TV – Over the last two weeks several conferences and exhibitions in New York were dedicated to the TV industry in the USA. This includes the whole spectrum from content creation and producers to broadcasters, networks and ad agencies.
They form a very large, profitable and complex business that is more and more influenced by new technologies and customers. Listening to the various sides of the business and how this affects their respective outlook on life was very interesting indeed.
First of all my impression of the TV industry before the last two weeks was that the TV industry in the US did not acknowledge the changes the industry is going through. They just seemed to continue in their old ways without looking left or right. I have to admit that I was wrong in that regard. The industry is very much aware of the changes, they just don’t know where these changes will lead them and how to deal with them.
When we report on TV, broadcast and distribution we had a very simple view – this all belongs in the Large Display report we publish here at Meko. We did know that there is an increasing amount of video content consumed on mobile devices, but somehow we overlooked the message this was sending. Maybe we thought that mobile TV is something for kids. Of course, this is far from the truth.
In line with reports appearing every quarter or so, cable cutting, as in people canceling their cable subscriptions, is real and seen as a continued threat in the industry. There are always several ways to look at it and in my own defence it is so much easier to report on something that has already played out instead of discussing the future.
What I realized in the last two weeks was that the whole TV industry is a highly complex and almost fragile structure of groups with different objectives that has learned to work together. There were always winners and losers and what was winning this year may be a loser in coming years. It all came down to the interest of the audience and consequently the ratings.
The ratings are another thing that we take for granted and all know about, as it is the basis for our favorite show either being cancelled or being renewed. We often forget that this decision is based on a very fundamental business basis. Lower ratings equals less income from advertising and eventually a financial loss. With around 50% of the revenue stemming from advertising it is easy to see how this equation can go south very easily.
The same perspective explains why the industry understandably feels threatened by a change in the overall business model. Many hope for a soft landing, but to be brutally honest this may prove to be just wishful thinking.
There are a few trends in the market already that will lead to a very significant shift in business models. Here is what I think are the key issues for the industry and don’t forget this is my view for the US market.
- Cable subscriptions are decreasing and will continue to decrease.
- Alternative video platforms will increase and attract more viewers going forward.
- Data acquisition from all type of platforms will increase and allow for addressable advertising.
- Advertising volume will increase in digital video platforms.
- The industry needs new metrics to deal with digital video platforms.
When we take a look at the mentioned points as I see them, some clear and threatening patterns for the industry emerge. When we assume that more advertising dollars will be spent on digital platforms, there will be less money to go around for linear TV. Why would agencies spend the same amount for a decreasing audience? While this decrease may be slow at the moment, the rift is much larger when we look at certain age groups. One panelist stated that already today 25% of the Millenials are not reachable by linear TV. Just as a sanity check, Millenials are now the strongest consumer group in the US.
With decreasing revenue from cable subscribers and potentially decreasing advertising revenue, someone will feel the pinch much faster than we all expect. If recent changes in the CE landscape have told us anything, it is that changes are indeed coming faster than everyone expects.
And here is my view of the TV industry after attending all those shows, the players are all aware of the changing landscape. Some are afraid and feel threatened, some are coming out swinging and hope for increasing revenues, but all of them do not know exactly what to do now. As always there will be winners and losers, however it is difficult to foresee who is on which side. – Norbert Hildebrand
