat to soundness of Pai’s deregulation by cord-cutting because they are
their own owned-and-operated ser- drive. The company has clearly available via over-the-air TV, and
vices. AT&T, for instance, doesn’t al- benefited from the rollback of re- most skinny bundles include them,
low usage of its DirecTV Now content strictions as it moves toward a $3.9 which protects ad revenues from
count against subscribers’ monthly billion deal to acquire Tribune Me- diminishment of audience reach.
data caps.
In addition, streaming services could
face additional fees, or paid prioritiza- JOINING FORCES
tion, to protect themselves. While that
Sinclair Broadcast Group will command even more clout in the industry
would seem to impact a company like if its $3.9 billion buyout of Tribune Media is approved by the FCC.
Netflix, the company has seen its posi-
Total operating income Total revenue
tion on network neutrality change over
the years; the clear anti-discrimination SINCLAIR BROADCAST GROUP TRIBUNE MEDIA
stance CEO Reed Hastings took while $3.0b $2.73b
Netflix was still new to the streaming
$2.5b $2.21b
game has given way to a more modu- $1.97b
$1.80b $1.94b
lated stance, where Netflix seems to be $2.0b $1.78b
happy to be a zero-rated service pro- $1.5b
vided no broadband provider gouges
them on interconnection fees. Charter, $1.0b
for instance, can’t increase fees on Net- $0.5b
flix until 2019 as a condition of its ac-
$0
quisition of Time Warner Cable. $494m $422m $602m $304m $433m
Consumers could be put in the po- -$0.5b -$269m*
sition to face additional fees to access 2014 2015 2016 2014 2015 2016
desired content, though the prospect
SOURCES: SINCLAIR BROADCAST GROUP, TRIBUNE MEDIA 2016 ANNUAL REPORTS
of usage-based billing would seem to *TRIBUNE TOOK A $385 MILLION IMPAIRMENT CHARGE IN FEBRUARY 2016, LARGELY
be a non-starter from ISPs sure to hear TO REFLECT THE LOSS IN VALUE AT ITS WGN AMERICA CABLER.
intensive negative reaction from con-
sumers to such a move.
3recent estimations of their subscrib- can play well across all territories. The
er levels. eMarketer estimates Netflix mandate was interpreted as a repu-
4 THE BIG 3 SVOD PLATFORMS
ARE SPENDING MASSIVELY
Leading subscriber VOD platforms
reaches a global audience of 128 mil-
lion, compared to 85 million for Am-
azon Prime and 32 million for Hulu.
diation of a current strategy that had
yielded more niche-centric successes
like “Transparent.” Amazon Studios
Netflix, Amazon Prime and Hulu have Parks Associates believes that 60% of also has big shoes to fill in top posts
had a dramatic impact on the TV land- U.S. consumers subscribe to one of the vacated by Roy Price and Joe Lewis,
scape, powered by the sheer volume big three video streaming services. leaving open what may be some of
of dollars being pumped into original As unstoppable a force as Netflix the most sought-after jobs in the con-
and licensed content. The SVOD cate- and Amazon have seemed in 2017, their tent biz given the money their succes-
gory is projected to spend $15 billion
in 2017, up from just $4 billion in 2012,
according to Morgan Stanley; Cowen
estimates that could reach $20 billion
AS UNSTOPPABLE A FORCE AS NETFLIX AND AMAZON HAVE
in 2018. SEEMED IN 2017, THEIR PROGRESS DIDN’T COME WITHOUT
The estimates are staggering on an
SOME SIGNIFICANT ADJUSTMENTS IN PROGRAMMING
individual company level: Netflix alone
projects an $8 billion spend for 2018, STRATEGY AFTER YEARS OF AUTOMATIC SERIES RENEWALS.
up $1 billion this year. Originals will ac-
count for half of that spend by 2021,
according to Ampere Analysis. Am- progress didn’t come without some sors will be able to spend in pursuit of
azon spent $4.5 billion on video con- significant adjustments in program- Bezos’ grand ambitions.
tent in 2017, double its 2016 investment ming strategy. After years of virtually After years of failing to launch an
and a triple on the original side. Hulu rubber-stamping season renewals for original series that gained the kind of
is pegged at $2.5-$3 billion, which may its original series, Netflix began cutting buzz Netflix and Amazon have man-
seem to pale in comparison but is en- off a handful of its efforts after just one aged to draw with their own slates,
tirely focused on the U.S market; Net- season, including “Gypsy,” “Girl Boss” Hulu finally hit pay dirt in 2017 with dra-
flix is estimated to spend $2 billion in and “The Get Down.” CEO Reed Hast- ma “Handmaid’s Tale.” But just how ag-
Europe itself. ings explained the cancellations as a gressive the streaming service will get
As incredible as these numbers reflection of new thinking that encour- going forward is unclear as Hulu just
might seem, it may be just a harbinger aged more risk-taking, being willing to went through a transition at the CEO
of what’s to come. Consider the invest- part earlier with middling material in level and very well could find its own-
ment Amazon has pledged to make on order to take more swings that could ership situation changing once again
a serialized take on “The Lord of the result in bigger successes. 2018 will as the consolidation fever gripping the
Rings,” the global rights to which will also be notable for Netflix as it em- sector could force a change. Hulu has
cost $250 million; when production barks upon a significant expansion in also leaned far more aggressively into
costs are calculated for what could its original films slate, which could see licensed content in recent years at the
be a five-season commitment, “LOTR” as many as 80 titles released. same time its rivals have been pulling
alone could end up the TV industry’s Amazon Studios also went through back in favor of originals.
first $1 billion show. something of a mid-year course cor- As if the current SVOD onslaught
But the spending may be justifiable rection at the behest of Jeff Bezos, wasn’t difficult enough, a second wave
when you considering the size of the who mandates a stronger emphasis be of new market entrants into the origi-
audiences they are reaching. While put on finding high-end drama series nal programming space is coming. The
Amazon and Hulu haven’t given any at the scale of “Game of Thrones” that biggest is Apple, which is pledging to
spend as much as $1 billion on original
series in the coming year. While that’s
2018 CONTENT BUDGETS barely table stakes considering how
Analyst Gene Munster’s estimate of how much the leading SVOD firms will spend much the incumbent SVOD players are
spending, it’s hard to underestimate
Company Subscribers Original Licensing Total how much the richest company on
earth could eventually spend on con-
Netflix 110 million $3.0 billion $4.5 billion $7.5 billion
tent if it so chooses. They are show-
Amazon 90 million $1.5 billion $3.0 billion $4.5 billion ing early signs that they are going to
deliver big, having already announced
Hulu 12 million — — $2.5 billion projects including an “Amazing Sto-
ries” reboot from Steven Spielberg and
Apple Music 30 million $1.5 billion $0 $1.5 billion
a comedy starring Reese Witherspoon
SOURCE: LOUP VENTURES and Jennifer Aniston.
4Niche SVOD Players
5 6 CONTENT OWNERSHIP BECOMES
A BIGGER PRIORITY FOR SVOD
A key area to keep an eye on is the de-
gree to which the SVOD giants produce
Face Uncertain Future their own shows, as opposed to licens-
ing from other studios, enabling them
to participate more fully in the eco-
The Big Three SVOD services may to cord-cutting consumers tired nomics of a successful show. While the
dominate the marketplace but they of expensive pay-TV bills, niche majority of Amazon’s original content
are hardly alone vying for consum- SVOD could trigger a different is produced by its own studio since it
ers. The U.S. market has over 100 kind of sticker shock for consum- first began making such programming
subscription streaming services ers who try to stitch together their available, Netflix is only just starting to
currently in circulation, and some own customized bundle only to close the gap; Canaccord Genuity es-
of them have sizable audiences of find that they’ve nickel-and-dimed timates 14% of Netflix’s current slate is
their own totaling over 1 million, their way to something compara- in-house. Hulu has yet to create its own
from anime-focused Crunchyroll ble to what they previously paid in studio, though that remains possible.
to wrestling hub WWE Network. one lump sum (especially with the Netflix upped the ante on its content
That said, this is a brutal market to price of broadband factored in). capabilities this year with the compa-
be in; several studies have found Ironically, the salvation for these ny’s first-ever acquisition: Millarworld, a
that less than 10% of SVOD-sub- services could end up being the comic-book publishing hub that gives
scribing households are paying very same bundling mechanism the company the ability to capitalize
for more than two services. With that is the antithesis of what these on intellectual property much the way
so many hands outstretched in a la carte offerings aspired to be: Marvel has been exploited by Disney.
hopes of luring additional dollars, Amazon and Hulu are two aggre- While the company has yet to publicly
it’s highly likely the SVOD market gators who have had some suc- identify which characters from Millar-
is headed for a shakeout. To some cess enabling consumers to sign world will be turned into programming
degree, that’s already happened up for these niche SVOD services (the company already has some pieces
as we saw this year in some fairly through their own platforms, a dy- in play with Fox including its “Kings-
prominent closures at Fullscreen namic not unlike the one between men” film franchise), the upside is tre-
and NBCUniversal’s Seeso. While pay-TV providers and the linear mendous if properly executed.
these ventures are trying to appeal channels they license. With studio capabilities in place,
Netflix and Amazon also kept busy in
2017 luring over some of the biggest
GLOBAL UPTAKE STILL VERY LIMITED producers in the TV business to switch
sides. Netflix wooed ABC mega-pro-
ducer Shonda Rhimes over from Dis-
ney while Amazon coaxed Robert Kirk-
2
18.61%
man (“The Walking Dead”) from AMC.
Rhimes and Kirkman still have plenty of
content that will continue to drive val-
ue to traditional networks for years.
3 There are also experienced showrun-
1
How many pay
ners like Chuck Lorre who aren’t com-
5.56% mitting to overall deals with streaming
online video
services do services but have begun producing for
4
33.45%
you currently them, i.e. Netflix comedy “Disjointed”
0
subscribe to? comes from Warner Bros. TV. While
1.24% Hollywood studios are getting a nice
40.08% upfront fee for these kind of produc-
5+
1.07%
tions, the temptation a Lorre might feel
to switch sides after this kind of one-off
collaboration presents risk. Veteran hit-
SOURCE: LIMELIGHT
makers are more vulnerable to poach-
NETWORKS ing than ever because they are attract-
ed to the opportunity to not have to
play by the usual rules.
5tioned as they service the growing de-
mand. On a global basis, the number of
7 PEAK TV WON’T BE PROPELLED
BY TV NETS MUCH LONGER
Tech’s content infusion could pro-
new scripted shows is also rising.
Another giant that may have just
gotten started in original programming
8 THE NEXT BATTLEGROUND WILL
BE FOR PRO SPORTS TV RIGHTS
The onus of content costs may be even
pel the peak TV phenomenon in the is Facebook, which is putting some more deeply felt in sports than script-
U.S. to greater heights in the coming ad-supported series out, from long to ed content. Look no further than ESPN:
years. Any further growth isn’t likely short form, with a $1 billion budget that A loss of 13 million subscribers from
to come from the broadcast or cable could get a lot bigger if the company what had hit 100 million six years ago
networks, which have already reached makes an anticipated move into secur- has stripped billions of dollars from its
peak output; any further growth in the ing sports rights. Snapchat and Spotify bottom line, making the expense of TV
overall pie of scripted TV program-
ming is going to come from the SVOD
side. While it’s natural to ask whether
demand is exceeding supply, the ceil-
TWO OF THE THREE BIGGEST PROFESSIONAL SPORTS TV
ing for original content is an unknown RIGHTS DEALS WILL COME UP FOR RENEWAL IN THE COMING
in a world that is moving away from a
FIVE YEARS, WHICH WILL LIKELY SET OFF AN EPIC BIDDING
scheduled grid programmed for mass
crowds to deep troves of on-demand WAR FOR THESE EXPENSIVE PACKAGES.
content playing to niche audience seg-
ments across a fragmented market-
place. While that’s bad news for the lin- also have some ambitious short-form rights to professional and collegiate
ear channel business, the studios that plans worth watching, ones that could games an albatross around Disney’s
create that content may be well-posi- easily expand to long form in time. neck. The conglomerate has nearly $50
billion in sports rights on its books, in-
cluding an eight-year $15.2 billion deal
A SPORTING CHANCE for “Monday Night Football” signed in
The cost of rights fees often exceeds the ad revenue (in black) sold against them 2011 that may be its most extravagant
purchase. The problem is that as some
$3.9B key sports leagues like the NFL experi-
$4B
ence ratings erosion, the revenues de-
$3B rived from advertising begin to lag the
incredible costs attached to carrying
$2B games. That sets up what might be the
$1.2B $1.3B biggest battle of all between the media
$0.9B $0.8B
$1B $0.5B conglomerates and Silicon Valley: Two
$0.2B $0.2B of the three biggest sports rights deals
$0 will come up for renewal in the coming
-$0.2B five years, which will likely set off an
-$1B -$0.8B -$0.8B epic bidding war for these expensive
-$1.0B -$1.0B
packages. Tech companies clearly have
-$2B -$1.6B
an appetite for sports, as evidenced
by the transition of a Thursday NFL
-$3B -$2.6B
package from Twitter to Amazon; even
-$4B Facebook kicked the tires on a $600
million package for Indian cricket.
-$4.4B Which isn’t to say it’s a clear either-or
-$5B
proposition between the networks and
Summer MLB NBA NCAA
Olympics 2016-17 2016-17 Basketball the tech platforms; the leagues them-
FIFA selves may opt to control their own
NFL 2016 World Cup NHL NASCAR 2016-17
destinies and seek to extract more val-
2016-17 2014 2016-17 2016-17
ue holding on these rights than selling
them elsewhere. Another company to
keep an eye on in this space is Verizon,
-$500M +$200M -$102M -$1.1B -$25M -$1.3B -$620M -$22M which closed a mammoth $2 billion
deal to extend its mobile NFL rights.
That could be just the beginning of a
SOURCE: MAGNA GLOBAL bigger effort by the telco.
69 VIRTUAL MVPDS AREN’T BIG
YET, BUT IT’S STILL EARLY
Newly introduced smaller tiers of lin-
ear channels known as skinny bun- Cord-Cutting Is Here, and
10
dles were supposed to be the saving
grace for the media business, helping It’s Going to Get Worse
offset the cord-cutting trend; the high
hopes around these products may There may be no single factor that in the context of what this loss
have helped the media sector with its dictates the rise and fall of the me- could mean when considered over
improbable rebound on Wall Street in dia stocks more than the cord-cut- a longer period; Barclays projects
the first quarter of 2017. Guggenheim ting numbers coming out of the 31 million homes could cut or shave
estimated as of the third quarter that pay-TV distributors every quarter. the cord over the next decade.
1.36 million subscribers had exited the 2017 saw a clear acceleration of Cord-cutting is such a sensi-
pay-TV world over the past 12 months, this drop after a few years of very tive subject because it is seen
but without skinny bundle additions minor declines, leaving little doubt as the clearest barometer of the
that number balloons to nearly 3 mil- it’s an irreversible trend. health of media’s biggest revenue
lion. Still, the early signs are that skin- As of the third quarter of 2017, stream: the $98 billion in affiliate
ny bundles are not the panacea some distributors lost 1.36 million sub- fees expected in 2018. Digital TV
hoped they’d be. scribers over the past 12 months, Research estimates that the sub-
While programmers have secured according to Guggenheim ana- scriber level will drop 5% by 2022
deals that ensure that the subs that lysts (with skinny bundles fac- to 90.711 million, from 94.957 mil-
come from skinny bundles are even tored in). MoffettNathanson has lion in 2017. However, BMO Cap-
more lucrative on a per-sub basis than a drop of 872,000 subscribers in ital Markets says that U.S. multi-
what they get in traditional pay TV, the third quarter alone, compared channel company won’t actually
the current likelihood is that many of to 559,000 in the same quarter a see revenues subside at all over
these subscribers are not cord-nevers year ago. The second quarter was the next five years, projecting $1
who weren’t ever going to embrace even worse, going from 809,000 growth to $116.8 billion in 2020.
full channel packages but existing sub- in 2016 to 941,000 this year. The The global pay-TV market is esti-
scribers to those packages trading year-over-declines are the worst mated to reach $263.5 billion over
them in for cheaper alternatives (the the pay-TV market has ever seen. the same period, representing a
average skinny bundle runs approxi- And that’s just the tip of the spear 13% increase.
mately $40 per month, compared to
the average pay-TV package, which
amounts to $103). While trends could THE NEW MULTICHANNEL MATH
change given it’s still quite early in the Virtual MVPD gains aren’t always enough to offset cord-cutting
rollout of skinny bundles, cord-cutting
600m
seems to be occurring at a faster rate.
500m Traditional Net Adds
What’s most unclear is just how
400m Virtual Net Adds
impactful the latest additions to the
300m
skinny bundle category, YouTube and
200m
Hulu, are because those companies
have yet to report any subscriber 100m
numbers. But with both companies 0
beginning to step up their marketing -100m
efforts in the second half of the year, -200m
it’s entirely possible 2018 is poised to -300m
see the ranks of their subscribers hit -400m
higher levels that will prompt many to -500m
take notice. Meanwhile, incumbents -600m
DirecTV Now, Sony Vue and Dish’s Sling -700m
remain in the marketplace, growing but -800m
not quite blowing the doors off either. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Morgan Stanley estimated there would ’15 ’15 ’15 ’15 ’16 ’16 ’16 ’16 ’17
be 4 million subscribers for skinny SOURCES: COMPANY REPORTS, UBS ESTIMATES
bundles in 2017, up from 1.5 million the
previous year.
7here,” he wrote. “It goes back to the
deconstruction of the traditional mod-
11 DIRECT-TO-CONSUMER OTT:
A MUST FOR EVERY TV NET
Given the attrition playing out in the
el. You’re going to see a lot more com-
panies trying to experiment and have a
more direct relationship with the con-
12 STACKING RIGHTS CAN BE A
SOURCE OF NEW REVENUES
An interesting variation on the di-
pay-TV universe, it should come as no sumer.” rect-to-consumer model that emerged
surprise that 2017 saw increased mo- CBS All Access also made big strides in 2017 was a pair of linear channels
mentum behind brands known as lin- in 2017 by putting its first original that sprouted subscription add-ons of-
ear channels first and foremost making content out there, with extensions fering viewers additional content and
plans to go direct to consumer. The of “The Good Wife” and “Star Trek” other features, but only available to
single most dramatic example was Dis-
ney’s bombshell announcement outlin-
ing plans to create an ESPN-branded
OTT venture next year and even bigger
FEW DETAILS ARE AVAILABLE, BUT DISNEY HAS MADE IT
plans for a global Disney-branded en- ABUNDANTLY CLEAR ON WHAT LITTLE HAS BEEN SAID
tertainment effort seen as a competitor
ABOUT ITS PLANS FOR ORIGINAL CONTENT ALONE THAT
to Netflix. Few details on the products
are available, but Disney has made it THERE WILL BE GREAT AMBITION FUELING THESE EFFORTS.
abundantly clear on what little has
been said about its plans for original
content alone, that there will be great franchises just the first of an originals pay-TV subscribers. AMC Premiere and
ambition fueling these efforts. Disney slate intended to roll out in 2018. Plans FX+ employed slightly different strat-
spending $1.6 billion to acquire the to take All Access global are also afoot. egies but both are looking to squeeze
portions of BAMTech it didn’t already All three major premium channels incremental revenues from its most
own are indication enough of how crit- — HBO, Showtime and Starz — are in highly engaged fans that could offset
ical this strategy is to the future of the market with their own OTT efforts, inevitable subscriber declines.
company. There’s more OTT efforts on each reporting strong growth. Industry critics contended that
the way from Disney, which will likely Discovery has also made noises about while studios made a pretty penny on
lean on its Marvel and Lucasfilm brands expanding its effort behind its Crime those licensing deals, that ended up
as their own direct-to-consumer plays. and Paranormal apps on Amazon. That empowering SVOD firms to cannibalize
CFRA analyst Tuna Amobi went so said, not all media companies have linear TV ratings, depressing ad
far as to hail Disney’s move as noth- moved as aggressively into the direct- revenues and driving up programming
ing less than the “beginning of a new to-consumer space. Fox sat on the costs that they could barely afford. It
paradigm” for major content owners. sidelines, as did AMC Networks and could be argued this amounts to just a
“A huge amount of revenue is at stake Scripps. futile attempt to put the genie back in
the bottle when it’s already too late.
But a big part of making this strategy
U.S. SYNDICATION REVENUES work is networks retaining the stacking
Historical and projected linear and digital U.S. syndication revenues rights to as much content as possible.
That would mean foregoing lucrative
$40B
licensing revenue opportunities that
Digital Content Revenue
would otherwise send library content
$35B
Broadcast Syndication Revenues to SVOD services like Netflix. It’s not
$30B a trivial concern: While traditional
Cable Syndication Revenues syndication of content to cable
$25B networks continues to represent a
significant market valued at around
$20B $26 billion annually by RBC Capital
Markets, SVOD giants are now notable
$15B participants in syndication, with digital
distributors representing another $11
$10B
billion in annual syndication value.
$5B That’s no small price to pay for
re-training consumers to expect con-
$0 tent not to drift out of pay TV into
’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17
SVOD the way HBO in particular is able
to hold onto its entire library and make
SOURCES: SNL KAGAN, INDUSTRY SOURCES, RBC CAPITAL MARKETS ESTIMATES it available via HBO Now.
8Data Will Transform the
13 14 INNOVATION RESHAPING TV,
DIGITAL ADVERTISING
With DVRs and SVOD making it easi-
er to shrug off marketing messages,
Art of TV Advertising viewer resistance to commercial in-
terruption on TV continues to be a
challenge networks and marketers are
The death of TV advertising is cast set-top boxes and Hulu. TV trying to innovate their way past. The
greatly exaggerated. Data from programmers are joining forces move away from the traditional 30-sec-
set-top boxes and IP-delivered on Thor, a new initiative aimed at ond spot has already been in motion in
devices provide endless data that proving to marketers TV’s “attribu- recent years thanks to the increasing
drive the kind of hypertarget- tion” prowess, or the ability to link usage of 15-second spots. Now TV is
ing previously reserved to digital. customer purchases to marketing. looking to shrink even further with the
Adding relevance to the medium’s Advanced advertising could pave six-second format YouTube pioneered
reach will allow TV to stay healthy the way for ad tech firms to un- last year online; Facebook and Snap-
and compete with digital. Credit lock TV ad dollars instead of just chat have followed suit. But it’s mov-
Suisse estimates it “will allow net- fighting for what few digital dollars ing to TV fast, where the programming
works to grow domestic ad rev- the duopoly doesn’t take itself. It shifts to a smaller window on the left
enues both faster than in recent could become the standard in a side of the screen while the six-second
years and faster than investors cur- few years but shouldn’t entirely commercials plays on the right. Fox will
rently expect.” replace existing budgets. Measure- do same across digital and VOD, and
With digital giants set to siphon ment of targeted ads is limited. eventually linear, having already tested
TV ad dollars, networks are band- An estimated 42 million TV with NFL. AMC sold the miniaturized
ing together to fight back. Viacom, homes can receive addressable spots during “The Walking Dead.”
Turner, 21st Century Fox are form- ad campaigns by the end of 2016, After years of the ad industry try-
ing consortiums like OpenAP that totaling $450 million in marketing ing multiple, futile attempts at reform-
pool their data capabiilities. Fox spend. eMarketer says addressable ing digital ads, digital media brands
and iHeartMedia are even pooling TV ads will be a $1.26 billion mar- hungry to maximize monetization like
audio and video data together. Fox ket in 2017 (broadcast and cable, Buzzfeed and Vox are getting over
Networks Group is also currently excludes digital),or 1.7% of total TV their reluctance toward traditional ban-
doing addressable ads with Com- ad expenditures this year. ner ads, which fueled ad blocking, and
programmatic buying on desktop and
mobile. Programmatic appeals to digi-
U.S. ADDRESSABLE TV AD SPENDING tal buyers eager to match TV’s size, but
Growth is expected, but not much more than a fraction of total ad dollars the problem is it’s not built for more
Addressable TV Ad Spending % change % of TV ad spending
customized messaging. We are head-
ed toward a world in which the tradi-
$3.0B 120%
tional broad-based demographics like
age, gender and household income will
$2.5B 100% be rendered obsolete by the massive
amounts of data that will be generat-
$2.0B 80% ed by a wide range of screens that has
just begun to extend to things like cars
and home assistants, enabling incredi-
$1.5B 60%
bly granular targeting. Think of a ther-
mostat like Google’s Nest, for instance,
$1.0B 40% noting how often a home owner uses
their heating system and serving up
$0.5B 20% ads for sweaters and knowing what size
they wear. In that instance, it’s not just
$0 0% about advertising knowing so much
2015 2016 2017 2018 2019
more about what kind of people they
can surgically deliver a customized ad
SOURCE: EMARKETER message to but also a broader range of
devices beyond TV and phones bear-
ing those messages.
9gaining ground, and most advertising struggles, it’s too easily forgotten that
deals monetize that C3 or C7 viewing. broadcasters still have a very robust
15 DON’T WRITE AN OBITUARY
FOR BROADCAST TV YET
At first blush, the broadcast TV busi-
What’s more, the networks are making
progress monetizing the viewing of
their content on digital platforms.
revenue stream going in retransmis-
sion consent fees, which are on base
to approach $13 billion by 2023, ac-
ness looks to be in trouble. There was For all that’s made of the declining cording to Kagan. While MVPDs paying
trouble from the start of the 2017-18 fortunes of network advertising, there’s those fees may feel the walls closing
season, with the percentage of adults still plenty of evidence that no digital in thanks to cord-cutting, the growth
18-49 who watched primetime TV alternative can match the unparalleled of the virtual MVPDs is a positive for
during premiere week fell to 25.5%, reach that broadcast TV provides. Iron- broadcasters, who are a must-have in
down 8% from a year ago.
It’s only gotten worse as the sea-
son has wore on: C3 ratings in Novem-
ber dropped 16% in the demo from
MOST OF THE DOOM-AND-GLOOM STATISTICS CITED AGAINST
the same month last year, the sev- BROADCAST TV ARE BASED ON LIVE VIEWING TRENDS,
enth month in which those numbers
WHICH ARE CLEARLY FALLING OFF A CLIFF. HOWEVER,
dropped by double-digit percentages,
according to an Advertising Age calcu- DELAYED VIEWING VIA DVR AND VOD IS GAINING GROUND.
lation. Fox dropped pretty precipitous-
ly due to year-ago World Series com-
parisons. ically, it’s the biggest tech companies these skinny bundles. Then there are
But there’s also a robust counterar- out there who seem to propping up the the direct-to-consumer strategies like
gument building that attests to hidden TV economy by still spending plenty CBS All Access, which give broadcast-
strengths the market may not be ac- on the medium because of that reach ers new revenue streams.
counting for. power. In addition, broadcast TV is just As for the viewer, as discouraging
First, most of the doom-and-gloom starting to fully monetize the trillions as the trends are among the younger
statistics cited against broadcast TV of impressions it generates as new ini- viewers, there is still hope based on ex-
are based on live viewing trends, which tiatives take flight to improve measure- isting data that millennials will follow-
are clearly falling off a cliff. However, ment and monetization. ing the pattern of previous generations
delayed viewing via DVR and VOD is While network advertising has its and watch more TV as they grow older.
2017 TV RATINGS START SOFT
Year-over-year aggregate A18-49 C3 viewership growth
+2%
0%
-2%
-4%
-6%
-8%
-10%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
’12 ’12 ’12 ’12 ’13 ’13 ’13 ’13 ’14 ’14 ’14 ’14 ’15 ’15 ’15 ’15 ’16 ’16 ’16 ’16 ’17
SOURCES: COMPANY REPORTS, UBS ESTIMATES
10video on their phones (36 minutes per
day) than on non-mobile devices.
16 TV RATINGS DROPPING AS
CONSUMERS GO DIGITAL
Just as 2017 saw a clear acceleration
Mobile is where it’s at...and where
it’s going to be for quite some time.
Deloitte Global recently predicted that
in cord-cutting, a similar phenomenon owners will interact with their phones
played out in TV ratings. There are wor- an average of 65 times per day by
risome indicators everywhere you look: 2023, a 20 percent increase over 2018.
Total live-plus-same-day viewership No other kind of device is going to be
at broadcast and cable combined for able to come anywhere near that kind
THE YOUNGER THE DEMOGRAPHIC, THE WORSE THE DECLINE:
THE AVERAGE AUDIENCE FOR KIDS NETWORKS, FOR
EXAMPLE, IS HALF OF WHAT IT WAS IN 2011, FROM 2.5 MILLION
IN TOTAL DAY C3 RATINGS TO 1.25 MILLION TODAY.
adults 18-49 was down 12.2% in the sec- of usage. And their ability to generate
ABOUT THE AUTHOR ond quarter, nearly twice the size of the video consumption will be greatly en-
decline registered in the previous quar- hanced by the advent of 5G networks.
ter. Only one broadcast show on the While the stereotype of the mobile
entire primetime schedule didn’t reg- user is the Generation Z consumer,
ister a decrease in the 2016-17 versus there’s data to support the notion that
a season prior. Cable network ratings users of all ages will be diverted from
for adults 18-49 declined by 9% in the TV usage. Adoption rates could actu-
second quarter of the year versus the ally be inflated by older users, accord-
same year prior—the biggest decline of ing to Deloitte, which is forecasting
the past three years. Nielsen’s second that ownership among 55-to-75-year
quarter audience report demonstrated olds will reach 85 percent in developed
Andrew Wallenstein that live viewing fell 6%, to 3:55 hours countries by 2023, a 10-percentage
CO-EDITOR-IN-CHIEF per day among adult viewers. The point increase over 2018. This is the de-
Wallenstein has been with Variety younger the demographic, the worse mographic expected to keep the linear
since 2011. He oversees daily and the decline: the average audience for TV audience afloat.
weekly coverage of the entertainment
kids networks, for example, is half of The trends are pretty unmistak-
what it was in 2011 from 2.5 million in able: viewers are migrating to digital
industry, with a focus on technology.
total-day C3 ratings to 1.25 million. platforms. That will in turn drag down
He was at The Hollywood Reporter
Not coincidentally, Nielsen is seeing advertising revenues, though there is
from 2002 to 2010, where he held growth in the amount of usage of apps hardly a 1:1 correlation there. What gets
various top posts including editor of and the web on smartphones, which is easily lost though is the notion that
THR.com. He has a master’s degree in moving up from 1:43 a year to 2:27. PCs much of what is being watched outside
journalism from Columbia University are being eclipsed as media devices, the TV set is still TV programming; the
and has taught undergraduate with Zenith finding people on average measurement just isn’t in place yet to
journalism at several universities. spend twice as much time watching properly monetize it.
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