Narrative: Disrupting TV
Each narrative page (like this) has a page describing and evaluating the narrative, followed by all the posts on the site tagged with that narrative. Scroll down beyond the introduction to see the posts.
Narrative: Disrupting TV (Jan 11, 2017)
Updated: May 27, 2017
This narrative was the subject of the Weekly Narrative Video the week of May 22-26, 2017. You can see the video on YouTube here, and it’s also embedded at the bottom of this essay.
TV and video content is the single largest content category by far globally when it comes to revenue, and nowhere is this more true than in the US, where pay TV is far bigger in terms of subscribers and monthly spend than anywhere else in the world. Pay TV providers and channel owners are some of the biggest brands in content, and have considerable leverage when negotiating with other players in the market. And yet we’re starting to see signs of significant potential disruption in the TV market, with cord cutting accelerating, streaming services accounting for a greater share of video viewing, and growing alternatives to traditional consumption.
The cord cutting trend can be hard to see unless you zoom out and look at the complete picture – several cable companies have recently seen a return to growth in TV subscribers, and it would be tempting to see this as evidence that cord cutting is not really happening. But the reality is that there has been a swing in the balance of power between cable companies and their competitors, with the major telcos (AT&T and Verizon) taking their feet off the gas when it comes to wire-delivered TV services, and allowing cable companies to come back. Overall, the US pay TV industry is losing around 1.5 million pay TV subscribers per year to cord cutting, and that trend is accelerating. And of course that’s in the context of overall household growth in the US, so the penetration of households is falling even faster than the absolute number.
Even within the remaining base of a little over 90 million pay TV households, there has been a shift to smaller bundles, and there have been cuts in the lineups offered by some of the big players, with smaller, less popular networks dropped. Subscriber numbers for several big cable networks have fallen significantly over recent years, often by far more than the drop in the number of total US pay TV subscribers, as a result of the combined effects of cord cutting and cord shaving.
Within the context of pay TV, the other big shift has been a move from watching live, linear programming to watching DVR and on demand content, which tend to carry lower ad rates than live. Given the poor measurement of most non-live content and the fact that many broadcasters don’t get credit for all time-delayed viewing, this has squeezed ad revenues.
If there’s a savior in all this, it’s long been held that it’s sports programming, which is almost the only kind of programming that doesn’t lend itself to time shifting through DVR or VoD. However, in recent months even live viewing of NFL games has been falling, though it’s too early to tell whether this will be a permanent drop.
Despite all the challenges facing the traditional pay TV industry, alternatives continue to struggle to provide compelling offerings, because the traditional rights owners still hold many of the cards. Over-the-top streaming services like Sling TV, Playstation Vue, and DirecTV Now struggle to offer local broadcast channels nationally because of the complex ownership structures that surround broadcasting, while out of home and TV Everywhere authentication rights are often hard to come by. Most cord cutters are therefore left with a somewhat fragmented experience, having to cobble together streaming and antenna-based services or give up entirely on traditional TV and rely exclusively on Netflix and the like instead.
TV is definitely being disrupted by a variety of forces from both within and outside the industry, but that disruption is uneven and incomplete. Eventually, however – and I’m betting it’s not that far away now – we’ll reach a tipping point where the major content owners recognize that this is a train that can’t be stopped, and that they need to jump on board while they still can. At that point, things will start moving much more quickly and we’ll finally end up with offerings that are a much better fit for what people really want – their favorite content, when they want it, on the device they want it, preferably without advertising.
The American Cable Association, a trade group which represents 750 smaller pay TV companies with around 7 million subscribers between them, says Comcast is making it very difficult for them to offer smaller pay TV bundles. In addition to being the second largest pay TV company in the US itself, Comcast owns several regional sports networks, and is allegedly attempting to force those smaller pay TV companies to carry them on the vast majority of their subscription packages, raising prices and preventing companies from offering increasingly popular “skinny bundles”. The companies have filed a formal complaint with the FCC, but only in response to a broad annual enquiry into the state of competition in the market, rather than as an accusation of broken rules. As such, it’s not clear what effect if any this complaint will have, but it’s indicative of the fact that big TV companies are increasingly attempting to fight consumer disinterest in their programming with forced bundling to stem the loss of subscribers and the associated revenues. That’s clearly not a workable solution over the long term.
Update: later in the day, Viacom executive Bob Bakish sent a memo to staff saying that Charter has been blocking attempts by the company to create its own packages and bundles in response to being dropped from some of Charter’s programming tiers. So this is not simply a one-way issue, but something which affects both sides of the coin here.
AT&T has pre-announced some figures for its third quarter results in an SEC filing, including nearly 300,000 DirecTV Now streaming subscriber additions in the quarter, but around 90k traditional pay TV losses. Assuming that latter number is reported on the same basis as in the past and therefore excludes the DirecTV Now customers, it would represent a significant improvement, as the company lost over 300k subs in Q3 2016, and over 200k subs in Q2 this year. But losses are losses, and although the company through hurricanes into the mix as a driver, it’s clear that the underlying drivers that caused previous declines are still big factors too, and those include competition (and have in the past included the challenge AT&T faces of not being able to provide broadband-TV bundles in big chunks of the US).
Two wireless items in the filing are also worth noting. Firstly, the company said it saw 900k fewer postpaid phone upgrades in the quarter, a continuation of a long-standing trend at AT&T of lower upgrades over time, which has seen it fall to by far the lowest upgrade rates among the big four US carriers. Secondly, it’s breaking out certain prepaid IoT connections – notably those associated with connected cars – in its reporting for the first time, and it sounds like it has just over half a million of those as of the end of the quarter. That’s a tiny fraction of its overall connected car connections, which stood at a cumulative 13 million connections as of the end of Q2, the vast majority of which are low-revenue telematics connections sold to car manufacturers rather than directly to end users.
As with this morning’s Facebook item, I’m covering three separate news items relating to Hulu here. Firstly, Bloomberg reports that Hulu has paid top dollar to acquire some TV shows which might historically have gone to Netflix, notably NBC’s This Is Us, Black-ish and Fresh Off the Boat, but also older shows including NYPD Blue, The Bernie Mac Show, Will & Grace, and 30 Rock. It’s also acquired rights for some e-sports, a “sports” category that’s also attracted interest from other big names including Amazon and Facebook, and is temporarily lowering its entry-level price from $8 to $6.
Hulu has already announced that it’ll spend $2.5 billion this year on shows, and that increased budget seems to be allowing it to be more competitive in bidding for some of the bigger traditional TV shows and thereby flesh out its lineup with both more of the current season stuff it’s known for and more library content. It’s helped also by the fact that its sometimes ambivalent network backers seem to have decided it’s one of their best shots at preventing a Netflix hegemony. E-sports have small but dedicated and growing audiences, and represent one of Hulu’s first forays into sports, albeit a very small one – just 15 hours in total. And the price drop seems designed to attract new customers at a busy time of year for traditional TV series premieres, and also to act as an on-ramp for Hulu’s much more expensive live TV service, which it’s just begun promoting aggressively. Hulu still has a long way to go to achieve Netflix-like levels of awareness and especially adoption – a survey I ran earlier this year suggested it has about a quarter of Netflix’s penetration in the US – but it’s clearly keen to change that.
Google Fiber is rolling out in San Antonio and Louisville, two markets to which the company committed to before halting expansion, but won’t be offering pay TV service in those markets alongside its broadband service. That’s a first, as Google Fiber has always offered broadband and TV (though not always phone service) in its previous markets, in keeping with the most popular pairing of services taken from cable and telecoms operators. The reality is that Google Fiber TV wasn’t nearly as popular as its broadband offering, with just over 80,000 subscribers at the end of 2016, a small fraction of its broadband base, which is thought to be in the high hundreds of thousands at this point. Besides that, the economics associated with pay TV, especially for smaller providers, are not that attractive, with much of the revenue being passed straight through to channel owners and little opportunity for real differentiation. So, with all that as context, it makes perfect sense for Google to drop TV from its bundles and go purely for the broadband market, where its differentiation is far stronger, and where the economics should be quite a bit better. With the launch of YouTube TV in many markets, Google even has its own streaming TV service to offer now too.
, via 9to5Google
YouTube has licensed nine of its original shows and movies, which were until now exclusive to its Red subscription service, to a third party in order to generate additional licensing revenue. Two of the great advantages of producing original content are exclusivity and licensing rights, though the two are often somewhat mutually exclusive, but YouTube appears to be playing both sides here, keeping the shows as exclusives for a period of time before broadening availability to develop a content licensing revenue stream too. That’s not a strategy I would ever see most of the other companies developing original content employ in such a windowing approach, but it likely suits YouTube reasonably well given its smaller subscription footprint and the increasing presence of aggregators and others who want to show YouTube content to fans on other platforms like traditional TV, somewhat ironically. But this will also allow YouTube to monetize its content in other geographies where the Red service hasn’t launched, whereas Netflix is now very focused on its near-global presence.
This LA Times piece has some good numbers on how this season’s broadcast fall TV premieres fared, and the answer is that they saw another drop year on year in live viewing. The ongoing drop in life NFL viewing was a big contributor to the overall drop, but there were broader drops for dramas and comedies as well, despite a fairly strong performance on the comedy side overall. None of this is new, nor should it be surprising at this point – the trend away from live viewing and towards DVR and streaming viewing of the same shows as well as digital-native streaming through services like Netflix is well established and unstoppable at this point, with significant implications for legacy TV companies. As measurement of non-live viewing – both DVR and streaming – both improves and increasingly gets counted in official figures used to calculate ad payouts, some of the effects on ad revenues will be mitigated, but certainly not all.
via LA Times
Online Pay TV Streaming Services Have Few Subscribers (Oct 4, 2017)
In a blog post I wrote in August about cord cutting in Q2 2017, I noted that there were likely around 3 million online pay TV streaming subscribers as of June, compared to around 4 million subscribers that had cut the traditional pay TV cord during the period those services had been available. The Information today reports that there are around 3.4 million of those online pay TV subscribers, including 2 million at Sling, half a million at AT&T’s DirecTV Now and slightly less than that at Sony’s PlayStation Vue, with just 200k at Hulu’s new live service, with a few more at YouTube. The Information uses this information to suggest that these services haven’t yet been all that popular, and that’s certainly one way to look at it, but given that until this year they mostly either came from unknown brands like Sling or were heavily limited in terms of their mainstream device support like PlayStation Vue, I’d bet we’ll see some faster growth going forward with the entry of Hulu and YouTube into the market, and I’d argue that AT&T’s rapid growth to the same scale as Sony in a much shorter period is evidence of that. With both Hulu and YouTube gearing up for big promotions in the coming weeks for their services, that growth will accelerate further. Meanwhile, cord cutting is also accelerating, and that acceleration is likely to be exacerbated by this growth in streaming options, leaving cable networks with fewer subscribers as users both cut and shave the cord. None of this is great news for the traditional TV industry.
via The Information
Third party social media metrics company Delmondo says that across a selection of Facebook Watch videos it measured, average watch time was 23 seconds. That’s a little higher than the 17 second average for videos in the News Feed, but not much. It’s notable, too, that 20 seconds is the minimum amount of time a video must run before a mid-roll ad can be shown to the user, and I wouldn’t be surprised if those mid-roll ads are a big reason why average watch times are around that level. I continue to believe that Facebook’s mid-roll focus is going to harm viewing and ultimately ad revenue for its video platform, and it badly needs to re-think that approach. It’s still early for Watch in particular, and it’s clearly more of a destination for video rather than something users stumble across accidentally as with the News Feed, but it needs to grow well beyond 23 seconds if it’s going to be worthwhile either for Facebook or its content creators longer term.
YouTube TV Will Advertise During World Series Games (Oct 3, 2017)
Google’s YouTube TV online pay TV streaming service will be a sponsor of this year’s baseball World Series, marking its first big ad push to gain new subscribers. That’s a reflection of the service’s broad reach now that it’s secured rights for local channels and launched in 49 of the 50 largest US markets, covering 2/3 of the US population. But it’s also something of a funny choice given that YouTube still doesn’t have the Turner channels, of which TBS carries the National League playoff games leading up to the World Series, though of course it’s possible that YouTube TV will have added those channels by the time baseball season rolls around again. In general, though, YouTube TV feels like it has very low awareness among cord cutters in general, in part because it has limited its rollout to areas where it can offer local channels, and hasn’t made a ton of noise about launching in new markets. With a big sponsorship like this, that could change, and it could quickly become one of the more popular pay TV streaming services out there, giving existing brands like Sling, DirecTV Now, PlayStation Vue, and others a run for their money.