Media Update: Streaming Gains, NFL Viewership Soars, Strong GDP Growth
Key Highlights:
- Streaming: Netflix posted impressive Q4 subscriber gains, while Peacock set streaming records with its NFL playoff exclusive
- Linear: The NFL saw viewership of its regular season rise 7%, while its conference title games both drew 55m+ viewers
- Ad Economy: The overall U.S. ad industry eked out a tiny amount of growth in 2023, whereas Google notched 11% 4th quarter growth in its core ad business
- Consumer Economy: It’s good news all around – strong GDP growth, soaring consumer confidence, and an extremely strong labor market
Streaming Media
We’ve seen a pronounced dip in the supply of ad-supported video impressions over the past couple of weeks. It’s possible this is attributable to major sports (college football playoffs, NFL playoffs) leading people to spend more time with traditional media and less time streaming; we’ll keep an eye out for a bounce back in February.
Industry Notes (Video)
1. Netflix kicked off earnings season last week, and it set a very high bar for its peers. The streaming leader added 13.1 million subscribers in the fourth quarter – its strongest final quarter ever for net additions – and posted a revenue increase of 12.5% from a year ago. As you can see below, 13m net additions is Netflix’s best quarter since Q1 2020, when a global pandemic forced the world indoors to binge on Tiger King.
The quarter’s strong subscriber growth seems to be a vindication of the company’s password sharing crackdown, the sting of which was softened somewhat by the rollout of less expensive, ad-supported options. Speaking of advertising, the company does not disclose ad-supported subscriber figures in its earnings announcements, but it did reveal earlier this month that there are 23m monthly active users (not exactly the same thing as subscribers) on the ad-supported tier globally. On the earnings call, Netflix execs reminded that it will take years before the ad offering has a material financial impact on the business.
A final note of interest is licensing. We told you recently about the company’s aggressive play, which is bearing fruit already, to persuade other media companies to give up on competing directly and to instead license their content to Netflix. In reference to licensing, CEO Ted Sarandos said on the earnings call, “I’m thrilled to tell [competing media companies] that we are open for business.” This was quickly followed by news that HBO will license the iconic Sex and the City to Netflix, a move that would have been near unthinkable just 18 months ago. Sarandos went on to say that Netflix is not interested in buying traditional cable assets that its rivals are looking to unload, and that he does not believe that “further M&A among traditional entertainment companies will materially change the competitive environment.” | WSJ
2. This year’s NFL playoffs include a milestone moment in media history – the first playoff game to be exclusively streamed. Back in May, Comcast (parent of NBCUniversal) paid $110m(!) for the exclusive right to stream a playoff game on its marquee platform, Peacock. It’s too soon to say whether that was a wise investment, but it’s inarguable that it set several new benchmarks: the Chiefs – Dolphins matchup averaged 23m viewers on Peacock, making it the most streamed live event in U.S. history. It also was the largest event ever for internet usage in the U.S., accounting for 30% of web traffic, making that Saturday the single highest day of U.S. internet usage in history. Perhaps most impressively, Peacock did not experience any notable technical problems in streaming a game to that many viewers concurrently, quite an accomplishment given the litany of high-profile failures in this area.
Perhaps unsurprisingly, the expensively-acquired content was a major acquisition driver – research firm Antenna estimated the game drove an incremental 2.8m signups, making it the single largest subscriber acquisition event it has ever measured. Assuming most new subscribers chose Peacock’s ad-supported $5.99/month tier, NBCU would have recouped about $17m immediately, plus its ad revenue for the game. Whether the investment pays off depends largely on whether those new subscribers stick around for other Peacock content.
Despite fans’ complaints over having to sign up for yet another streaming service in order to watch football, we should expect to see this trend continue. What began as Thursday Night Football games being simulcast on Amazon has expanded to all TNF being streaming-only; NFL Sunday Ticket moving over to YouTube TV; and now a playoff game going exclusive to streaming, and fans following with their wallets. It’s hard to see this trend reversing in any meaningful way.
Finally, if you missed the game, you missed Andy Reid’s truly epic mustache icicles during the fourth-coldest game in NFL history, and it’s our professional obligation to rectify that. So here you go:
Now that’s a football coach. | Bloomberg, Variety
3. In yet more sporting and streaming news, Amazon has struck a deal to make a minority investment in Diamond Sports – the owner of Bally Sports and its stable of regional sports broadcast rights – and bring regional games to Amazon Prime Channels. This adds to Amazon’s growing stable of sports content, anchored of course by its exclusive ownership rights to NFL Thursday Night Football.
For those of you who haven’t followed this story closely, Diamond Sports emanates from Sinclair Broadcast Group’s 2019 purchase of regional networks from Fox Sports for $10.6 billion. Diamond Sports Group was formed and spun out of Sinclair to run its new RSN business; this has gone poorly, to put it mildly. By this time last year, Diamond found itself unable to cover interest payments on its debt, and it was in bankruptcy proceedings when the deal with Amazon was struck. Indeed, many observers were surprised, as they’d been expecting Diamond to cede the rights back to the individual teams as part of an eventual liquidation.
The bigger picture significance of this move is it inches Amazon one step closer to building a sports aggregator app. There is a genuine consumer pain point (see previous story) in sports rights being scattered across so many different platforms, and there is a huge opportunity for someone to aggregate everything in one place (even if the rights are owned by multiple parties, which is inevitable). Such an app does not exist today, and ESPN is probably the only other player out there who could build it. And for Amazon, this is one more anti-churn mechanism for the core Prime bundle: if you’re a die hard Dallas Mavericks (or whatever) fan and you can watch their games on Amazon, it’s one more reason not to reconsider your Prime subscription. | Variety, Stratechery
Industry Notes (Audio)
5. Back in October, Apple quietly rolled out a change to its podcast reporting that has set off alarm bells in the audio industry. Prior to iOS 17, when a user subscribed to a particular show through Apple’s podcast app, each episode of that show would be downloaded to the user’s device, and be reported as a download, whether or not the user ever listened to the episode; iOS 17 updates that practice to cease downloading episodes if a user has not listened to the previous five episodes. The result of this technical change has been a significant reduction in reported listenership for most major podcasts. “Nearly every podcast that regularly publishes got an enormous haircut,” one industry observer said.
To be clear, nothing has changed about actual listenership, this is simply a change in counting methodology; but since Apple’s podcasting app has about 43% of the market, it materially affects estimates of shows’ total audiences. Where this gets particularly sticky is in advertising deals based on audience delivery – shows that were previously believed to be delivering large audiences suddenly look significantly smaller, and publishers find themselves struggling to deliver the audience numbers they’ve committed to. Reliable figures are hard to come by, but major shows are reported to be seeing declines of 10% – 40%.
Even though painful for publishers and some of their advertising partners in the short term, it is surely a good thing to have more accurate measures of podcast audiences. No one is helped (over the long run) by systematic mismeasurement. The other trend we can expect is more standalone audio apps; the NYT is one such example, and we can expect to see more as publishers look to reduce their vulnerability to the whims of the major tech platforms. | Semafor
Linear Media
A reminder that the huge sports spike you see for early January has to do with college football playoff games shifting weeks across years. Apart from that, we’ve seen a surge in cable news viewership as the presidential primary elections in Iowa and New Hampshire have viewers tuning in for the long, grueling slog that will be the 2024 election cycle.
Industry Notes
1. TV usage increased by 1.7% from November to December, reaching a notable high on New Year’s Eve with 105 billion minutes watched. The holiday season saw younger audiences pivot towards video games, impacting broadcast viewership, which dipped by 4.3%. Adults aged 25-34 notably reduced their broadcast consumption by 13%.
Sports continued to dominate, with NFL games prominent in broadcast and cable viewership, but sports viewing overall experienced a slight decline. In contrast, the news genre gained traction. Cable viewership, aided by key sporting events, rose marginally by 1.3%, with feature films being the most-watched genre on cable.
Streaming platforms experienced a modest 1.2% increase in usage despite new content scarcity.
Netflix saw a rise in viewership, thanks to titles like Leave The World Behind and Young Sheldon; YouTube shed half a point in share, a notable reverse from its share-taking trend throughout 2023. | Nielsen
2. This past weekend served up the reliable #2 and #3 telecasts in non-presidential election years, with the AFC and NFC Conference Championship games both taking place on Sunday. The day started with 55.5m viewers for Ravens-Chiefs, the largest audience on record for an AFC title game. Excluding the Super Bowl, it was the most-watched CBS television program since the Nancy Kerrigan and Tonya Harding-fueled 1994 Lillehammer Winter Olympics. The Chief’s victory produced a 12% ratings jump and a 17% viewership increase over last year’s conference title game in the same time window.
Shortly afterward, the 49ers and the Lions went one better with 56.7m viewers for the NFC title game, an increase of 7% over last year’s comparable matchup. The viewership numbers probably benefited from it being a great game, with lots of scoring and the result in doubt deep into the final quarter of play. Both games suggest we’ll see some eye-popping audience numbers for the Super Bowl next weekend. | SMW, SMW
3. As the piece above illustrates, the NFL’s 2023 season showcased, once again, just how much Americans love to watch football. Despite challenges like injuries to megastars and underperforming major market teams, the league saw a 7% increase in average viewership for its regular season, hitting 17.9 million per game, the highest since 2015. (note this is inclusive of linear and streaming viewing) This growth is attributed to factors like the NFL’s biggest star, Taylor Swift, becoming the new face of the Chiefs; the broadening reach of digital platforms; and lessened competition for eyeballs due to the writers’ and actors’ strikes.
ESPN’s Monday Night Football jumped nearly 30% in viewership, partly due to ABC simulcasts. NBC’s Sunday Night Football also increased by 8%. However, not all networks experienced growth – Fox’s Sunday games dipped slightly. CBS enjoyed a 5% rise, buoyed by a high-profile Thanksgiving game. Amazon’s Thursday Night Football grew by 24%, though its audience is still smaller than previous Fox broadcasts of TNF.
Given the already strong numbers we’ve seen for the playoffs, these figures suggest we’re in store for very strong viewership of Super Bowl LVIII. | WSJ
4. ESPN has seen a lot since the first Obama administration – in the early 2010s it bestrode the media landscape like a colossus, with unparalleled reach of about 105m U.S. households and a huge amount of leverage in the cable bundle: its ~$10/month affiliate fee from cable operators was 20x what most other cable networks received. Fast forward just over a decade and pay TV penetration is down to about 70m households, costing ESPN 35m x 12 months x $10/month = $4.2 billion in decreased annual revenue. Meanwhile, ESPN+ has about 26m subscribers generating $5.34 per month, which run rates to just under $1.7 billion annually. So there is a $2.5 billion gap remaining. Things have reached a point where, rather than jealously guarding the crown jewels, Disney CEO Bob Iger has openly called for a new strategic partner for ESPN.
That strategic partner may have arrived – ESPN is reportedly in advanced talks with the NFL to have the league take an equity position in the network. The two parties are already close partners, of course: Disney (ESPN’s parent) pays the NFL about $2.6 billion each year for the privilege of airing 25 games per season, including the entire roster of Monday Night Football. This would be another level of partnership, however, and one that would give the NFL strong incentives to promote the growth of ESPN.
There are many complicating factors, however. For years, the NFL has done extremely well by parceling out rights among many broadcast partners, not allowing any individual distribution partner to amass too much leverage. Today that list of partners paying $1b+ annually includes Disney, YouTube, Fox, Paramount, NBCU, and Amazon. The league vertically integrating with one of those distribution partners could create unease among the others, who after all are the NFL’s primary customers.
On the topic of vertical integration, we are in a political moment that is hostile to corporate combinations of almost all kinds, and a vertical merger in such a high-profile area would not go unnoticed by federal regulators. And the league is already on thin ice with respect to its antitrust exemption as it takes more games to streaming platforms (and away from free-to-air TV).
Finally, ESPN has recently diversified into gaming with ESPN Bet. This is complicated enough terrain on its own, and the NFL becoming an owner of a betting service heavily focused on its own product would take the complications to another level. | The Athletic
5. Don’t look now, but YouTube TV is catching up on some major pay TV incumbents: it’s grown subs 35% YoY to 6.9m, surpassing Dish Network and closing in on DirecTV, which it will probably surpass early next year. If that comes to pass, YouTube TV would be the third-largest pay TV provider, after Comcast and Charter.
The state of play is remarkable: when YouTube TV launched in 2017, DirecTV had over 20m subscribers. Now they’re about 1m subscribers apart, and the trajectories are mirror images:
YouTube TV’s momentum was certainly boosted by its acquisition of NFL rights back in September, but its trajectory was clearly quite strong before that time. Virtual pay TV (YouTube TV, Sling TV, etc) now makes up ¼ of the 72m pay TV subscribers in the U.S. | MediaPost
Ad Economy
After a sluggish start in the first quarter, the U.S. ad market recovered somewhat throughout 2023 and eked out a modest 0.5% increase in total investment compared to 2022. Note that with inflation for 2023 running at 3.4%, this nominal growth implies contraction in real terms.
By the end of the year, ad spending growth began to catch up to inflation. The rate of CPI increase in Q4 last year was about 3.2%, and ad spending growth clocked in between 2.6% – 3.4%. With inflation cooling, it will be interesting to see if ad investment can break through into real growth territory. | MediaPost
It’s earnings season, which means we get our periodic look into the health of the world’s largest advertising platforms. Alphabet announced earlier this week, revealing 13% top line revenue growth for Google, with its core ads business growing by 11%. This is a sharp contrast with Q4 last year, when the company experienced its first revenue decline since the pandemic’s onset.
While many of the headlines are around market reaction (shares dropped 5.5%) and AI (Google’s cloud business grew by 25%), there are interesting patterns in the core advertising business. The core search business grew by 13%, outpacing overall ads growth; YouTube, which is more indicative of upper-funnel advertiser demand, grew by 15%; there was a contraction of 2% in Google’s Network business, which is the part of the business that facilitates ad transactions outside of Google’s own properties.
Low-double digit growth for the largest ad platform out there suggests advertiser demand remains healthy; we’ll see if this pattern holds when the other giants, namely Meta and Amazon, release their latest numbers. | WSJ
Consumer Economy
1. The University of Michigan’s most recent survey revealed a significant boost in U.S. consumer confidence, with the index hitting a two-year high following the largest monthly increase since 2005. This surge reflects optimism about the economy, income prospects, and a more controlled inflation outlook. A notable aspect is the broad-based nature of this optimism, cutting across age, income, and political lines.
Inflation expectations are at their lowest since 2020, a data point that will certainly be welcomed by the Federal Reserve. Over half of households now expect their incomes to at least match inflation rates, a sentiment not seen since mid-2021. This positive outlook extends to the stock market and perceptions of personal financial situations, both hitting two-year highs. | Bloomberg
2. An additional reason for rosy consumer sentiment is the fact that the economy was very strong last year – 2023 defied widespread recession predictions, with the U.S. economy expanding by 3.1%, thanks to robust consumer spending and a resilient labor market. This performance, considerably surpassing economists’ forecasted 0.2% growth, is a striking rebound from 2022’s 0.7% growth. The fourth quarter alone saw a 3.3% growth rate, indicative of sustained economic vigor, although slightly slower than the summer’s 4.9% pace.
To contextualize just how unexpected this economic performance was, let’s travel back in time 15 months, when Bloomberg economists peered into their crystal ball and forecast a 100% likelihood of a recession within a year.
Apart from Bloomberg’s economists needing a refresher on basic probability, one key takeaway is that recessions are not forecastable and we can safely ignore such prognostications.
Back to the 2023 numbers: consumers played a crucial role in the resilience, with their spending habits extending across various sectors, from healthcare to dining and automobiles. Holiday sales exceeded expectations, and consumer sentiment showed a remarkable 29% surge from November to January, the largest in over three decades. This optimism was further bolstered by wage growth outpacing price increases. | WSJ
More macroeconomic good news: initial unemployment claims fell to the lowest level in over a year, once again demonstrating the remarkable resilience of the post-pandemic labor market. Dropping by 16,000 to 187,000 in the week ending January 13, these figures notably undercut all economist estimates in a Bloomberg survey.
This decline in initial claims aligns with a downward trend in continuing claims, which also hit their lowest point since October.
Similar to the GDP growth story, the labor market continues to defy the expectations of expert forecasters. No matter the stressor – inflation, rapidly rising interest rates, geopolitical tension – the labor market seemingly refuses to break. The official unemployment rate is currently 3.7%, near what economists believe to be the floor for unemployment and lower than the entire period from Jan 1970 – August 2018! | Bloomberg
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