As the pay TV bundle unravels, advertisers should stick to sports
The American pastime of switching on the set to watch a sitcom or drama as it airs is about as dead as the diplodocus, and if the DVR may be said to have struck the fatal blow, the direct-to-consumer services furnished by the likes of Netflix and Disney+ will stamp the dirt down on the big lizard’s final resting place.
According to the fall TV season’s first week of currency data, live viewing of scripted series accounted for just 69 percent of the deliveries of adults 18-49 recorded by Nielsen under the live-plus-same-day rubric. In other words, nearly one-third (31 percent) of the demographically desirable viewers who tuned in to watch a scripted broadcast series during the week of Sept. 23-Sept. 29 did so on a time-shifted basis.
Whether a viewer “cheats” by pausing a show for a few minutes in order to zip and zap through the ads in near-real-time playback or records and watches the show before 3 a.m. the following morning, the deliveries associated with those actions count toward that broadcast’s live-same-day impressions. Obviously, any device that allows the viewer to coast through the commercials is an incitement to outright avoidance, and that dynamic is readily apparent when comparing the vanilla live-audience data to the commercial-ratings results.
For example, NBC’s “The Good Place” on Sept. 26 put up a live delivery of some 505,000 adults 18-49, a rather underwhelming turnout which improved somewhat to 849,000 members of the dollar demo in the six hours following the original 9 p.m. broadcast. About 60 percent of the overall demo impressions that were logged as live-same-day views happened in real time, and it’s safe to assume that nearly all of the ad deliveries on that first night were served up in accordance with NBC’s broadcast schedule.
The disconnect between the number of bonus viewers who catch up after the original airdate and the subsequent lift in commercial impressions can be demonstrated by looking at the first three days of playback for the season premiere of “The Good Place.” Those who caught up with the episode within that 72-hour window boosted the audience to 1.46 million adults 18-49, and while that improved upon the live-same-day draw by 72 percent, those unadulterated time-shifted ratings do not reflect the currency data. Over that same three-day period, 1.06 million adults 18-49 watched the commercials that aired in “The Good Place,” which is to say that 400,000 of the 611,000 viewers who played catch-up with the show skipped the ads.
Meanwhile, on the final night of Premiere Week, consumption of NBC’s “Sunday Night Football” was nearly 97 percent live. As you’d expect, that outsized (and massive) pool of real-time viewers was instrumental in boosting commercial retention for the Cowboys-Saints game. Of the 10.1 million adults 18-49 who watched the NFC battle live, a statistically insignificant number (south of 300,000 viewers) skipped or otherwise avoided the ads.
Aside from the three primetime football broadcasts, the one network program that served up the majority of its commercial impressions in real-time was the CBS newsmagazine “60 Minutes.” The show’s 52nd season premiere on Sept. 29 was viewed live by 2.19 million adults 18-49, which accounted for 91 percent of the live-same-day deliveries (2.39 million). After three days of very little playback, the C3 average for “60 Minutes” (2.37 million) was effectively identical to the live-same-day number.
As it happens, “60 Minutes was the fourth highest-rated broadcast of Premiere Week, trailing only “Sunday Night Football,” “Thursday Night Football” and “The Masked Singer”—another show that serves up a higher-than-usual ratio of live-versus-delayed viewers. Your television is largely a delivery system for events and news programming that were designed to be watched as they unspool; indeed, these three programs are now more or less the only ones that demonstrably retain a significant audience during the ad breaks.
Death is a state of mind
If the C3 and C7 numbers weren’t already cause for concern, at least one team of media analysts believes that consumer behavior is all but shoving general-entertainment programming into the arms of the over-the-top crowd. According to a new report from MoffettNathanson Research, the acceleration of cord-cutting and the boom in new streaming services is deepening the existing rift between live TV and the traditional cops-&-courts potboilers/medical melodramas/half-hour chucklefests that can be absorbed at one’s leisure. “The live TV model for entertainment programming is being displaced by SVOD and AVOD,” the report notes, deploying the industry shorthand for subscription (ad-free) and ad-supported on-demand platforms. “The long-awaited bifurcation between live (sports and news) and on-demand (entertainment) is gathering momentum.”
This assertion is supported by the Nielsen data. Whereas NFL ratings are up 6 percent compared to a year ago and dwarf everything else on the screen—season-to-date, the most-watched NFL broadcast, a battle between the Packers and Cowboys on Fox, averaged 24.6 million viewers, or nearly double the deliveries for the fall’s most-watched scripted broadcast (“NCIS,” 12.6 million)—the entertainment ratings have never been in worse shape.
Last-place ABC, for example, has notched a 1.0 primetime rating in the dollar demo just six times since the season began, with the ESPN-produced “Saturday Night Football” accounting for four of those nights and the two-hour special “The Little Mermaid Live!” commanding the network’s highest rating of the season (2.6). The only night ABC saw its regular scripted output deliver as much as 1 percent of its potential target audience was Sept. 26, a date which coincided with the Season 16 premiere of the network’s top-rated drama, “Grey’s Anatomy.”
But for Fox, which doesn’t have to trifle with the demands of programming the sleepy 10 p.m. hour and has been boosted by a seven-game World Series as well as the aforementioned “Thursday Night Football” and “The Masked Singer,” no network has gone through the first seven weeks of the 2019-20 campaign without taking a whole lot of bumps and bruises. CBS’s ratings in its target demo (adults 25-54) are down 24 percent compared to the analogous period in 2018, and NBC is not only batting .000 with its three new series, but its once-mighty Thursday night lineup is eking out around 740,000 demographically apposite viewers each week.
And the thing is, for anyone who’s been keeping track of the Nielsen data for the past decade or so, none of this is exactly hair-raising intel. As the MoffettNathanson note demonstrates, live sports and news ratings haven’t changed much in the past eight years; since the decade began, total-day gross ratings points (GRPs) for the two categories have grown 1 percent annually, whereas total-day GRPs for general-entertainment programming have fallen 6 percent annually.
Stability aside, the live stuff also serves up a huge chunk of network TV’s commercial impressions. Last season, sports accounted for 42 percent of all C3 broadcast ratings among the 18-49 demo, up from 29 percent in 2014-15. Much of this is a function of reach and retention; as Ad Age reported back in January, live sports in 2018 accounted for 89 of the 100 most-watched broadcasts, with NFL games claiming 61 of those high-rated slots. (No network leans as heavily on sports as Fox, which in 2018-19 delivered 72 percent of its C3 impressions via NFL, MLB, college football, golf and other athletic endeavors.)
Plenty of blame to go around
As much as legacy predators like Netflix and Amazon Prime and the recently-birthed Apple TV+ and Disney+ are disrupting the legacy TV ad model (in this instance, “disrupting” is a somewhat inexact euphemism for “plundering”), the MoffettNathanson report contends that cord-cutting is contributing to the overall malaise as well. Analysts Craig Moffett and Michael Nathanson note that the third quarter of 2019 marked the fifth consecutive financial period of accelerated pay-TV subscriber declines, before adding that the seeming panacea offered by virtual MVPDs simply isn’t doing much to halt the progress of the disease.
“The wheels are already falling off the vMVPD model, with the conversion rate of traditional losses to vMVPDs falling to an estimated 40 percent over the last 12 months,” the report states. “The vMVPD model that simply reproduces the familiar cable network model online isn’t proving to be the answer customers were looking for.”
And if recent earnings reports are anything to go by, traditional cable and satellite TV subs are fleeing the hoary old subscription-TV model like dogs darting away from a vacuum cleaner. In the quarter just passed, legacy operators lost 1.8 million subscribers, for a historic year-to-year decline of 6.2 percent. The biggest losers are among the most powerful distributors; AT&T last month reported that its DirecTV and U-verse services together lost 1.16 million premium TV subs, while 238,000 video customers parted ways with cable giant Comcast. (The satellite subscriber base is now shrinking four times faster than that of cable.)
All told, operators watched as 1.8 million video subs waltzed out the door in the third quarter, a hit that wasn’t at all ameliorated by the 584,000 new customers who signed up for one of the cheaper vMVPDs, a catch-all that includes Vue, Hulu Live, Sling TV and YouTube TV.
Linear TV networks will continue to suffer the brunt of the collateral damage from this ongoing paradigm shift, while the DTC and OTT platforms are poised to reap the benefits. “Today, SVOD and AVOD alternatives for general-entertainment [programming] appear poised to overtake vMVPDs,” the report noted, before clarifying that the prenatal state of the ad-supported streaming business makes all of this a bit of a guessing game. (“Consumers haven’t really had the chance to vote for most of the coming SVOD and AVOD alternatives to Netflix yet,” the analysts wrote.)
Stick to sports
Other than advertisers’ willingness to continue to pay higher rates for diminishing returns, the X factor that will keep linear TV from errantly stumbling across death’s threshold is sports. Back in September, on the very day the fall TV season got underway, MoffettNathanson, in conjunction with TMT consultancy Altman Vilandrie & Co., released the results of a survey designed to gauge how deeply televised sports has its hooks in the American consumer consciousness.
The findings of that project should keep the networks that traffic in live sports programming from scrambling for the Ativan. According to the MoffettNathanson research, 53 percent of U.S. households said they consumed sports on a regular basis (daily, weekly, or monthly) and, of those, 90 percent continued to subscribe to pay TV. Seventy-nine percent of those pay TV subs were traditional cable/satellite customers, while the remaining 11 percent were vMVPD converts.
On the other side of the coin, only 67 percent of those who identified themselves as sports-agnostic said they subscribed to a pay TV bundle. Per the analysts’ reckoning, people who have no enthusiasm for televised sports are three to five times more likely to sever the cord, which makes a good deal of sense, given that the ESPN family of networks alone adds some $10 to their cable bill every month.
The logical destination for consumers who are indifferent to sports, then, is a streaming service that specializes in serving up movies and TV shows on-demand. As these viewers transition out of the linear TV space, the already constricted general-entertainment ratings will shrink even faster. Which is why Fox divested its studio holdings and CBS is preparing the OTT ground with its CBS on-demand service. “Sports will stay in the bundle,” the analysts concluded. “Entertainment won’t.”
Divorce, American Style
Of course, the MoffettNathanson partners aren’t the first observers to articulate the notion that sports will remain TV’s biggest supplier of GRPs as more consumers split with the hidebound TV model. Mike Mulvihill, Fox Sports’ exec VP of research, league operations & strategy, has been making this argument for years.
Speaking to advertisers during a private upfront luncheon last spring, Mulvihill said the whole world had shifted to an on-demand model, and that sports and news are the only content that can disrupt the prevailing I-want-it-now ethos and command our attention in real-time.
“We really feel that our entire video industry is bifurcating into a live content marketplace and an on-demand marketplace, and that separation, that realignment, is really informing all the most significant things that are happening in our business,” Mulvihill said. “As the market splits and scripted entertainment increasingly moves to environments that are either ad-free or allow for ad-avoidance, it creates a circumstance where live sports has really come to dominate the super-premium end of the business.”
As with Ernest Hemingway’s description about the process of stumbling into bankruptcy, the transformation of TV has happened two ways: “gradually, then suddenly.” During the 1998-99 season, the top 20 entertainment programs on broadcast TV averaged a staggering 7.9 rating among adults 18-49, which back then worked out to around 9.9 million members of TV’s broadest target demo. Thus far this season, the top 20 non-sports shows are averaging a 1.1, or a hair over 1.4 million adults 18-49. Thus, in the span of 20 years, 86 percent of the viewers most coveted by advertisers have vanished.
Of course, advertisers who choose to chase after the cheaper entertainment impressions do so knowing that the divorce, while amicable enough, is likely to be fraught with unhappy compromise. It may be cool to go live with your laissez-faire dad in that weird apartment complex over by the Dave & Buster’s, but you’re going to be eating a lot of Swanson Hungry-Man dinners and your new bedroom, unaccountably enough, will probably smell like hot dogs.
The change of scenery won’t translate into a GRP grab, at least not in the near term. Netflix still doesn’t offer an ad-supported tier and CEO Reed Hastings has said that such a development will never happen on his watch. Disney+ isn’t booking any marketing dough (although the ad-supported version of Hulu is available as part of the $12.99 bundle that includes the brand new DTC service and ESPN+), and commercial interruptions aren’t expected to come to HBO Max until 2021.
As the market cleaves further apart and scripted content begins to migrate away from linear TV, the next-wave OTC platforms may want to nail down their AVOD strategies. The sea change should precipitate a generational shift in how marketers connect with viewers, but only if the streaming services start thinking like 21st century media moguls.