Media Update: Broadcast Gains, YoY Ad Market Growth, Rising Consumer Debt
Key Highlights:
- Streaming: Sports continues to fuel broadcast gains in October; streaming surrenders almost a full share point.
- Linear: Major pay-TV providers lost about 465k net subscribers in Q3, a ~20% acceleration over the same quarter last yearSAG-AFTRA ended a 118-day strike with a landmark agreement with the AMPTP, securing over $1 billion in additional compensation and AI protections.
- Ad Economy: The U.S. ad market witnessed its fourth consecutive month of YoY growth in October, registering a 3.2% increase from the same month last year.
- Consumer Economy: Rising consumer debt and credit card loans, along with increased delinquencies, signal credit overextension and prompt banks to tighten lending amid high interest rates and dwindling pandemic savings.
Streaming
Despite a temporary drop in mid-November, ad-supported video supply has continued on its upward trajectory across fourth quarter.
Industry Notes
1. The October numbers reveal an intriguing shift in the streaming landscape. While total TV usage ticked up, driven by sports programming on broadcast, streaming platforms saw minor erosion, down 0.9 share points. However, a methodology change accounts for nearly half this decrease; subtracting that, usage was essentially flat month-over-month. Still, streaming surrendered share for the third straight month.
Drilling down, though, not all streamers fared equally. Disney+ gained 1.5% in viewership, retaining its standout titles like Bluey; Amazon Prime Video grew 1%, thanks to its NFL deal; so some services are holding their own. However, even Netflix’s top show Suits shed a third of its audience. And while live sports fueled broadcast surges, streaming lacks comparable tentpoles currently, putting platforms in a competitive scramble for viewers’ attention.
Heading into 2024, the numbers paint a complex picture – while total TV usage could spike as new scripted content arrives, sports may be broadcasting’s ace as audiences gravitate to live events. For streamers, the opportunity and imperative is leveraging their strengths – back catalogs, flexibility, originals – while shoring up their gaps in sports and news. Differentiation is critical against this evolving backdrop. | Nielsen
2. YouTube TV stands apart as a rising juggernaut in the vMVPD segment. Per Insider data, the service not only claims the fastest growth within Google’s product portfolio, up 48% year-over-year, but also tops its competitors in subscriber retention. Moreover, YouTube TV’s enviable 8% churn rate underscores effective customer stickiness.
YouTube TV offers broadly the same content as traditional cable, but with pricing advantages and support for up to five household accounts. This model is proving increasingly appealing compared to conventional cable subscriptions. YouTube TV’s expansion, including features like Multiview and further integration of popular sports packages, speaks to rapid adoption of vMVPDs at the expense of linear cable. This trajectory cements YouTube TV as a leader in reinventing the cable bundle for the streaming era. While traditional pay TV providers face accelerating subscriber losses, YouTube TV’s sports integrations and flexible channel packages continue to drive its expansion at their expense. The numbers validate YouTube TV’s strategy; with strong retention and growth still accelerating, its pole position in the vMVPD race appears assured. | Business Insider
Linear Media
Despite large week-over-week gains due to Thanksgiving NFL football, broadcast viewership was still down over 4% on a YoY basis. All other categories declined YoY as well, with Spanish-language networks seeing especially sharp declines (note that this time last year featured World Cup coverage, which drove big viewership on Spanish-language television).
Industry Notes
1. The latest earnings reports from major cable providers underscores the deepening erosion of the linear TV business – both distribution and, as a consequence, advertising revenue. While vMVPDs gained 1.3 million subscribers in the most recent quarter, cable and satellite lost over 1.8 million, for a net pay-TV loss of about 500k subscribers. Savings and flexibility remain central to cord-cutting, as consumers migrate to lower-cost bundles with preferred programming, while the gradual shift of select sports rights to vMVPDs and streamers also incrementally erodes pay TV subscriptions.
This imbalance compounds across advertising. Paramount and Warner Bros. Discovery suffered double-digit percentage declines in linear TV ad revenue, outpacing their streaming ad growth. Their traditional TV ad business still predominates – for now. But as audiences continue shifting to on-demand platforms, fragmentation persists.
Economic uncertainty has already softened the TV advertising market over 2023. But subscriber losses also reflect viewers favoring streaming’s perceived value. As legacy pay TV subscribers decline, so does critical reach. With diminished scale, linear networks auctioned off inventory at cheaper rates to lure ad buyers weighing myriad options. This cascading effect continues to batter linear advertising revenue.
Until streaming viewership expands enough to offset lost linear TV audiences, the economics remain vexing for network owners. There are no easy options for reversing commercial cord cutting, as consumer behavior seems set – save for a dramatic market correction. | Leichtman Research, Digiday
2. After a 118-day standoff, SAG-AFTRA and the AMPTP conglomerates have brokered an agreement, ending the strike paralyzing Hollywood productions. The tentative deal delivers considerable gains for the 160,000-strong union, potentially resuscitating the stunted 2023-2024 programming pipeline.
Central to negotiations were compensation and AI protections befitting the streaming landscape. With President Fran Drescher pressing these priorities, SAG-AFTRA secured a landmark contract valued at over $1 billion. This includes wage increases, especially for lower tiers; restrictions and consent standards for AI content generation; and, most notably, a first-of-its-kind “streaming bonus” acknowledging platforms’ ascendance.
As noted in previous Gauge data, the dearth of new fall series barely impacted audience figures. Viewing habits remained largely consistent throughout the creative drought. As such, the studios and platforms have incentive to accelerate production to capture latent consumer demand. | WSJ
Ad Economy
1. We have a pair of probably-wouldn’t-have-guessed stories for you relating to Meta and TikTok (ByteDance) …
First question – how far apart are Meta and ByteDance in revenue? Our guess would have been “pretty far apart,” given that Meta is the second-largest advertising platform in the world and TikTok has only been on the scene in the U.S., by far the world’s largest advertising market, for a few years. However, ByteDance (TikTok’s parent company) generated $29 billion in revenue in the second quarter, not far off Meta’s $32 billion in Q2 revenue. Douyin, the Chinese version of the app, still generates the majority of the revenue; but ByteDance’s global expansion, especially through TikTok, has been key to its growth, with international revenue surging from $1.2 billion in 2020 to $16 billion in 2022. Over the first half of this year, ByteDance generated $54 billion in revenue, 89% of Meta’s revenue haul. | The Information
Second question – who’s growing faster, Meta or TikTok? We would’ve said “TikTok for sure,” given Meta’s extreme saturation and TikTok’s wild growth over the past few years. Yet for the first time in recent history, Meta’s flagship apps, Facebook and Instagram, have outperformed TikTok in key metrics like app downloads and daily/monthly usage. While TikTok’s growth has plateaued, Facebook and Instagram have seen a resurgence in user growth and engagement since late 2021, when Meta faced challenges including declines in usage and revenue. According to Apptopia data, Facebook’s daily and monthly active users grew by 1.5% and 1.8%, respectively, and Instagram saw similar growth. Despite a decrease in downloads, both Meta apps fared better than TikTok, which experienced a 12% drop in downloads and a 1% decline in daily and monthly users. | Business Insider
2. Meta and Amazon have announced a significant new integration to facilitate direct Amazon purchases from Instagram and Facebook ads, with no need to leave the platform. This is a meaningful move for both companies, particularly for Meta in addressing its attribution challenges in the wake of App Tracking Transparency.
The collaboration is in part a tactical response to the limitations imposed on Meta’s ad targeting capabilities by Apple’s privacy changes, which cost Meta an estimated $10 billion in revenue. What ATT broke was Meta’s ability to link ad exposures on its platform to consumer purchases off of its platform, which is critical in demonstrating the value of its ads. What the Amazon partnership rebuilds is a direct, deterministic link between a Meta ad exposure and an off-platform purchase, no cookies or mobile ad ID’s required.
The integration creates the possibility of a seamless shopping experience, as it will afford users real-time pricing, delivery estimates, and product details directly on select ads within Facebook and Instagram, facilitating a frictionless path to purchase. Those of you who are close observers of Meta may notice this as another attempt to solve the tricky problem of integrating commerce directly into its platform; it abandoned the Shop tab from IG at the start of this year after failing to gain any real traction. Not incidentally, this also helps Meta fend off competition from TikTok, which has made aggressive moves to make its platform a commerce destination.
For Amazon, the partnership expands its reach beyond its traditional platform, tapping into Meta’s enormous user base and potentially helping it with product discovery shopping, addressing a historical challenge with engaging shoppers who are not necessarily looking for specific products. It also aligns with Amazon’s strategy to enhance the value of Prime memberships and extend its logistical prowess through the ‘Buy with Prime’ initiative.
The possible complication lies within the brands themselves. As elegant a solution as this may seem from both Meta and Amazon’s perspectives, many brands are reluctant to encourage consumers to buy their products on Amazon for a litany of reasons: hugely reduced margins, loss of brand differentiation, ceding ownership of the customer relationship, forfeiting first-party data, etc. The big tech companies will undoubtedly work out the details of the technical integration – the real question is whether brands will bite. | Bloomberg
3. The U.S. ad market witnessed its fourth consecutive month of YoY growth in October, registering a 3.2% increase from the same month last year.
This marks the most significant rise since a 6.2% gain in July, and continues a stabilization of ad spending patterns following 18 months of sustained, and often sizable, year-over-year declines. Notably, the growth was pretty evenly distributed, with the top 10 ad categories growing by 3.3% and other categories by 3.1%. | MediaPost
4. Many of you are no doubt familiar with Performance Max, Google’s AI-driven campaign management tool. PMax is a major step in the transition from the old paradigm – where campaign managers set up multiple campaigns, assign budget to them, monitor performance, tinker with targeting parameters, etc. – to a new paradigm where brands simply provide capital, creative, and an advertising objective, and then let the AI make all the myriad decisions that go into campaign-level optimization.
The next step in that evolution, as we’ve suggested in the past, is to remove creative as a bottleneck to running and scaling campaigns – producing creative at scale in multiple formats can be very arduous, after all. For that reason, PMax is now introducing AI-generated text and image creative to take some of the creative burden off of advertisers, removing another impediment to launching and scaling campaigns.
To any marketer this will immediately raise some questions, which is not lost on Google. It has established “guardrails” to ensure adherence to its advertising policies, preventing inappropriate content generation. And advertisers must opt in for the auto-generated content, which remains unique for each prompt and is branded with metadata linking it to PMax technology. For those advertisers who do opt in, the creative generated by PMax will be owned by the brand, and can be used elsewhere on or off Google.
The PMax technology also includes a new search product, Search Themes, which simplifies campaign management by replacing detailed advertiser controls with general targeting parameters. Despite its powerful potential, Google is treading cautiously with PMax, looking to build trust among agencies and advertisers who may be wary of its lack of transparency and control. | AdExchanger
Consumer Economy
1. A couple of weeks ago we flagged sustained deceleration in total compensation growth, a signal of a cooling labor market. Now, data for October show U.S. retail sales having declined by 0.1%, marking the first drop since March and further signaling a slowdown in economic growth. This decrease followed a robust summer of consumer spending and comes amidst a context of slower hiring and easing inflation.
Major retailers like Target and Home Depot reported declines in sales, particularly in discretionary items. Increased borrowing costs, slower wage growth, and depleted pandemic savings seem to be making consumers more cautious. It is hard to exaggerate how drastically things have changed relative to 2022, when consumption growth was supercharged as we emerged from pandemic restrictions.
The National Retail Federation forecasts lower growth in holiday sales compared to the last two years. Additionally, there’s a noticeable decline in seasonal hiring, reflecting businesses’ anticipation of subdued demand. | WSJ
2. Related to the flagging consumer spending noted above, the heightened caution seems to be affecting the labor market as well – in October, continuing applications for U.S. unemployment benefits rose to the highest level in almost two years.
Combined with the data referenced above relating to decelerating wage growth, this would seem to paint a picture of the labor market gradually softening, which is spilling over into moderation in consumers’ spending habits, partially cushioned by increased credit utilization. Credit utilization cannot increase forever, of course, suggesting consumers will need to tighten their belts even more in the coming months. | Bloomberg
Recently we flagged significant increases in the fraction of consumer debt held by those under 50. With the holiday shopping season now upon us, additional cracks are beginning to appear in consumers’ credit, and while it may be a buoyant season for retailers, lenders would be right to have some concerns. Credit card loans grew by 1.6% in October, notably higher than the typical 0.7% seasonal increase. The uptick indicates consumers’ continued willingness to use credit, which helps retail sales, but it raises worries over delinquency rates – average 30-day-plus delinquency across major lenders rose by more than usual last month, and net charge-offs saw a significant jump.
This trend suggests that some consumers might be overextending their credit, with those earning under $50,000 annually already utilizing 80 to 90 percent of their available credit. Banks are responding by tightening lending standards, and the average credit limit has not kept pace with inflation.
With interest rates higher than they’ve been since before the Great Financial Crisis, debt service will be an increased burden on consumers whose pandemic savings are now almost entirely depleted. | WSJ
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