Subscription Video on Demand: What it means to Broadcasters and Advertisers

Means-Mark-pro-photoThe longtime foundation of Broadcast TV’s revenue, advertising spending, is slowly but surely being eroded by Net based companies.  Yet it is not just via the giant digital-based advertising providers (ex. Google) it’s from technology-based companies that are not even after advertising dollars.

Subscription based video on demand (SVOD) services, such as Netflix (36MM US subs.) and Amazon Prime (~40MM US subs.), are the culprit. Their subscription growth is only going to continue as they learn to truly understand their customers.  SVOD allows people to watch what they want, commercial free, when they want it.

Additionally, their ability to capture viewing data allows them to provide their customers the programming they desire, even before they ask for it.  Take the production of “House of Cards” as an example. An algorithm that used Netflix viewership data discerned the original British mini-series was popular with people who watched actor Kevin Spacey’s and director David Fincher’s work.  Faith in the data led to a multi-million dollar investment by Netflix for this original series.. Big Data led to the creation of a highly watched and critically acclaimed program that Netflix owns.  It is unfortunate for marketers that neither service currently offers anything in the way of paid promotional options.

The sheer depth and breadth of available content is a driving force in the recent uptick in number of hours the American public views video. It is logical to surmise this trend is a boon to the coffers of broadcasters as well. In actuality the revenue upside for broadcasters is a muddled subject.   As the number of Americans subscribing to paid streaming content services has increased (62.5%) from 16% in 2012 to 26% in 2014 (per eMarketer).  Conversely, Broadcast TV ratings are down 4%-9% (per Nielsen).  In 2014 this resulted in stagnant ad revenue.  Many Wall St. firms opine this is a long term trend that broadcasters must address.  These opinions are validated by the ad industry as Magna Global reported Broadcast TV now accounts for 85% of all video viewing.

To recoup the lost ad revenue, the major broadcast conglomerates, are employing third party measurement services Nielsen and Rentrak to gauge the viewership of their content on SVOD services. While Netflix and Amazon have gone on record indicating they will not recognize this measurement, broadcasters such as CBS intend to use these figures to price content rights fees from those same services.  CBS’s Les Moonves, has gone on record stating that CBS is relying less on ad revenue as its income bedrock. Alternative revenue streams such as a significant rise in content rights fees as well as other income sources will more than make up for the lost ad dollars.

Media soothsayers for roughly a decade have proclaimed the impending “Death of Broadcast TV.”  While ratings erosion and the subsequent lack of growth in revenue for ad-supported networks is not a positive trend, nor is it the end of the medium.  For TV broadcasters this means they need to work even harder on creating content that has a lasting appeal and strong word of mouth support.  While this is nothing new it is even more important today as network content needs to be monetized in various ways to drive profitability.

For advertisers, this points to the need to reframe their assessment of TV. Unless your target is 50+ you can’t, for much longer, count on network TV to be the sole awareness driver. It is still the best option for awareness building, but wear is now clearly visible.

Lastly, there is also a lesson to be learned for both broadcasters and advertisers.  Big Data can be harnessed in a productive manner in areas that were historically “gut instinct” based.  The “House of Cards” production is a testament to this fact.  True understanding of your consumer translates into success.

Mark Means is the VP, Director of Communications Planning at Underscore Marketing, a boutique firm that creates and manages digital marketing programs. Mark is a 20-year veteran of media planning.  He has worked for a solid cross-section of media agencies, including Maxus, PHD, MPG, Initiative, Media Edge and Mindshare.  His media experience runs the gamut from packaged goods to retail to automotive to financial to health.  You name it and he has most likely had experience in that business segment.