Turning Linear TV Dollars Into Streaming TV Dimes
Over the last few years, the TV industry has experienced massive disruption driven by cord cutters moving away from cable TV to streaming services in record numbers. The ripple effects of this seismic shift are nothing short of shocking: Disney considers its TV business to be non-core. Streaming businesses are losing massive amounts of money as they invest in new content and subscriber acquisition.
With all this change, what is the future of the TV industry? Major media companies are losing massive amounts of money as they invest in content and subscriber acquisition marketing. Since 2020, major streaming services have lost $18 billion. That's a lot.
All this change is shifting ad dollars away from the cable ecosystem towards streaming. But while publishers still get paid for monetizing their streaming content, the issue is unit economics of streaming advertising versus cable.
In the cable business model, ad-supported TV networks receive carriage fees as their share of the subscription paid by consumers. Networks then monetize most of the ad inventory and audience enabled by their content. This lucrative combo fueled the TV-industrial complex for decades.
With ad-supported streaming the monthly subscription is gone, so publishers must make do with ad revenue. This revenue is also significantly less than in cable due to the ad load being far lower in ad-supported streaming. The combination of these factors results in "linear dollars turning into streaming dimes." This dynamic has most studios and TV companies in a near-panic mode.
But is this a rational fear? Or is this a point-in-time dynamic that is specific to the stage of disruption/transition the industry is experiencing? Is there a path back from dimes to dollars?
To help answer that question, let's look at the digital advertising evolution. Back in 2000, the industry was booming, fueled by the large sums of money in VC flowing into the nascent internet economy. But then the dot-com crash hit, fueled by the realization that many of these new companies had unsustainable business models. The industry crashed, wiping out 78 percent of the Nasdaq value.
But then a funny thing happened: Real companies with real business models emerged, and the reality of the internet economy's potential actually surpassed the pre-dot-com hype. Paid search emerged as a new performance advertising model, capturing millions of advertisers, and generating trillions of dollars in economic value. Amazon and Facebook emerged. So did Netflix, a revived Apple, and Roku.
Innovate or Die
In the mid-20th Century, Kodak was a near-monopoly in photography. It also invested in innovation, leading to the original patent for digital photography. Fearing digital photography would disrupt their core film business, Kodak buried the technology in favor of milking their analog photography business. The rest is history.
The TV industry is at a similar crossroads. Major industry players like Disney fear the obvious disruption that is upon them and are considering quitting and/or selling their TV businesses. Alternatively, they can innovate into the new paradigm.
What does innovation look like for the TV industry?
Again, history can provide a roadmap. The key innovation that led the advertising industry out of the dot-com crash was paid search. At the core, this was a new marketplace model that democratized access to valuable audiences that were searching for products or services. Today, millions of advertisers participate in paid search. Similar marketplace models in social and ecommerce advertising have emerged. Fueled by massive advertiser participation, the market for paid search and social is far, far larger than the TV ad market: it is expected to surpass $300 billion by 2024. By contrast, 85 percent of the TV industry's $70 billion in U.S. revenue is currently concentrated among just 500 advertisers, according to Stephens Inc.
The path to innovation here is painfully obvious. Following the Google and Facebook examples, the industry needs to expand and democratize the market for TV advertising from 500 advertisers to millions of advertisers. This could easily triple the size of the TV market, turning those "streaming dimes" into many dollars. This transition would be based on technology that is readily available today, so this is totally doable today, but requires investment that is focused on meeting the needs of performance-oriented advertisers that fuel Google and Facebook's ad business (and their lofty valuations). This is not a trivial adjustment.
For example, the paid search business model is based on "de bundling" of search inventory, where rather than selling "search" as a broad inventory category, search companies created millions of discreet keyword marketplaces that enable performance marketers to buy, measure and optimize for ROI on a granular basis. TV ad sales generally take the opposite approach, where bundling and opacity is the norm. Shifting this model will require a fundamental shift in philosophy towards packaging and selling TV media in the way performance advertisers need to see it (with much more transparency). But the payoff is potentially huge – there are 9 million search and social advertisers representing nearly $200 billion in spend a year just waiting for a viable way to buy TV.
Disney and its peers should be undertaking a complete overhaul initiative to make this happen. Or they should fold up shop and enjoy their Kodak moment in history.
The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.
Jason Fairchild is tvScientific's CEO.