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The media is all abuzz today after research firm eMarketer downgraded their projections around the amount of TV ad spend based on what they called an “increase in cord-cutting.”
Dig a little deeper though, and you’ll find that eMarketer lumps virtual pay-TV services like Sling and DirecTV Now into their definition of “cord cutting.”
This expansive definition of cord cutting has always struck me as very curious. Because if I’m paying AT&T $70 per month for a 120+ channel package, how exactly am I cutting the cord? Especially when I can pay AT&T much less money for a much smaller bundle that, because it is delivered via a set top box, does not fall into eMarketer’s definition of cord cutting.
Not All Virtual Services Are Skinny; Not All Set Top Box Services Are Fat
DirectTV Now offers packages at four price points, ranging from $35/month to $70/month. But even at their skinniest bundle, the one that costs $35/month, AT&T offers viewers over 60 channels, a bundle that includes A+E, ABC, AMC, Animal Planet, BBC America, BET, Bloomberg and Bravo, just to tick off the first two letters of the alphabet. Again, how exactly is that cord cutting?
DirecTV Now is not particularly unique in this regard either. All the so-called “skinny bundles” offer a range of channel options that go well beyond the Big Four broadcast networks and most of them offer a slightly higher-priced option with well over 100 channels.
Likewise, most traditional MVPDs offer basic cable bundles with less than 50 channels. Comcast, for instance, offers both “Limited Basic Cable” that (as the name implies) is limited to local broadcast channels, plus local government channels and education channels. An “Expanded Basic Cable” package offers 30-50 channels, as per the Comcast website, depending on which market you're in.
For those of you keeping score at home, that’s around half as many channels as the cord-cutting skinny bundle.
Which means cable networks are far more likely to get cut out of a set top box based bundle than a virtual skinny one.
It’s The Little Guys Who Get Hurt
Even at 200 channels, the bundles offered by the virtual MVPDs (vMVPDs) are still smaller than the thousand-channel plus bundles offered in the standard “Titanium Plus” set top box-based package offered by the traditional MVPDs.
So who is getting left out?
All the little networks and sub-networks that cater to niche audiences. Networks like ActionMax, AHC (American Heroes Channel), BabyFirst, Centric, Cooking, Daystar, Great American Country, Nick Music, Reelz and Velocity.
If your reaction to that list was “who?” or “what?” you are not alone.
These niche channels survive on the niche audiences they attract on giant cable bundles. Some, like AHC, are owned by larger network groups. (AHC is a Discovery channel.) Others, like Nick Music, are just spinoffs of more popular channels.
The VOD-Only Solution
As TV moves from its current time-based interface (“what’s on TV now?”) to a library-based interface (“what do you want to watch now?”) there will be no need for these niche channels to maintain a linear presence. Instead, they can live on VOD, where the recommendation engine that fuels the MVPD's new library-based interface will serve them up to the niche audiences that want to see them.
In return, a network like BabyFirst can scale down to 10 hours of original programming a week, eliminating the costs of maintaining a 24/7 presence while still reaching the same audience. It’s in the MVPDs (and vMPVDs) interests to have as many of these smaller networks in their libraries as possible so that viewers feel they have a giant library to choose from. The only expense to the MVPD is server space, and there’s potential for ad revenue for the MVPD too, both from the actual show and from paid recommendations to targeted audiences.
Back To Cord-Cutting … And Revenue
According to Nielsen, 96.5% of American households will be “TV households” this fall—an increase of 1.4 million homes from fall 2016. So clearly more people than ever are watching television, even if they’re not doing so via a set top box.
While the media’s reading of eMarketer’s cord-cutting stats may be false, eMarketer does have a very valid point in terms of ad revenue. By continuing to ignore the massive shift away from linear viewing and the steady shift to digital viewing, the networks are in danger of losing a lot of money: digital TV dollars don’t add up the way linear dollars do. There is still a host of legal and logistical reasons why networks can’t run the same commercials on digital that they do on linear. If the industry (networks, advertising agencies and brands) doesn't fully acknowledge the extent of the changes, there's a real danger that budgets will get cut.
Whether the entire industry wakes up in time is still uncertain, but for networks who get where things are going and are working to make sure their offerings line up to current and future viewing patterns, the future looks anything but bleak. People are watching more TV than ever. They’re just not watching it via a set top box. Accept that, and it shouldn't be too hard to find ways to monetize.
