Several months ago, we posted a Tipping Point Alert after the CEO of Omnicom Group's media operations told the Wall Street Journal that the agency had started advising its big brand clients to shift 10% to 25% of their TV ad budgets to digital video.
We felt that, as the shift in consumer viewing behavior accelerated toward multiple screens, other large agencies would follow Omnicom's lead and shift a growing volume of ad dollars to online video.
Now, we’re posting a second alert after the stocks of many big media companies recently dropped amid market reaction to Disney’s early August earnings call. CEO Bob Iger conceded that ESPN, Disney's dominant cable platform, had lost subscribers "...due to contraction of the pay-TV eco-system.”
Cord Cutters Cause Market Disturbance
The Disney news was a trigger for the market to acknowledge two interrelated television industry trends that have been gathering momentum this year:
- Substantial subscription declines for multichannel video programming distributors (or MVPDs, the all-encompassing term for satellite, cable and other pay TV providers).
Industry analysts estimate from between half a million to a million more subscribers have cut the cord so far in 2015. According to reports, research firm SNL Kagan said just last week that Q2 losses were the greatest ever for U.S. pay TV—a decline of 625,000 subscriptions.
- Loss of advertising revenue, which is due in part to the subscription declines but also to the overall shifting ad budgets from TV to online video foretold by Omnicom’s media CEO late last year. Mixed in with the news of massive subscription losses, several media companies reported declining ad revenues in Q2, including Viacom (down 9% in U.S. ad revenue) and NewsCorp (13% decrease in overall ad revenues).
Several market analysts now believe further contraction is inevitable. Within the past couple weeks, Sanford C. Bernstein analyst Todd Juenger released a report stating, “We believe the market is now valuing U.S. ad-supported TV businesses as structurally impaired assets.”
BTIG analyst Rich Greenfield added, "You have both legs of the media stool being kicked. The consumer is shifting, and these media companies are not built to take advantage of technological disruption."
Analyst Gary Bourgeault wrote on Seeking Alpha that "Digital disruption, when it escalates, will without a doubt punish those with heavy exposure to TV ad revenue. Consumers now want to be able to access content where, when and how they want. That's what's driving the fall in TV ad revenue, and will continue to do so."
Shift Keeps Happening
As brand advertisers and their agencies continue to move dollars to online video advertising, they’re finding value both in results and features not available from TV, like advanced audience micro-targeting, hyper-local delivery, ad personalization, as well as the rich data and insights available from each campaign.
Now, the next big election cycle has begun, and the early signs are it will accelerate this shift, causing more challenges for TV—and more opportunities for video.
Want to know what to expect from a video advertising campaign? We’ve distilled what we learned from analyzing scores of RFPs into a handy guide that encapsulates what you should ask for in a RFP to guarantee the best responses and ultimately, the best video ad campaign results. Select this button to get a free, shareable PDF of "The Perfect RFP" Guide:
Sources:
Cord-Cutting Contagion! Wall Street Bails on Big Media Stocks. re/code, August 5, 2015
Cord-Cutting Accelerates as Pay TV Sees Record Subscriber Losses, Bloomberg Business, August 13, 2015
Viacom Results Feed Media-Industry Selloff, The Wall Street Journal, August 6, 2015
NewsCorp Swings to Loss on Charge, The Wall Street Journal Europe, August 14, 2015
Big Media Stocks at ‘Near Recession Levels’, Brief, August 20, 2015
Media stocks get clobbered, Business Insider, August 6, 2015
Time Warner Should Hold Up Well During Media Disruption, Seeking Alpha, August 20, 2015