Media Update: Disney Secures Hulu, Meta Increases Quarterly Revenue, Inflation Trends
Key Highlights
- Streaming: Disney secures its streaming future by purchasing Comcast’s final stake in Hulu, signaling a major consolidation of its entertainment platforms.
- Linear: CBS has nearly sold out its Super Bowl LVIII ad inventory, showcasing the event’s continued preeminence in advertising.
- Ad Economy: Meta posted a significant record quarterly revenue of $34.1 billion, a 23% increase from just a year earlier.
- Consumer Economy: Recent BLS data indicates a deceleration in total compensation growth and a marked decline in private sector wages, suggesting a potential downtrend in inflation.
Streaming Media
Following a significant run-up with the return of major sports in the fall, ad-supported video supply has moderated slightly over the past couple of weeks.
Industry Notes
1. Last week we briefly alluded to Netflix’s live streaming fiasco back in April, as it prepares to make another foray into live streaming with its Netflix Cup golf show. Given the centrality of sports in the modern media landscape, getting this experience right is of paramount importance to the future of streaming – but it’s proving tricky. YouTube, no slouch in the engineering department, suffered a public black eye over the weekend as its Sunday Ticket NFL programming, which set the company back $2b/year, was plagued by lagging, buffering, and reloading streams.
A brief digression – you may reasonably wonder, Why is it so hard to deliver via the internet a user experience that TV has managed for decades? A not-at-all-exhaustive, non-technical answer involves:
- TV runs on dedicated, fixed-bandwidth resources – Cable TV runs on cable, which is dedicated hardware designed specifically for its carriage, and fixed amounts of bandwidth (“channels”) are assigned to transmitters. This means there is minimal contention for resources, which have been scoped to the use case (delivering video). Our internet protocols, by contrast, are designed for completely generic packets of data; and our bandwidth must simultaneously accommodate our TVs, laptops, coffee machines, alarm systems, baby monitors, etc.
- TV is one-way communication – A traditional broadcast experience is one-to-many, in that content is sent one way from a provider to many end users. The streaming model is many-to-many, with content flowing in one direction and user information (profile settings, watch history, preferences, etc.) flowing back in the other direction, and all of this needs to happen in close to real time.
- Real-time data processing – A streaming platform isn’t just about delivering video content. It also includes real-time analytics, recommendations, and interactive features. Processing this data in real time for a large user base requires powerful and highly optimized data processing systems.
- Security – The largest streaming platforms present attractive targets for malicious activities, ranging from DDoS attacks to content piracy. These issues generally don’t affect traditional TV, which operates on its own dedicated network.
Back to our regularly scheduled programming … so what does this all mean for streaming platforms and for advertisers? One thing it means is that media rights purchasers will need serious technical infrastructure to even consider major sports, tilting the playing field toward global tech companies like Amazon, Google, etc. The upcoming NBA rights renewal will be an interesting test of this. And for brands, enhanced monitoring and verification of ad delivery becomes increasingly important. In the past, it was (relatively) easy for Nielsen to count how many TVs were on when your ad ran; now, we may need to know whether the feed was buffering while an ad was being delivered.
The underlying issues are ultimately engineering problems, which means they’re solvable. But the next one to two years could be a painful teething period, as more major sports move to streaming platforms while the infrastructure is still being engineered to support the experience. | The Athletic
2. Disney has taken a decisive step toward its streaming future by agreeing to acquire Comcast’s one-third stake in Hulu. The acquisition, which cements Disney’s full ownership of Hulu, aligns with the industry’s push towards streamlined services and concentrated ownership. The price for Comcast’s stake is based on a minimum valuation of $27.5 billion for Hulu, a figure agreed at the time of Disney’s strategic acquisition of Fox’s entertainment assets in 2019 (Hulu was originally a joint venture among Disney, NBC Universal, and Fox).
The consolidation of Hulu’s ownership under Disney’s control is another indicator of the broader shift in the media landscape, where major players are seeking to both strengthen and simplify their streaming offerings. Disney’s bundling of Hulu with its other streaming products, Disney+ and ESPN+, already hinted at this consolidation approach, providing a comprehensive package that caters to diverse viewer preferences. This deal underscores the industry’s inevitable march towards fewer, more scaled streaming platforms that can offer extensive libraries and services to a global audience. We expect to see further consolidation in the near future. | CNBC
3. NBCUniversal’s Peacock has reached 28 million subscribers, with 4 million new subscribers added in the third quarter. Despite the increase in users, the service reported a loss of $565 million, an improvement from the $614 million loss in the same period last year. Comcast has reduced its projected losses for Peacock from $3 billion to $2.8 billion for the year.
Comcast remains committed to Peacock as the centerpiece of its transition to streaming, with CEO Brian Roberts emphasizing Peacock’s strategy to focus on streaming live sports as a key driver for viewer engagement and retention, alongside broader content and network strategies. As we note above, live sports streaming can be technically challenging, though Peacock has been successful thus far with Olympic coverage and a Super Bowl airing successfully on the platform. Peacock is often mentioned as one of the platforms most likely to be swept up by a more scaled streaming player, but for now Comcast is sticking to its streaming guns. | Hollywood Reporter
4. Netflix experienced a significant surge in subscriber growth, its highest since January 2021, following a successful quarter fueled by compelling programming and a firm stance on password sharing. In the third quarter, Netflix gained 8.76 million subscribers, surpassing analyst predictions and increasing its total subscriber count to 247.2 million. This uptick in growth has instilled enough confidence in Netflix’s management to implement price hikes in major markets like the US, UK, and France.
The crackdown on shared accounts has not only generated a swell in new subscribers but has also managed not to spike cancellation rates. With this momentum, the company is poised to surpass 20 million new customers in the current year, a stark contrast to the previous year’s ~9 million. | Bloomberg
Digital Audio
1. SiriusXM faces headwinds as Q3 saw 96,000 satellite and 112,000 Pandora streaming subscriber losses, evidencing maturation beyond 187,000 satellite adds a year ago. Total self-pay users dropped to 31.8 million satellite and 6.1 million Pandora, showing SiriusXM stuck between legacy radio and unrealized streaming future. But near-term financials are stable, with adjusted EBITDA up 4% and ad revenue rising slightly to $418 million, signaling monetization potential. Yet uncertainty persists on SiriusXM transitioning its business model successfully.
Much rests on the launch of a new app to drive streaming subscriber growth. CEO Jennifer Witz admits this will be crucial to attracting younger audiences long-term, while acknowledging satellite radio’s dominance for now. Effectively migrating users to mobile on-demand listening is no guaranteed feat, with deeply entrenched competitors like Spotify and Apple. The question remains, can the company leverage its exclusive content and personality talent to thrive in the streaming era? Or will it remain hindered by legacy satellite radio infrastructure and demographics? Navigating this transitional period will test SiriusXM’s strategic agility. Failure to sufficiently reinvent itself for younger digital-first consumers could consign SiriusXM’s satellite radio empire to gradual obsolescence. | Hollywood Reporter
Linear Media
The initial shock of the terrorist attack in Israel, and the subsequent fighting in Gaza, has worn off for cable news viewers – the surge we saw in October has abated, and news viewership is now about 6% below where it was the same week last year. All other viewing genres are down between 4% – 8%.
Industry Notes
1. CBS has sold out all ad spots for Super Bowl LVIII, affirming the NFL’s unrivaled advertising primacy. In today’s fragmented media landscape, the Super Bowl stands out as a rare beacon that promises brands a consolidated, engaged audience. Beyond mere viewership, Super Bowl commercials have morphed into cultural phenomena, often trending globally and influencing broader pop culture. As digital platforms continue to challenge traditional TV, the early sell-out of Super Bowl spots is a testament to linear TV’s enduring advertising prowess. For advertisers, the Super Bowl allows splashy statements that drive conversation. CBS likely commanded over $7 million per 30-second ad, benefitting from steady NFL ad growth even as non-sports programming declines. With 100+ million viewers, the Super Bowl is a near recession-proof property to maximize revenue. CBS was 80% sold pre-season, thanks to advertiser eagerness for the big game’s halo effect. This exemplifies why the NFL can dictate favorable broadcast rights deals – marquee events like the Super Bowl offer scarce reach and engagement that brands crave amid fragmenting audiences. The Super Bowl persists as a primetime juggernaut, proving live sports’ resilience and commanding strong demand despite market weakness. | Mediapost
2. The 2022 World Series posted a new low in average viewership, plunging 22% year-over-year to just 9.1 million as the Texas Rangers defeated the Arizona Diamondbacks. Baseball’s premier event continues its downward viewership spiral, which is undoubtedly alarming to MLB. The key factor driving the decline is of course cord cutting, but it’s also dealing with unexciting matchups, baseball’s failure to connect with younger audiences, and diminishing national interest in baseball overall. For now, advertising economics remain steady at $180 million in revenue for the Series. However, continued erosion of World Series ratings can’t not undermine future advertiser interest and hence ad value. | Mediapost
Ad Economy
We’ll focus our attention this week on earnings announcements, and what they reveal about the state of the ad market, as all the major ad-tech platforms announced in the last couple of weeks.
- Snap – Snapchat’s parent company posted top-line revenue growth of 5%, defying analyst expectations of a modest revenue decline following consecutive quarters of year-over-year contraction. The revenue progress was fueled in part by DAU growth of 12%, with about 406 million people globally using the platform on a daily basis. All is not rosy for Snap, however – its operating loss widened slightly relative to a year earlier, and the company is projecting very modest growth going forward. Unless it can reignite growth in a big way, it is difficult to see how Snap is going to transition to net cash generation. | WSJ
- Meta – Meta posted record quarterly revenue of $34.1 billion, a 23% increase from a year earlier. This is a very significant return to growth for Meta, which struggled across 2022 in the wake of post-App Tracking Transparency disruptions to its ad targeting and attribution engine (the kind of ‘struggle’ many of us would kill for!). The company attributes much of the rebound to having rebuilt its ad targeting technology on AI foundations, which do not rely on identifiers (like the IDFA) controlled by other parties. Indeed, CEO Mark Zuckerberg said AI will be Meta’s biggest investment area in 2024 in terms of engineering and computing resources. In a post-ATT world, this is an area where Meta has a major advantage relative to smaller players like Snap – training and deploying AI models entails very large fixed costs, which Meta can amortize across a user base of 2.09 billion daily users, as compared to Snap’s ~400 million. Add to this the fact that Meta does not use public cloud resources for its computing (which gets extremely expensive at that kind of scale), and Meta looks even better positioned post-ATT than it was previous to it. | WSJ
- Google – Google posted top-line revenue of $60 billion in its ad business, up 9.5% from a year earlier. YouTube, a platform that was much more affected by ATT (similar to Meta) than Google’s core search business, posted growth of 12%, demonstrating that it has shaken off the ATT hangover (this also reflects some incremental revenue from NFL Sunday Ticket, which is new to YouTube TV this year). Notably, while the big four TV companies lost about $670 million in ad dollars in the past quarter, YouTube gained $881 million. | WSJ
- Apple – Apple is the least advertise-y of the bunch, but it matters to the ad economy in a profound way. The company posted revenue of $89.5 billion, down ~1% from a year earlier. This is Apple’s fourth consecutive quarter of declining revenue, owing largely to a global slowdown in smartphone sales and renewed competition in China (which itself is experiencing economic weakness) from Huawei. Apple does not break out advertising in its financial statements, but the Services segment, which includes its ad business, grew by 16%, far outpacing overall growth. | WSJ
- Amazon – And finally we have Amazon, which posted revenue of $143.1 billion, up 13% over last year. Amazon is of course a complex empire, comprising ecommerce, cloud computing, advertising, groceries, health care, and more. But it does break out results for its ad business, and advertising grew 26% YoY to about $12 billion for the quarter, significantly outstripping the rest of the business and growing faster than any of the major platforms noted above. It’s clear that this part of the business is a major priority for Amazon – from spending $1b per year on TNF rights to bringing ads to Prime Video, it’s clear Amazon sees an opportunity and a right to win. It is now the third-largest ad platform in the world (after Google and Meta), and it’s highly likely that high-margin advertising is contributing more profit than even the vaunted AWS. | WSJ
Consumer Economy
We noted last week that September’s inflation numbers showed some stickiness, with price level changes ceasing their downward trend over the past several months; this is troubling, as the level is almost twice the Fed’s official target of 2%. Indicators of where inflation is going from here can often be found in the labor market; after all, the price level is ultimately driven by nominal spending relative to productive capacity. If wages are growing rapidly, nominal spending will probably grow rapidly, hence price increases.
Newly released data from the BLS show that growth in total compensation costs has slowed to about 4.3%, similar to last quarter but down significantly from where it was a year ago.
For those hoping for improvements to the inflation situation, the better news is that, when looking at workers in the private sector, a sharp downward trend is continuing. The implication, as you might have guessed, is that public sector workers have seen substantial wage increases.
Putting several of these different trackers together, it does appear that there is a persistent, downward trend in wage growth, which all-else-equal would indicate coming reductions in inflation.
Following its policy meetings at the beginning of this month, the Fed did indeed hold rates steady, though it signaled that it is not necessarily done tightening monetary policy. Indeed, some economists are even skeptical it has done so at all! | @JustinWolfers
U.S. consumer debt is increasingly held by the young – individuals under 50 now holding 55% of consumer debt, a 7-point rise from the previous quarter and the largest jump on record.
Total household debt hit $17.3 trillion, with those under 50 adding $1.4 trillion just last quarter, in stark contrast to the stable borrowing levels of older Americans. The surge is attributable to mortgages, credit cards, and especially student loans — under 50s unsurprisingly hold much more student debt than their elders.
This financial landscape is marred by increasing delinquencies; serious auto loan delinquencies are at their highest since the recession for those in their 20s and 30s.
Credit card debt has also escalated to $1.08 trillion, accompanied by a hike in delinquencies.
In response to the increasing indebtedness, the Education Department instituted a temporary measure through September 2024 that prevents any loan delinquencies from being reported to credit agencies for the next year, potentially masking the true underlying picture of consumer debt repayment capabilities. | Bloomberg
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