Commentary

Paradox: Streaming Wars Will Be Great For TV Advertisers

by Dave Morgan , Featured Contributor, October 10, 2019

We’re in the midst of the streaming wars, as Netflix, Amazon Prime, Hulu and a host of smaller players like Tubi, Fubo and CBS All Access fight to win new streaming video subscribers.

The battle is escalating, with new entrants from Disney (Disney+), AT&T’s WarnerMedia (HBOMax), Apple (TV+) and Comcast/NBCUniversal (Peacock).

All of them want lots of sign-ups, and they want them fast. Their products are coming to market priced to sell, aiming to separate viewers from their legacy pay TV packages. Collectively, these companies are spending tens of billions of dollars a year on original shows and movies.

If they are successful, it would be bad for the television industry, right? And for TV advertising in particular, since less viewership means fewer eyeballs to sell?

Paradoxically, I don’t think it will be bad at all. In fact, it’s quite likely the streaming wars will end up benefiting the TV ad business. Here’s why:

Little or no ad load from new streaming subs. Netflix, Prime and a chunk of Hulu don’t have ads. Neither will Disney+, HBOMax and Apple’s streaming products. Since lack of ads will be a real selling point in all of these services, we're not likely to see ad loads in these services any time soon.

Taking viewers out of TV and moving them into ad-free streaming services means the legacy TV ad load only becomes more important and valuable because it is still the only way to reach remaining viewers at any kind of scale.

Much of America can’t access streaming services. It’s critical for folks to understand that 35% of America don’t have fixed broadband at home (according to Pew Research) and 20% of those who do have suboptimal speeds for watching HD programming (Microsoft).

Unlimited content, fixed wallets. Streaming services are a luxury. The number of folks who have the discretionary income to buy them isn’t unlimited. 40 million Americans participated in the food stamps program last year.

Over-the-air TV is free to all. Low-cost bundles from cable or satellite are in many lower-income homes, where people watch lots of ad-supported TV. While those folks don’t buy as much as wealthier populations, they do spend a lot on food, cars, phones, insurance, gasoline, etc.

95% of the premium video ad load is on linear TV, 5% on OTT. When you look at where viewers watch premium video advertising, linear TV represents the vast majority of impressions. First, because it reaches so many people: 300 million in the U.S., for an average of four hours per day.

Second, because linear TV shows so many ads -- 16-18 minutes of ads per hour -- while OTT services show either none, or little: typically two to six minutes per hour.

Since the bulk of the services coming out don’t have much ad support, OTT streaming services won't add much relative ad load to replace what iinear TV will lose due to audience erosion.

In the world of TV, less means more. As everyone in TV advertising — or in the world of any other scarce, valuable, supply-constrained commodities — knows, less of it means higher prices for what is there.

As we have seen over the past few years, declining ratings for top TV shows have been offset by higher prices on a cost-per-thousand basis for spots on those shows. That’s how the market operates.

Thus, linear TV viewership losses to streaming services that aren’t accompanied by comparable ad load growth by those services means TV ad dollars will largely stay on TV, and will be priced higher. A bit paradoxical, for sure -- but the likely reality, just as sure.

Best place to find people who like to watch TV is on TV. Finally, TV advertising will benefit because billions of dollars will be spent by streaming services to find people to subscribe to their services. No media channel is better for that than TV. They will get most of those billions. Simple as that.

So, will the streaming wars be good for TV advertising? What do you think?

advertising, ott, streaming, tv

7 comments about "Paradox: Streaming Wars Will Be Great For TV Advertisers".

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Howard Shimmel from datafuelX, Inc., October 10, 2019 at 6:01 p.m.
Dave, major issue will be how services like Disney Plus and HBO Max impact the supply of TV GRPs from network and cable. Declines this year were terrible without the impact of these services. Impact will likely be 2021/2022 upfront. If supply is down 20% that year, when addressable TV and connected TV are more established, it could have major impact on the "traditional" TV market.

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Ed Papazian from Media Dynamics Inc, October 10, 2019 at 6:22 p.m.

Howard, I assume that you are referring to primetime 18-49 rating declines, which are, as you say, dropping at a high rate, especially for the broadcast TV networks. However this does not mean that TV audiences across all dayparts and for all age groups are fading away. The typical yearly drop is about 3-4 % per Nielsen when all adults are counted. Which raises an important point. Neither the 18-49 or its companion "demo", 25-54, represent a valid targeting mechanism for advertisers. These are throwbacks to the 1960s and 1970s when there was no cable, let alone SVOD, and the broadcast networks had 88-90% of the primetime audience. Now, they are nothing more than outmoded GRP tonnage guarantee metrics. The supply of valuable "impressions" includes all viewers to varying extents for each brand, not just 18-49s or 25-54s. Rest assured, there will be plenty of GRPs---not neccessarily in these conglomerate age groupings, but in total, for advertisers to buy and Dave's point about where the ad "impressions"are is perfectably right. They are---and will continue to be---- mainly in "linear TV".

This does not mean that "linear TV" can't be bought and sold in much better ways than the primitive system now in force allows, nor does it mean that SVOD ---which only accounts for 10-15% of all viewing and only a tiny bit of ad-supported viewing won't eventually become an important but high CPM, better targeting option for some or even meny advertisers. The influx of TV/movie studio SVODs may unlock that door and force Netflix to offer an ad-supported option to subscribers---but that remains to be seen---in my humble opinion.

Jack Wakshlag from Media Strategy, Research & Analytics replied, October 10, 2019 at 8:31 p.m.

Howard. The Law of Supply and Demand still holds. Supply will be down under your scenario. Pricing (cpm) for traditional TV remains lower than equivalent on OTT or digital. Less supply of traditional means higher pricing unless demand goes after even higher priced and very scarce digital video inventory. seems less likely to me. Plus we now have companies with very deep pockets looking to reach TV watchers. I think Dave is right, as usual. I would not bet against him.

Dave Morgan from Simulmedia, October 11, 2019 at 5:38 a.m.

Howard, very good point, but I'm with Ed and Jack on this. Yes, linear TV will be impacted, but it's scale is still so massive that it's "must buy" status will still hold, thus classic supply and demand forces will cointue to apply.

Howard Shimmel from datafuelX, Inc. replied, October 12, 2019 at 10:46 a.m.

Understand everyone's points. But the other thing we need to consider is that the supply of network/cable GRPs and network/cable's ability to deliver reach exists in a rapidly shrinking universe. Today, 35% of adults are either CTV only (have no access to OTA or cable) or CTV dominant (have access but watch very little broadcast/cable). Based on everything we know, that number should grow materially every year.

Jack Wakshlag from Media Strategy, Research & Analytics replied, October 12, 2019 at 1:08 p.m.

First, the laws of supply and demand still hold. Getting reach is still necessary. TV has to be part of that. Second. These numbers are alarming if they are true. I don't believe they are accurate and they are not close to Nielsen's. Where are they from? Online surveys? We know they aren't accurate for this purpose. Even if people watch digital platforms without ads, they still need to be reached. Ad demand will be boosted with these companies spending tons to recruit subscribers.

Ed Papazian from Media Dynamics Inc, October 12, 2019 at 8:13 p.m.

Jack, at present about 70% of U.S. TV homes get basic cable fare via cable systems or satelite transmission. In addition, about 5-6% also get cable programming via vMVPDs. Even though this amounts to about 75% coverage, I'm guessing that the decline will continue as cord cutters begin to buy into the SVOD packages being offered by Comcast, and others. Soon ads will also be available via this route and don't forget that many of us think that Netflix will have to launch an ad-supported platform soon. Also, the broadcast networks/ stations cover about 87-90% of all homes because 13- 14% of U.S. households now get their TV via over-the-air reception. Therefore a national advertiser who uses both broadcast and cable---as many do---still covers almost nine out of ten homes and that's not counting OOH exposures as well as any digital add-ons that apply. I think that one way or the other sufficient ad GRPs will be available on "linear TV" programming for all to buy and use. And if not, what's to stop the networks and cable channels from creating more GRPs by simply adding to their commercial clutter?All they need to do to make such a change palatable is to use a combination of very short---"premium"---- breaks as well as their usual clutered breaks.