Linear TV’s Moment of Greatness, Flickers

Linear TV has been having a tough time lately. Although rumors of its imminent demise are premature, those who confidently predicted the business was not being hurt by cord-cutting, for example, are being proven wrong. Long time sales executives, greatly respected by the industry, are being shown the door as sales revenues decline. 

As with T.S. Eliot’s Prufrock, I have seen Linear TV’s moment of greatness flicker. Here are some of the reasons why:

Wishful Thinking on Cord-Cutting

Back in 2013 at the VideoSchmooze Online Video Forum, industry analyst Craig Moffet stated that cord cutting de-accelerated in 3Q13, meaning that it was going down, unlike what was reported in the mainstream technology press at the time. According to Moffet, the fact that it was misreported as accelerating, “speaks to a desire in the tech press for parables – overthrowing the oppressive MVPDs. But the math tells you otherwise. There is no question that people are cutting the cord but it is not a torrent. It is a trickle.”

Obviously that was wrong. Less than three years later, the cord-cutting spigot went from a trickle to a rush and now in 2019, Mark Huffman writes that, “eMarketer predicts that the number of pay TV households in the U.S. will drop by 4 percent by the end of the year to around 86.5 million homes. It further expects the free fall to continue, with pay TV subscriptions falling below 80 million by 2021.”

Lesson: We have to stop feeling that others are out to get us and focus instead on the reality of the trends … and act.

Over-Confidence in the Loyalty of the Viewer

How many times have I read that today’s viewers still watch lots of live TV? In June 2019, the NCTA released the results of a study that showed that two out of three adults watch TV live. “Notably, of the people who said they watch TV live on a regular basis, two out of three (66 percent) are most likely to watch via a pay TV service such as cable. While apps and smart TVs are clearly on the rise for many, and especially among younger generations, the majority of people still favor sitting in front of a television to catch the latest episode of their favorite show, to stay up to date on the news, or to keep up with sporting competitions.”

But the Nielsen numbers tell a different story. According to Marketing Charts, which analyzes Nielsen’s viewing results, 3Q18 was the first quarter on record in which 18-34 traditional TV viewing (live + time-shifted TV) dropped below 2 hours per day and declined 23 minutes per day compared to 3Q17. The article stated, “In percentage terms, the amount of time 18-34-year-olds as a whole spent watching traditional TV (live and time-shifted) in 3Q18 dropped by about 17.2% from the previous year. Needless to say, that’s a huge chunk – a drop of about 1 in every 6 minutes in just a single year.”

So what is happening here? Digital has supplanted traditional TV for youth. In the same study, Nielsen reported that 18-34-year-olds “spent one hour more per day in 3Q18 using apps and the web on smartphones alone than watching traditional TV.” And notably, many 18-34s don’t watch traditional TV at all – only 73% versus 86% of all adults.

Lesson: Traditional TV is less important to younger viewers and time is on their side.

Dog Paddling to Retirement at the Networks

The inability of some top management at some companies to risk implementing momentous change (possibly forfeiting short term profit or even courting failure) is the silent killer of the network business model. Sometimes it is because the system rewards short term efforts - bonuses are bestowed on an annual basis based on the year’s performance. Sometimes it is from sheer shortsightedness where they just don’t see how innovations can help their business. Whatever the reason, these folks stick to the status quo, essentially dog paddling to retirement.

Without naming names, one company who didn’t see the value of set top box data 12 years ago is now struggling to catch up to the data wave and, perhaps somewhat relatedly, just reported an 11% drop in the company’s U.S. advertising revenue.

Lesson: Think and act long term, even if you are not around to see it.

“We have lingered in the chambers of the sea

By sea-girls wreathed with seaweed red and brown

Till human voices wake us, and we drown.” - Prufrock

The Perfect Storm of Change for Cable. CTAM Looks at Millennials

Change is happening to all facets of our media industry but when hardware and infrastructure is impacted, it is more difficult to react to change quickly. So the recent CTAM Think conference focusing on how MVPDs can respond to the transitioning market in an era of smart TVs and cord cutting, shaving and nevers was especially poignant.

There are two major stresses on the current MSO business model - technology and changing consumer demographics.  Here is an overview of both:

Changing Technology
The technological change in the cable ecosystem over the past decade was provided by Craig Moffett, Senior Research Analyst for MoffettNathanson LLC.  "For the last ten years we believed that the Telcos would overbuild cable with fiber on a large scale. But now that is largely behind us. Actually Only 20% of US will be overbuilt. Telcos have largely gone negative. Operators in the latest quarter are more than 100% of the market growth share."

Moffett also spoke about usage based pricing and the notion of a transport charge. “It is not a new idea but ten years later, it is an unusual mechanism in the industry.” For the first time I heard it confirmed that cord cutting is real. According to Moffett, “The data didn't show cord cutting until 2010 but previously it did not offset household growth. But now there is some loss in the ecosystem. The last three quarters have seen a huge increase in new household formation according to the U.S. census. Yet at the same time there has been no improvement in pay TV subscriptions.” Offering one bright spot he added, “The rate of cord cutting getting worse compared to last year but rate of decline is slowing.”

The business model is also stressed by declining usage. Moffett reported that, “Live plus 7 viewing across every age demo has experienced huge declines, except among older viewers. There are ratings pressures among A18-49 prime c3 rating with long term ratings declines.” So if the challenge is to increase among non-users, know that this group is old, poor, uneducated and doesn't own a computer. 

Changing Consumer Demographics
The ideal target consumer group is the Millennials who are young, tech savvy and have years of potential spending potential ahead of them. But they are hard to reach and are not necessarily subscribing to cable according to Jason Dorsey, CSO for the Center for Generational Kinetics and a Millennial himself. 

What are the trends according to Dorsey?

      Parenting style matters - “What really shapes identity in a group is parenting. How you are raised is the greatest indicator of what you will do. Our parents are boomers and parenting leads to behaviors.” Millennials are late bloomers compared to their Boomer parents. “What age do you consider someone to be an adult - when you are no longer supported by your parents, hold a job and start your own household?” he asked the audience. Some said 18, other said 21. But according to Dorsey, “Millennials say age 30. They are five years older than Boomers were in starting their first job. They are entering workforce later than before and starting households later. Today's 28 year olds are three years behind where other generations where at age 28.

      

      Technology – “We have different relationships with technology by how we age and it is hidden until we have to interact. My daughter will think that the Jetsons are the past. She will never know a time when you could not see the person who you are talking to on the phone.”

          Delivery matters - For cable operators, Dorsey cautions, “I would need to learn a new skill to use the technology the way you are delivering it. You are serving five generations at one time. That has never happened before. It has created all types of new issues.”

Communication styles differ - The ways to communicate with Millennials are different from other groups. “We can’t read cursive,” Dorsey said “So we send you a text.” Millennials want short, fast and easy. “We don’t do phone calls. It is an invasion of privacy. A five minute voice mail is like a podcast.

          Unique mindset - “Millennials are driving change but it is not change to us. We don't think we are a part of a generation. We are special and unique. We have gotten ribbons for 12th place.”

           Diversity - Millennials are the most diverse generation in U.S. history. “We don't see diversity until it is absent.”

      

      Upside potential - “We have more college degrees than any other generation and more college debt which affects future decisions. We are the fastest growing generation in the workforce and the largest generation in the workforce. Our generation is entering wealth accumulation phase. We are 25% of all new millionaires. We are poised to outspend boomers in 2017.” 

      Different spending patterns - But the spending patterns of today’s 18-34s are different from past generations. Dorsey explained, “The 18-34 demo is based on the life stage of that group in 1963 when you had two kids and a mortgage. We are 26 and we bought one car and our mom helped. We are still sampling.” 

Tech dependent - Despite the perception that Millennials are tech savvy, according to Dorsey, they are not. “Millennials are not tech savvy. They are tech dependent. This is a critical distinction. We don't know how tech works but we know we can’t live without it. Boomers invented the mobile phone. The tech savvy generation is Gen X because they were there when the hardware and software came together. By the time tech got to Millennials, it was how simple can you make it so it just works with the fewest number of clicks possible. Text most preferred method of communication.”

Parsing the Media Prognosticators

After attending a range of media events in 2013, I found that there were pronouncements and predictions at one conference that often contradicted those at others. Is cord cutting generational, shaved or non-existent? What is responsible for the slow pace of a standard cross platform measurement? What is the future of set top box data and Big Data in general? How will (choose one or more) dynamic ad insertion, addressable advertising, programmatic buying etc impact the sales side of the industry?

Some interesting assessments could be found at the VideoSchmooze Online Video Forum which offered lively de-constructions of media shibboleths. Nothing was sacred.  And because it was scheduled in December, it provided a last word, of sorts, before the end of 2013.

According to industry analysts Craig Moffet and Bruce Leichtmen, there are conflicting stories in the press about whether cord cutting, Netflix, fragmentation, the bundle, the internet, you name it, is a threat to the standard business model. Their session “A Deep Dive into Video’s Tectonic Shifts” demonstrated that all is not what it appears to be.

As we look back at 2013 and forward to 2014, Moffet’s and Leichtman’s provocative panel separates the truth from the hyperbole. See a short video here.

 

Cord Cutting

Is cord cutting an issue? According to Moffet, cord cutting de-accelerated in 3Q13. That means it is going down, unlike what was reported in the mainstream technology press at the time. The fact that it was misreported as accelerating indicated to Moffet that “it speaks to a desire in the tech press for parables – overthrowing the oppressive MVPDs. But the math tells you otherwise.” Yes, there are those households that are cutting the cord. “There is no question that people are cutting the cord but it is not a torrent. It is a trickle.”

Pay TV

What does seem to be losing ground is Pay TV and that is because cord cutting, or lowering your media bill is economically driven.  Moffet noted that the past twelve months were the worst performing months in Pay TV history. Why? “Economic reasons and alternatives at the low end of the spectrum” posits Leichtman. Young people actually crave full subscription cable and are deferring their subscriptions until they can afford it. Moffet, citing a sample of one – his 27 year old daughter – reaffirmed this theory. “If you have cable it means that you are rich and it is cool to be rich”, he says, she says.

Netflix

Somewhat surprisingly, Netflix was cited as a company that has a “dirty little secret” according to Leichtman. “Netflix churn was 70%. Now it is 50%. It is low price and high churn which gives it a low barrier to entry and a low barrier to exit. Netflix is up to 32 million subscribers but its target is 60-90 million.” Obviously this has not negatively impacted the stock price but it is still surprising to hear. However, Netflix can hurt the ecosystem by gaining rights to programming from the studios and networks which may undervalue certain content. In fact, Moffet says that licensing to Netflix is like crack to the networks. “The networks are addicted to licensing content to Netflix.” The problem will exacerbate at the time when digital demands only the good content from networks instead of all content.

Bundling

Don’t expect unbundling to happen anytime soon according to Moffet. “It is harder to blow up the ecosystem than you think. The reason you can’t get networks unbundled is that programmers don’t want to sell it that way.” The forced packaging of smaller niche networks (or highly expensive but not universally popular networks) with their larger mainstream siblings keeps both programmer and MVPD profitable.

The future of media is still to be written. But right or wrong, many of these ideas are provocative and make good talking points. It remains to be seen whether they have stamina in the marketplace and predictability of what will come. Stay tuned.