Businesses that operate in the traditional media ecosystem, including broadcast and cable TV networks, cable and satellite providers, and local TV stations, stand to lose as much as $30 billion in profits over the next five years, according to research from Boston Consulting Group.
BCG applied an economic analysis to the TV ecosystem, producing three different projections ranging from conservative to disruptive. The most disruptive model found that many of the biggest players in the ecosystem today stand to see profits decline by $30 billion, with aggregators like networks and MVPDs being hardest hit.
BCG’s projections find that studios (such as Disney) and rights-holders (like major sports leagues) will see profit growth, as will OTT aggregators like Netflix and Hulu. Likewise, direct-to-consumer plays like HBO Now or the upcoming Disney streaming service, as well as virtual MVPDs (vMVPDs) will continue to grow. So, who is getting squeezed? Cable channels like Bravo, TBS and AMC, as well as broadcast networks and local TV stations.
“Even if the above scenario — the most disruptive of the three we analyzed—does not come to pass, the traditional television companies need a new playbook,” wrote BCG’s Sushmita Banerjee, Val Elbert, and John Rose, in the report. “Under our most optimistic scenario, cable penetration still falls by 7 percentage points, and the penetration of vMVPDs rises to 12%; advertising revenue stays flat or declines slightly for local stations as well as broadcast and cable networks.”
Companies are responding by consolidating and acquiring companies that they think will keep their businesses secure. Disney acquired MLBAM and is expected to close a deal to acquire 21st Century Fox, while AT&T acquired Time Warner.
“Companies will succeed or fail in this shifting board game according to their choices about where and how to compete—and the execution of those decisions,” the report’s authors added. “Recent dealmaking both responds to these impending structural shifts and tries to shape them.”