For almost 7 decades Television has been the most influential Medium that shaped our lives. From the landing on the Moon to Super Bowls and nightly news, We have have always looked at the living room screen as our gateway to the outside world. Not so much in recent years though. Nowadays, The Internet is king. This is a big game changer for the entire TV industry and also the advertisement industry that always saw TV as the place where big advertising budgets go to. In order to know where is the home entertainment ecosystem going to, Let’s first understand the structure of this enormous business, about $500 Billion per year according to Former NBC chief Peter chernin, and try to understand where are we headed:
The main pillar of home entertainment as we know it. Broadcast television is provided free to the audience, and therefore in most countries accounts for the majority of viewing, which triggers higher production budgets and more notable shows. It also dominated the ratings charts which are so important for the broadcasting networks such as NBC, ABC, CBS and Fox in the US and the BBC in the UK. The broadcast networks business model is to charge advertisement money according to the exposure the ad spots are likely to get. that figure is calculated through ratings.
Ratings are measured in only a select number of households that represent the viewing habits of the entire population. Nielsen is the company that creates these ratings when they sample 5000 households, and inform the networks what portion of the population is believed to have watched them. This is the basis for their ad revenue model, and considering that hundreds of billions are spent based on a sample, there are voices questioning the validity this method, especially when Online video advertising offers so much more accuracy for the advertisers. from a performance marketing standpoint, online video is a far better choice, and we’re starting to see major shifts in budgets, as Eran Haggiag, the CTO of MEME video ad network explained “It’s not a matter of question if the internet is going to overtake TV with more advertising budgets, it’s a matter of when. All the charts are indicating it will happen in the next decade or so, and we believe that with more than 60% of online traffic being video, technology adoption and streaming services going global, it will happen sooner than later.” That said, as far as brand value, the big advertisers still prefer television for all the immediate exposure it brings them, But it’s hard to argue that changing the advertising game for the internet to overtake TV with more ad budgets is not in the cards. perhaps the house of cards.
Check out this video for more about the ratings system by Nielsen:
Most households have cable/satellite television, which is a box connecting to the television and bundles all the various content channels such as HBO, Showtime, Comedy Central, ESPN etc. The main thing to understand here is that cable companies such as Comcast, Time Warner cable and Fios (Verizon) do not care at all about ad dollars, their business model is based on subscription and paying customers, and the same goes for content channels they offer. Their problem is a different one. It’s called cord cutting. Streaming services such as Netflix and Hulu, pose a major problem for them, as they are cheaper and aren’t shackled by any time restrictions. The television industry regards these services as “frienemies”, as these companies pay a lot of companies to these content providers but at the same are altering their industry in a way that doesn’t necessarily benefits them from a financial standpoint.
If traditional television (including cable and satellite) is suffering from the streaming industry, then the legitimate streaming industry is suffering from illegal piracy. recently Netflix listed popcorn time as one of it’s main competitors, and as much as these sites are shut down in efforts to stop piracy, they keep resurfacing. It seems like a lost battle. At least that’s one thing broadcasters, cable companies, content providers and streaming services – they all look at piracy is an enemy and a huge threat to their businesses.
There are big questions that the television industry has to answer: How do they compete with streaming services and online viewing with all it’s advantages to propel the relatively stagnant global TV ad spend? What happens to broadcast television when the internet takes most of the ad spend? What’s the future of home entertainment without cable?
Currently most households have a cable subscription along with their streaming subscription, but the phenomena of cord cutting is gaining strength and in the all important 16-34 demographics, a lot of people don’t plan on subscribing to a cable company the future.
There is a curtain comfort to the cable subscription as it bundles all the home entertainment needs into one place, without switching from one provider to another, But as HBO are now releasing a standalone content app “HBO NOW” it seems like the unbundling has begun.
Even the safe card of sports is now sleeping away, as ESPN are releasing their own standalone service. At this rate, it would be safe to say that the traditional TV and cable were all used to, will likely vanish in the next 10 years. the repercussions on the advertising world will be gradual, and we can see that the trend is already in motion.
Online advertising is already booming, but expect the Online video advertising segment to be the primary beneficiary from this.