TV Is Going Away (Or Not)
Chris Peterson, Managing Partner
Telling people you work in TV advertising can be exasperating. The response typically goes something like this: "Do people even watch TV anymore? I don't."
At least, that's what the CEO of a public company recently told me at the start of a meeting. All I could do was glance at my wrist to see if I could catch an earlier flight home. Then he added, "Except for golf."
That kind of sums up the state of TV today. TV is going away – or is it? For every strong force reshaping the TV marketplace, there are moderating counterforces pushing back. Certainly there are fundamental changes afoot, but it feels more like an interesting transformation versus something going up in smoke.
Cord cutting is decimating ad-supported pay TV subscriptions (or not)
Since 2012, about 6 million households have cut the cord to cable and satellite TV. That's approximately 5% of total TV households during a six-year period. It's certainly a trend, but it's not dramatic.
Cord cutting is slow, and many of those cutting the cord do so because they can't afford it. Cord cutters are more likely to have household income of $75,000 or less, according to comScore, while those least likely to cut the cord have household incomes between $75,000-$150,000. So, if you advertise anything at a slight premium, TV may actually be getting more efficient.
The trend to focus on is not cord cutting but on potential growth in "skinny bundles" – Sling, Hulu TV, DirecTV Now, PlayStation Vue, and YouTube TV. These have grown to 5.3 million, according to The Diffusion Group. Thirty-seven percent of these skinny bundle subscribers also have a cord, possibly because they are shopping the services.
That means that less than 2% of households have truly cut the cord for live TV since 2012. What's even more interesting is that the growth in skinny bundles has occurred in just the last couple of years. If you add this growth to gradual losses of "corded" cable and satellite subscribers, we're actually seeing growth in paid live TV subscriptions.
Netflix and Amazon are rapidly replacing ad-supported TV (or not)
You'd have to be lost at sea to not realize that consumers want more TV on demand, which is fueling Netflix and Amazon growth. This rise in watching scripted shows on demand also correlates with drops in cable and broadcast viewership.
In spite of all this, total TV ad spend continues to rise each year – albeit very slowly. Given the apocalyptic headlines, it's amazing that it's actually holding its own. It's also quite possible that the market is heading toward a new viewership equilibrium across ad-supported and non-ad-supported content platforms.
Take Netflix as an example. You see potentially slowing growth in the quarters ahead. Netflix currently has 55 million subscribers in the US and its own internal forecasts for the US show saturation between 60 and 90 million subscribers. Most of its current growth today is outside the US.
As digital subscriptions increase, there's also another moderating force lurking in the wings. It takes 25 megabits per second of bandwidth to stream multiple subscriptions, according to an Activate analysis, but only 12% of the US currently has access to this level of bandwidth.
Digital forms of TV are shifting entertainment consumption to mobile devices (or not)
What do consumers want? More TV. Where do they want it? Still in the living room.
Although eyeballs are drifting to mobile devices, more than 70% of digital TV content – from Netflix, Amazon, Hulu and others – is viewed on a connected TV in the living room.
Not only is viewing taking place mostly on a connected TV, the TV itself keeps getting bigger. According to the Consumer Electronics Association, 4K technology is driving 37% annual growth in 65-inch TVs. The living room is becoming more of a deeply immersive on-demand theater, which means the brand and business value of a 30-second spot may actually increase when measured relative to other forms of video.
There are 22 million households without any ad-supported pay TV subscriptions (or not)
Technically this is true – but only because it ignores the fact that all of these 22 million households, as tallied by eMarketer, have free access to over-the-air broadcast, which continues to dominate in ratings over any other form of TV, cable, OTT or otherwise, in spite of drops in ratings. My dad's broadcast is now even being talked about as the "hack" for millennials to access TV.
This same free broadcast content will also be viewable in 4K when the new broadcast standard ATSC 3.0 rolls out. This is easily combined with Netflix and Amazon subscriptions through a connected TV.
Younger people don't watch TV (or not)
As digital devices have exploded, they have certainly become the go-to device for younger audience viewing. The presumption is that when younger people get older, TVs will disappear and be completely replaced by mobile phones.
Yet, according to Nielsen, behavior changes when someone ages into having their own home, and especially when they have kids. When you break down TV viewing habits of millennials, you see that TV consumption is low at the younger end (18) and much higher at the older end (34) – approaching that of Gen X.
All of this isn't to say you can stick your head in the sand and ignore changes to the TV marketplace. There are significant shifts in behavior and consumption, but that large black rectangle in the living room doesn't appear to be going away. While the overall advertising market for TV looks stagnant, there are enormous opportunities for organizations that seize on the changes and participate in the transformation of how entertainment is delivered.
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