Media Update: Netflix Viewership, NBA Broadcast Rights, and U.S. Consumer Spending
Key Highlights
- Streaming: Netflix drops voluminous viewership data, subtly daring its rivals to continue keeping their content exclusive.
- Linear: The NBA’s In-Season Tournament scores big with viewers and advertisers, setting up a potentially lucrative broadcast rights renewal in 2025.
- Ad Economy: U.S. e-commerce sales hit a record $12.4 billion during Black Friday and Cyber Monday, spurred by steep discounts influenced by e-commerce giants Shein and Temu.
- Consumer Economy: An October slowdown in U.S. consumer spending was followed by a November rebound, a hopeful sign for a healthy holiday retail season.
Streaming Media
Ad-supported video supply has continued to increase throughout the fourth quarter, as new supply from the likes of Netflix, Disney+ and other major platforms continues to scale up.
Industry Notes
1. The rise of streaming has upended a lot of legacy conventions – among them, a high degree of transparency among all industry participants as to which shows were most popular with viewers. Indeed, in a broadcast world, the network itself wouldn’t know any better than anyone with a Nielsen subscription. For a number of years now, Netflix has been criticized for disclosing next to nothing about viewership on its platform, which in fact was one of the contentious issues in the recent labor conflict. Now, Netflix has made a modest concession to these critics by releasing global viewership data for every title on its platform! (feel free to peruse the report here)
Several things jump out. First, the days of the monoculture – when everyone knew Friends and Seinfeld were the most popular shows – are over. If you’re anything like us, your response to the list of most-watched titles will be ‘Huh?’
Second, Netflix viewing obeys the laws of content on the internet, which is to say it’s a power law.
Third, Netflix subscribers are watching a lot of Netflix! From January – June, a little over 93.4 billion hours of content were consumed. Netflix had, on average, about 235 million global subscribers during that time period. That works out to about 2h 11m per day per subscriber, which is well ahead of its streaming rivals.
While this is a fascinating view into consumer behavior, what are the larger implications here? With credit to the ever insightful Ben Thompson for the thesis, it seems to be a forceful pitch to its streaming rivals to license more of their content to Netflix and cease trying to compete as distinct platforms. A crude framing of it would be, ‘Look how much time viewers are spending on our platform. When it comes to premium video content, we control consumer demand. If you want people to see what you’re making, you need to put it on Netflix.’ Very much in this vein, the company’s letter to shareholders emphasized what the platform was able to do for Suits:
Another example is the licensed title Suits … Despite having been available on other streaming services, the debut of seasons one to eight on Netflix in July broke viewing records. According to Nielsen, Suits was the most-watched title across film, original TV and acquired TV on streaming in the US for 12 weeks starting in late June (614M view hours – a new Nielsen record). Over that same time frame, Suits generated 1B view hours on Netflix globally. Licensing has always been an important part of our programming strategy. As the competitive environment evolves, we may have increased opportunities to license more hit titles to complement our original programming. We believe this will deliver additional value for our members (i.e., engagement), as well as for rights holders who benefit from the increased awareness and revenue that Netflix delivers, in addition to the new life that success on Netflix can drive (e.g, Friends, The Office, a new series from the Suits universe).
As we’ve been repeating for the last several years, a winnowing and consolidation of the streaming space simply must occur; the huge losses can’t be sustained forever. Netflix seems to be trying to hurry things along. | Bloomberg, Stratechery
2. Apple and Paramount are discussing a potential bundle of their streaming services, a move that underlines broader bundling trends in the industry. Specifics such as pricing and launch dates are still unclear, but this appears to be one more small step toward the resuscitation of the traditional cable bundle, merging various SVOD and AVOD services alongside free, ad-supported FAST (Free Ad-Supported Streaming TV) channels.
This marks a shift from the initial expansion phase of streaming, which saw the emergence of a large number of independent platforms. In recent years, we’ve seen the pendulum swing back with examples like HBO and Discovery, Disney+ and Hulu, etc. For standalone services like Apple TV+ and Paramount+, joining forces could reduce the high costs of acquiring subscribers, as well as help mitigate churn by providing a wider breadth of content. | WSJ
3. While live sports and news are making efforts to mitigate the decline of traditional TV, a transformation is underway in audience viewing habits. Central to this change are smart TVs, which have emerged as the dominant gateway for digital content, driving the momentum of Connected TV (CTV) advertising. This increase is in direct correlation with the growth in CTV advertising spend, which saw a near 11% boost this year, sharply contrasting with the continued decrease in linear TV viewership.
The future of TV advertising is evolving with the smart TV interface at its core. CTV is becoming more popular across various age groups, mirroring the adoption pattern of streamed content | AdExchanger, MediaPost
Linear Media
Consistent with our recent notes on the acceleration of cord cutting, all programming genres declined in viewership on a YoY basis. As a reminder, the pronounced decline of Spanish-language networks owes to a tough comp with last year’s winter World Cup.
Industry Notes
1. The NBA’s new In-Season Tournament (IST) is a gambit aimed at boosting viewership during the often mundane early season, and initial signs are that it’s paying off – the tournament’s Tuesday and Friday night games both averaged 1.5m viewers during the group stage, representing 16% and 20% increases respectively from comparable telecasts a year ago.
Beyond immediate viewership gains, the IST is a crucial part of the NBA’s strategy to enhance its product’s attractiveness ahead of critical broadcast rights negotiations. As we told you back in March, the league is aiming for $7b – $8b per year, a huge increase on its current $2.6b. With current agreements expiring in 2025, the NBA is keen to demonstrate its innovative approach to engaging a highly coveted advertising demographic (younger men, in particular). The IST, along with other measures like the play-in tournament and load management restrictions, aims to take a page from Major League Baseball’s playbook, where a series of rule changes are widely perceived to have made the game far more watchable and entertaining.
The IST also represents option value for the NBA – it is a set of games that could in theory be sold separately from the rest of the regular season, similar to how the NFL sells Thursday Night Football separately from other games. The league would need to be careful about annoying fans by parceling games out across too many different cable and streaming properties (which has been an issue for MLB), but the financial upside of such a strategy is clear and compelling. | Bloomberg
2. Fox and Comcast, owners of two of the largest legacy linear footprints, are reframing the streaming wars not as a zero-sum battle but as an opportunity for symbiosis and coevolution. They see the zero-sum view as outdated, with Comcast CEO Brian Roberts stating, “We are embracing the streaming future while also preserving the lucrative linear TV model.” Fox CEO Lachlan Murdoch concurs that assertions of linear’s demise are greatly exaggerated.
Both media giants recognize that streaming has conquered on-demand entertainment. But news and sports, like Fox News and Sunday NFL football, retain resilient linear audiences and revenues. Hence their hybrid streaming bundles pairing entertainment libraries with live sports and news add-ons. As Murdoch explained, “Streaming and linear can and will coexist.” The future is about curated aggregation of must-have live content across both pipes.
Fox and Comcast are of course not neutral observers, and many analysts still predict the death of linear in due time. Yet Comcast, Fox, and other broadcasters are continuing their attempts at evolving the linear model rather than abandoning it altogether. They understand that mass reach still rules, irrespective of delivery method. Roberts summed up their shared vision: “We aim to transform, not replace, linear TV by integrating the best of streaming.” | AdAge
Ad Economy
1. E-commerce sales soared during the Black Friday to Cyber Monday stretch, with BF sales up 7% YoY and CM sales up 9%. The growth represented $12.4 billion in total, making the 27th the biggest ecommerce day yet in America.
The surge, as tracked by Adobe and Shopify, was fueled to a large extent by unprecedented discounts, and many observers attribute the use, and some might say necessity, of greater discounting to two culprits: Chinese e-commerce giants Shein and Temu. Their extremely aggressive pricing strategies have not only undercut competitors but also ‘trained’ Google and Meta’s algorithms in their favor, as these platforms typically prioritize more competitively priced items. This puts other merchants in a bind – how do you compete with companies willing to lose billions in order to become ubiquitous among western shoppers?
Shein and Temu have unambiguously moved the market for digital advertising in the U.S. On a recent earnings call, Etsy CEO Josh Silverman said Temu seemingly has no ROI thresholds or expectations of profitable growth. Competing on price in such an environment verges on self harm, which has led many merchants to reevaluate and increase focus on non-price dimensions of competition | AdExchanger
2. X, fka Twitter, is facing a stark downturn in advertising revenue, currently projected to hit around $2.5 billion in 2023, a significant decrease from over $1 billion per quarter in 2022. The decline reflects advertisers’ discomfort with the platform’s content moderation policies and owner Elon Musk’s controversial posts and public persona. Despite efforts to diversify revenue streams through subscriptions and data licensing, X is not meeting its $3 billion revenue target for 2023.
For digital advertisers whose audiences are on Twitter, the situation presents a complex landscape. One the one hand, Twitter’s ad inventory is dirt cheap, averaging around a $0.65 CPM recently; on the other hand, it is cheap for a reason! Namely, major advertisers have decided it’s not a place they want to be, whether because of the performance of the ads, the platform risk to their brand, or other reasons. In never-reason-from-a-price-change spirit, one shouldn’t conclude that buying more Twitter ads makes sense just because the price has fallen. On the other hand … prices have fallen a lot, by almost 90% in the space of a year. This means there are real opportunities to be had for risk-tolerant advertisers, especially those who have strong measurement stacks and are very comfortable with self-serve ad models. | Bloomberg
Consumer Economy
We recently flagged declining consumer retail spending in October, following on from signs of cooling in the labor market. Figures for total spending are now in, and they reveal a significant slowdown in overall consumer expenditures for October, rising just 0.2% MoM as compared to 0.7% the month prior.
This slowdown is widely attributed to factors like reduced income growth, high interest rates, depleted pandemic savings, and resumed student loan payments. Inflation, the bugbear of many central banks the past couple of years, is showing continued signs of easing, with core prices rising at a reduced rate. This trend is likely to influence the Fed’s upcoming interest rate decisions, with expectations leaning towards maintaining current rates.
Economists interpret this cooling inflation and consumer spending as potentially leading to a ‘soft landing’ for the economy. This term describes a scenario where economic activity moderates enough to reduce inflation without triggering a recession and a significant rise in unemployment. Despite the October slowdown, consumer spending remains resilient, as evidenced by a 7.8% increase in expenditure during the Thanksgiving period. This scenario highlights the delicate balance the Fed will have to strike in navigating economic stabilization and inflation control. | WSJ
Just-released data for November show a strong rebound in consumer spending in November, with 0.3% MoM growth reversing October’s decline of 0.2%, potentially signaling a more promising onset of the holiday season than many have been expecting. Despite a global context of cooling inflation and moderated growth from the pandemic recovery high, the uptick in retail sales, especially over Thanksgiving and Cyber Monday, is indicative of relatively strong consumer confidence.
Retailers like Macy’s and Walmart acknowledge the early success but remain cautious about the entire season. With the major rally in the stock market last week, Americans may be feeling a bit wealthier in the final weeks of the holiday season and continue bolstering consumer demand. | WSJ
The U.S. labor market continued its steady performance, adding 199,000 jobs in November, indicating a controlled slowdown rather than a sharp decline. This moderation aligns with pre-pandemic job gain levels, primarily in healthcare and government sectors. The unemployment rate fell to 3.7%, assuaging concerns of a rapid economic slowdown.
This trend suggests a balanced labor market, with an increasing workforce and employers adjusting their hiring needs, easing labor shortages and wage pressures. Hourly wage growth remains above inflation, although it has decelerated from earlier in the year.
The current labor market is reallocating resources away from technology and manufacturing and toward healthcare, hospitality, and government.
Most importantly, this reallocation appears to be happening in a pretty orderly fashion. What’s truly bad about recessions is the typically severe disruptions to the labor market that come along for the ride; we haven’t had a recession since the GFC, and the present equanimity of the labor market is a good omen. | WSJ
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