TV Industry Tests Limits Of Consumer Demand

TV Industry Tests Limits Of Consumer Demand
14 May

The time has never been better to be in the TV industry or to watch television. But you may want to enjoy it while it lasts.


Insiders are calling this the era of “peak TV.” This year, an estimated 520 scripted series will be produced for broadcast, cable and over-the-top internet services in the U.S., according to cable network FX. That’s up 7% from 2017 and nearly 50% from just five years ago.

The explosion of programming reflects competition touched off by the rise of over-the-top internet television, led by Netflix (NFLX), (AMZN), Hulu and a host of others.

Yet TV industry watchers say it’s only a matter of time before the market heads toward the backside of that peak. Millions of consumers have quit traditional pay-TV services, emboldened by fast-growing streaming TV services to become cord-cutters.

How many internet video networks like Netflix will consumers support in the long run? That’s an open question.

“Without a doubt, it’s a transition time in the television industry,” Publisher Phillip Swann said.

While many in the TV industry fear a shakeout, the programming boom continues for now. But eventually the industry will split into winners and losers as consumers comb through their multitude of choices and bundle their programming.

Most at risk are companies in the multichannel pay-TV business such as AT&T (T) and Comcast (CMCSA). Some studios might abandon their own streaming TV services and return to supplying content for the remaining services. These players include the likes of CBS (CBS), Viacom (VIA) (VIA.B) and Walt Disney (DIS).

TV Industry Trends

The content onslaught started when Netflix, Amazon and others started providing direct-to-consumer video services, with catalog and original material. Hollywood studios rushed their own internet video networks into service for “fear of missing out” on the next big thing, Swann says. All the while, those same studios have supported legacy cable channels.

Content production in the TV industry and consumption still are rising. In the U.S. last year, the average household paid for 2.04 streaming video services, according to Strategy Analytics. That’s up from 1.79 the prior year.

Netflix has the most viewers, followed by Amazon Prime Video and Hulu. Parks Associate analyst Brett Sappington counts more than 200 over-the-top video services in the U.S. alone. More than a third of U.S. broadband internet households subscribe to at least two over-the-top plans, he said. Some 15% subscribe to three or more.

Major streaming services are expected soon from Disney and Apple (AAPL), crowding the field even more. Industry analysts wonder just how big the appetite is for these offerings.

“That’s the $64 billion question,” Strategy Analytics analyst Michael Goodman said.

TV Business: Pay-TV Choices

Meanwhile, penetration of multichannel pay-TV services among households with broadband has fallen below 80%, a seven-year low, says Sappington.

The average household spent $106 a month on pay-TV service last year, up 3% from 2016, according to Leichtman Research Group. That’s a bit more than the 2% inflation rate.

Now, in addition to regular cable, satellite and telco TV bundles, consumers can choose “skinny bundles” with limited channels like Dish Network‘s (DISH) Sling TV and AT&T’s DirecTV Now. And they can mix and match subscription video-on-demand services.

“Traditional pay-TV is very much in decline,” nScreenMedia analyst Colin Dixon said.

When the dust settles on the transition, consumers likely will pay for two or three “anchor tenants,” such as a skinny bundle and Netflix, Dixon says. Plus, they’ll have a revolving roster of premium on-demand services that they’ll get for limited periods. They’ll supplement those services with emerging ad-supported, video-on-demand services such as Roku‘s (ROKU) Roku Channel, he says.

“When it’s all said and done, the average Joe will have probably three to four services that they pay for, pretty much month in and month out,” Dixon said. “But there will be a whole bunch of other stuff that they will take on when there’s something interesting that they want to see, but drop again later. There also will be a whole bunch of advertising-supported services. We’re just beginning to see that start now for more casual viewing.”

Netflix And Amazon TV Services

Only a few subscription video-on-demand services with broad appeal are likely to be long-term winners in the new TV industry structure, analysts say. To succeed, they’ll need a large selection of programming to keep consumers engaged and subscribing.

Netflix is the service that others are chasing in the internet video market. It has been “smart and strategically savvy” in developing its service, TVAnswerman’s Swann says.

Amazon Prime Video is the tortoise to the hare that is Netflix, hoping that slow and steady wins the race, he says. Amazon’s TV service has the benefit of being bundled as an extra with its Prime e-commerce service, which provides free, two-day shipping on millions of products.

Beyond those two, and possibly Hulu, the outlook is less certain for subscription video-on-demand services.

Consider CBS All Access. The CBS-owned service debuted with limited original content and offers mostly a library of sitcom and TV drama reruns. Its subscriber count spiked to more than 2 million after it launched “Star Trek: Discovery,” a new weekly series in the popular science-fiction franchise, last September.

But when the 15-episode first season ended in February, many fans took to social media to announce they were quitting the service until the second season begins airing sometime in 2019.

TV Industry: Customer Churn

With internet video services, it is easy for someone to sign up, binge-watch a particular show, and then cancel the service and move on to another.

“That’s definitely going to be a challenge for these services,” said Strategy Analytics’ Goodman. “Because the ease of getting in and out of them is there.”

Subscriber churn is going to be a problem for many in the TV business, Parks’ Sappington says.

“With services priced on a monthly basis for the same or less than the cost of a movie ticket, then for a consumer to get in and out of service in a single month shouldn’t be that big of a surprise,” Sappington said.

And with the current heightened promotional environment, consumers can bounce from one free trial to the next, Swann says.

Besides the mainstream video-on-demand services, a host of smaller, niche services for passionate fans are likely to succeed. This second tier of internet video services now includes such channels as Crunchyroll for Japanese anime, World Wrestling Entertainment‘s (WWE) WWE Network and Gaia (GAIA) for yoga, fitness and spirituality programming.

“You could go from January through December and watch a lot of great content and not pay a dime, if you’re so inclined, just on free trials,” Swann said.


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