Subscriber Losses a Scary Movie for Wall Street
The first week of August may have marked a tipping point in the 60-year history of the television industry. You might call it, “Revenge of the Cord Cutters.” According to Bloomberg, broadcast media stocks, including Time Warner, Disney, Viacom, CBS and 21st Century Fox, saw $49 billion in stock market value wiped out in a selloff triggered by Disney’s disclosure that its ESPN network had experienced “some subscriber loss” in the prior quarter.
“The balance in power in content has moved. It’s totally shifted to Netflix,” Dish Network CEO Charlie Ergen said in the company’s quarterly earnings conference call, as reported by USA Today. Dish lost more than 81,000 subscribers during the second quarter. Different industry analysts estimated that the pay TV industry collectively lost somewhere between 556,000 and 625,000 subscribers in the second quarter, according to a story on Multichannel News.
Investors were of course well aware that a growing number of viewers were forgoing big cable bills in favor of Netflix and other streaming video on demand (SVOD) options. But the speed with which it is happening was a shock. As reported in Variety, analyst Craig Moffett calculated that the number of pay TV households is now shrinking at an annual rate of 0.7 percent compared with 0.1 percent just a year ago. “That may not seem like a mass exodus, but it is a big change in a short period of time,” Moffett wrote.
The assumption had been that Disney, Time Warner and the others are primarily content companies, and everyone knows content is king. So it did not matter whether people were watching on their cable-connected TV or via Netflix or Hulu, as long as they were watching.
The problem is that those cheaper non-traditional viewing options don’t generate nearly as much fee and ad revenue for the TV industry as the traditional cable bundle. As more viewers get accustomed to commercial-free SVOD, the less tolerance they have for conventional ad-supported linear TV. When rumors that Netflix was testing ads stirred up a hornets nest on social media earlier this year, CEO Reed Hastings promptly posted a blunt pledge on Facebook: “No advertising coming on Netflix. Period.”
And it is not just Millennials who are defecting to SVOD. According to a new report from Hub Research, as reported by TheStreet, 68 percent of U.S. television viewers now use a streaming subscription service to watch TV shows and movies—up from 41 percent just a year ago.
What does all this mean for brands and advertisers? TV is still almost universally regarded as the most effective advertising platform, offering emotive power and the ability to deliver huge audience figures as well as highly targeted demographics. But as the prime audiences find more ways to watch TV without the commercials, the value of TV as an advertising vehicle could degrade, and in a vicious cycle, ad-supported media could becomes the low-value exception and not the standard.
Of course, someone has to pay for all that expensive programming we love to watch. So if you don’t like the quid pro quo deal of ad-supported media, expect that the industry will find another way to charge you for it.