The Winner of the Streaming Wars: Broadcast Television Advertising
Broadcast TV and cable companies have jumped into the “if you can’t beat them, join them” pond, earmarking 2020 as the year the streaming wars began in earnest.
Which handful of this burgeoning posse of streaming services survives is yet to be seen, but arms races are expensive and this one is to be no exception.
The name of this game is eyeballs, eyeballs that are increasingly distracted by new content whizzing around at an accelerating pace from traditional programing to new aps sprouting daily — my kids tell me TikTok is the latest and greatest, where even the likes of Walmart are dabbling, story for another time.
The media watching ecosystem five years from now will likely look very different than it does today, with the consumer winning in what is promising to be an unprecedentedly prolific era of content production: estimates point to the streaming industry investing upwards of $36 billion dollars in new content in the coming year alone.
Netflix is the industry leader everyone is gunning for. Networks are pulling their content back for their own services —content that last year accounted for upwards of 20% of Netflix views. Netflix’s only way forward is to attempt to create original programing with the same draw for consumers, and they are expected to spend over $17 billion in that effort, on top of the $15 in 2019 (maintaining a roughly $3 billion annual cash burn in the process).
But its deep-pocketed rivals —Tech and Media giants— are looking to drop an additional $20 billion to continue to build upon their existing content libraries. All of which is going to be heavily promoted with substantive advertising budgets.
And where is this multi-year escalation in ad spending targeted? There is no shortage of irony in the fact that the bulk of it will be spent on broadcast television, those selfsame networks streaming services were to render obsolete.
Will the billions in ad revenue coming their way offset the cost of this escalating war? With Peacock’s content and its ad supported mode, It would appear a gamble worth taking.
“We expect the new and existing streaming video services to account for multiple billions of dollars in domestic advertising spending by the time these services are all operating at scale.”(1)
Print was the Casualty of Digital Media, TV Limps Along
The press would like us to believe that the internet has destroyed television in the very way that television destroyed radio. For the TikTok generation in my audience, families once gathered around the radio for weekly shows, gradually shifting to television in the late 1940s and early 1950s.
Advertisers quickly followed their audience, and the golden age of television and television advertising was born.
Twenty years ago, in the wake of the dot com bubble, internet advertising was in its infancy, garnering just under 4% of total domestic spending. Blockbuster Video (google it TikToks) was still alive and well, and Netflix had only 300,000 subscribers (compared to 61 million in the US at present). Television and newspapers controlled the lion share of advertising dollars, at roughly a third each, followed by magazines at fifteen and radio at thirteen percent.
Today, television has more or less held onto its third, however the web has taken over a whopping 45%, virtually eviscerating newspaper advertising —just yesterday billionaire Warren Buffet announced his selling of the 28 newspapers he acquired in the 2010s for $144 million, at a loss of $200 million. The web has taken a significant toll on magazines and radio as well.
Americans Spend 5 1/2 Hours per Day Watching TV
Despite the media’s protestations, TV is alive and well. Americans, on average, still sit in front of traditionally connected televisions, watching either live or time delayed television for four and one half hours daily. And then spend another 45 or 50 minutes, on average, streaming on that selfsame device. While streaming is definitely seeing an upward trend, it is perhaps up 5-10 minutes over the past several quarters. Traditional television viewership bounces around, but shows no decisive or predictive trend.
It’s irrefutable that television ad spending has been in a precipitous decline since peaking at 39% of the total US advertising market in 2012. And it is likely much more than a coincidence that its decline coincided with the 2013 launch of Netflix first blockbuster original content —House of Cards and Orange is the New Black —changing forever how Americans consume content. Netflix provided the entire season - at once, and ad free. American’s stampeded to the new viewing paradigm, more than doubiing Netflix domestic subscriber base since, ending 2019 at roughly 61 million users, versus 27.15 million in 2013.
Binge watching was born. Viewers need to nothing more than sit still - no sooner has one episode ended than the next has begun. But this new found love of binging need not be limited to these new series. Networks could license old favorites — Friends, The Office, Grey’s Anatomy— to Netflix. Endless, effortless Monica and Chandler? What could be better.
Apparently nothing. In 2018, Americans spent 52 BILLION minutes streaming The Office on Netflix. When broken down on a per subscriber basis, it seems a less daunting statistic: roughly 15.3 hours or 42 episodes over the course of the year. But that’s just ONE show. Another 32.6 billion minutes was devoted to their second favorite, Friends. And these are Nielsen figures, so are likely low as they exclude views on laptops, phones, etc, which is the primary way my kids view content.
”Those 52 billion minutes of The Office are equivalent to 99,103 years — an amount of time that would stretch back to the Pleistocene epoch, around when, scientists hypothesize, pre-modern Homo sapiens began to use language.”(2)
And that’s just one series. In 2015, for example, due to its virtually ubiquitous airing on USA, Law & Order: SVU was viewed for a grand total of mind-blowing 161 billion minutes: 303,316 years worth of rape, sexual assault and child molestation.
And of course, all of this pales when brought into true and last remaining plum of broadcast tv: the holy grail of sports. In 2018, the big 4 sports broadcast networks —ESPN, ESPN2, Fox Sports 1 and NBC Sports Network— together garnered ONE TRILLION viewing hours. (2)
So while yes, cord cutting and shifting viewing habits have, and will continue to reduce traditional television viewership, it is still considered the most reliable method of reaching customers.
“Yes, the audience has shrunk, but the job TV does has become in some ways more rare and special,” Mr. Ruebensaal said. “The question is who else could come in and do that exact job as well.”(3)
Simple Supply and Demand: Fewer Viewers, More Valuable Demand
Another irony, as broadcast television supply has waned - with new content having increasingly been produced by streaming companies - that remaining supply becomes more valuable. Prime time CPMs in the Upfront — the cost per 1,000 viewers— have more than doubled in the past decade, on both broadcast and cable networks.
“So although linear supply continues to erode, demand isn’t following suit, driving up inflation in a sellers’ market that is only likely to become stronger.”(4)
Experts Repeatedly Raised Estimates for 2019 Ad Growth: 2020 Poised to Repeat
And streaming war for the viewer is not the only source of new advertising dollars flowing into broadcasters pockets.
The Direct-to-consumer segment is quite the fashionable darling of the venture community, with unrelenting pressure to secure ever more consumers. Selling everything from mattresses to meals in a box to prepare fresh at home, these are companies that are seeking to create thriving businesses largely by passing traditional retail channels. And like traditional advertisers, they are finding the greatest impact is driven from broadcast television, spending an aggregate of roughly $3 billion in 2019 according to iSpot.tv.
A few billion here, a few billion there starts to add up, and apparently caught ad buyers by surprise.
Ad buying group Magna Global increased their estimates for overall US ad spending (excluding cyclical events) in 2019 three times in the back half of the year, from from 5.1% to 6.3% to 7.2%. And these were not the first times those estimates were increased: In September, 2018 the boosted their growth forecast from 3.6% to 4.0%. Over the course of twelve months, Magna doubled their ad growth estimate.
Thus far, they have revised the 2020 estimate upwards from 3.8% to 4.4%. Were that number to end up doubling, as it did in 2019 that would translate into another roughly $8 billion in spending to the total US forecast of $230 billion. And my guess is that a good chunk of that will be directed at television.
The effect could be masked, however, by the advertising anomalies created largely by political spending. Former Mayor Mike Bloomberg is estimated to have already spent over $250 million advertising his presidential campaign, potentially pushing up rates prohibitively for his less well-funded competitors.
Including the cyclical effects of elections and the olympics, Magna has revised their 2020 growth expectations up from 5.8% to 6.2% to 6.6%.
The Game of Content Musical Chairs: Win Win or Lose Lose?
Upwards of 20% of Netflix 2018 viewership came from series that were created, and owned, by networks who are taking this content back as pillars for their own impending streaming services. Friends has gone to Warner Media; The Office and Parks and Recreation will be off to NBCU’s Peacock when their licenses expires at the end of 2020. NBCU will also be claiming exclusive licenses to other popular shows as their deals terminate in coming years, including Friday Night Lights, Cheers, Brooklyn Nine-Nine, and Frasier. Grey’s Anatomy and New Girl are Disney properties - between Disney now owning controlling interest in Hulu and the new Disney+, those series can’t be far behind the Netflix exodus.
Most Viewed Netflix shows, as a percentage of all Netflix views
Red bars are for shows that could be taken away since they are owned by Disney, Fox, WarnerMedia or NBCU
The Office and Friends cost Netflix in the environs of $100 million annually, the others perhaps somewhat less. But even at that rate, Netflix was spending $500 million annually for its top five shows. $17 BILLION is quite a budget to fill a $500 million hole.
A Gamble Called Peacock
Comcast’s subsidiary NBCU may be foregoing hundreds of millions of dollars in licensing fees when it pulls stalwart such as The Office and Parks and Rec to air on its own streaming service, but it they have a plan to fund the gap: Peacock will be ad supported.
The ads will be limited, and targeted, but nonetheless present. Peacock with ads is free to Comcast subscribers, or $4.99 per month for nonsubscriber. Opting out of the ads costs an extra $5 per month, which Comcast is banking on few doing.
And I think it just might work. Advertisers are clamoring for television eyeballs and views are quite clearly clamoring to watch the likes of The Office almost without end, leaving Office fans will have quite an incentive to think twice about cutting that cord. And for non-subscribers $4.99 a month is pretty nominal, even for the most frugal.
“It is impossible to overstate the power of free.” said Linda Yaccarino, chairman of NBCUniversal advertising and partnerships. “Zero dollars means zero barriers between advertisers and consumers.”(5)
There will be a variety of ad formats, including shoppable pause ads, but not more than 5 minutes per hour, and they will limit the endless repetition; Peacock is creating a platform that will likely yield some very interesting learning in this burgeoning space.
Whether fighting Netflix on its own turf is a winnable crusade is yet to be seen, however the networks are no longer content to sit back collecting license fees for their content, as their viewership and ad revenues slowly dribble away. Will the billions in ad revenue coming their way offset the content escalation war? With Peacock’s content and its ad supported mode, It would appear a gamble worth taking.
Notes
(1) Brian Wieser of GroupM. https://www.wsj.com/articles/spending-by-streaming-tv-expected-to-give-ad-growth-a-long-term-boost-11575374402?mod=article_inline
(2)https://www.hollywoodreporter.com/live-feed/staggering-amount-time-americans-spend-watching-tv-1224123
(3) Clayton Ruebensaal, executive vice president otf global business-to-business marketing at American Express Co. https://www.wsj.com/articles/elections-olympics-to-boost-ad-spending-as-market-cools-industry-forecast-says-11575891000
(4) Meredith Verdone, chief marketing officer at Bank of America Corp. https://www.wsj.com/articles/spending-by-streaming-tv-expected-to-give-ad-growth-a-long-term-boost-11575374402?mod=article_inline
(5)https://www.reuters.com/article/us-media-nbcu-peacock/comcast-bets-ads-work-on-streaming-tv-plans-nbc-peacock-debut-for-april-idUSKBN1ZF18U