Tag Archive: media industry

  1. The story told by the TV industry’s Q2 results

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    Towards the end of July, the TV giants released their Q2 results. The news that got the industry talking was how Disney’s subscriber growth is outpacing that of its rivals, including Netflix. The streaming wars are now fully underway and the pandemic is transforming viewing habits. The TV industry is changing at a dramatic pace – the Q2 results give us a snapshot of this transformation. So what does that snapshot show?

    Disney+ is growing faster than its rivals

    Disney launched its flagship streaming service, Disney+, in many countries towards the end of 2019 and the start of 2020. It enjoyed almost uncanny timing for when millions of people would be locked down at home, looking for new forms of entertainment. Its growth has been remarkable, and at the end of Q2 in 2021, it reported 116 million subscribers – double what it had a year ago. They added 12 million subscribers in Q2 – significantly more than Netflix’s 1.5 million. Disney has undoubtedly benefitted from a cheaper subscription price – $7.99 per month in the US, versus $13.99 for Netflix’s standard plan – as well as the launch of its Hotstar platform in India, where Indian consumers can access all Disney+ content.

    While Disney’s subscriber numbers continue an almost-stratospheric growth, the average revenue for a Disney+ user has fallen by 10% from a year ago. India – where subscriptions only cost the equivalent of $4 a month, now makes up nearly 40% of all subscriptions. Furthermore, Disney is still losing money from streaming as it is still investing heavily in content. Its direct to consumer business unit, which includes Disney+, Hulu and ESPN+, suffered an operating loss of $293 million on $4.3 billion in revenue.

    Netflix’s dominance is eroding – but it isn’t worried

    Netflix’s Q2 earnings report wasn’t nearly as spectacular as Disney’s. It enjoyed an extraordinary 2020, adding more than 36 million subscribers, taking its global total to 200 million. By contrast, it only added 1.5 million new subscribers in the second quarter of 2021. It also lost more than 400,000 subscribers in the key North American market. Netflix’s share of worldwide demand interest – a key barometer of how many new subscribers a service is likely to attract – fell below 50% for the first time in Q2 of this year. So what’s behind Netflix’s declining dominance?

    A hard-to-follow 2020 for Netflix

    Of course, the most obvious factor is the fact that Netflix has been around for longer than its competitors. It’s almost impossible to think back to a time before Netflix launched, when we were still watching DVDs or streaming movies on sub-standard online streaming sites. Netflix has been around so long that it is probably nearing saturation point. This is particularly true after a year in which so many people signed up to streaming services because there was so little else to do. It would be remarkable if Netflix had managed to keep subscriber growth levels on a par with 2020.

    Netflix’s price increase will be affecting uptake

    Another reason that Netflix’s subscriber growth is slowing is because of the increase in its pricing in early 2021. It bumped up the cost of most subscriptions at a time when belts across the world were being tightened. It was also just before Covid-19 restrictions started loosening; now, with the world opening up again, many people will be looking at their streaming subscriptions and wondering which ones can go. The relatively costly Netflix one might be among the first to get the chop.

    Finally, Netflix’s content schedule was lighter than usual in 2021 thanks to Covid-related production delays. The price hike twinned with less new content may have driven some subscribers to take their money elsewhere.

    Netflix isn’t worried about its rivals

    Despite the slowing growth, Netflix doesn’t seem to be worried – after all, its share of TV and streaming watch time grew from 6% in May to 7% in June, compared to Disney+’s 1%. Netflix maintains that its key competition is traditional TV, and that a ‘shakeout’ won’t happen until streaming makes up the majority of viewing – it’s currently at 26% in the US, according to Nielsen. Co-CEO Reed Hastings said to investors ‘Does HBO or Disney… have a differential impact compared to the past? We’re not seeing that in the [data]. That gives us comfort.’

    Netflix is expanding into gaming

    While Netflix seems unperturbed about the pace of its rivals’ growth, it continues to innovate. With its Q2 earnings report, it confirmed its plans to expand into gaming. It has recently hired ex-Electronic Arts and -Facebook gaming veteran Mike Verdu to head up game development. The goal will be to create games based on original TV shows and films, as well as to introduce entirely new games and license some titles.

    What Q2 results mean for the wider TV industry

    It’s not just the streaming services’ Q2 results that have a story to tell about the state of the TV industry. The more traditional TV companies have also been releasing their results. They tell a story of an industry that is, like the rest of the economy, still finding its post-pandemic feet. Some traditional companies and streaming services have clawed their way back to pre-pandemic revenue levels – but not all have managed it yet. Fox posted a Q2 revenue of 7% more than the same quarter in 2019, while Roku saw a 217% improvement. On the other hand, ViacomCBS and Discovery’s Q2 performances were around 2% shy of the same quarter in 2019.

    The overall trend is that, while money is still moving into streaming in the US, many of those dollars are still going to the traditional TV companies, whether to their linear networks or their proprietary streaming services. However, this may change with the rise of programmatic CTV. In Q2 2021, the number of programmatic impressions in the US on Amazon and Roku’s CTV platforms increased by 49% and 27% respectively, compared to the previous quarter. They rose by 204% and 118% respectively compared to the last quarter of 2020. With so many reach-hungry advertisers seeking to boost their share of mind, linear TV companies may need to fight to keep their share of budgets.

    The bottom line: striking the balance between linear and CTV

    As has been the case for several years, advertisers are seeking the perfect balance between linear TV and CTV. Meanwhile, the ad-free streaming services do battle for consumer eyeballs. The market is volatile; it will undoubtedly be influenced by a rapidly improving programmatic inventory for CTV. The US Upfronts will need to adapt accordingly.

    If you would like to discuss how to allocate your TV budget between linear and connected TV, as well as how to navigate the myriad other choices that marketers are presented with in today’s complex media landscape, please contact us at value@ecimm.com.

    Header image: Dean Drobot / Shutterstock

  2. What should we expect from the post-pandemic media market?

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    Covid-19 is still rampant across the world. Infection rates are soaring in countries including the UK, France, the US and Indonesia, to name just a few. Despite this, we are moving into a post-Covid world, thanks largely to vaccine roll-outs weakening the links between infections, hospitalisations and deaths. Many countries are throwing off the shackles of Covid restrictions, with governments hoping that citizens will leave their homes and spend their countries back to economic health. Brands from all sectors will of course be hoping to benefit from this uptick in consumer spend. They will be investing in marketing strategies in anticipation. This will have an impact on media pricing; indeed, the cost of media, as well as the amount spent on it, is often a good indicator of economic recovery, or lack thereof. So what does the post-pandemic media market look like?

    Global recovery will remain uneven

    According to the OECD, global prospects are improving, but are strongly dependent on countries’ individual situations. Unlike the global recovery following the 2008-2009 global recession, the post-pandemic recovery will be ‘uneven and dependent on the effectiveness of vaccination programmes and public health policies’. Some countries are recovering much more quickly than others. South Korea and the US are reaching pre-pandemic per-capita income levels after about 18 months. Many European countries are expected to take three years to recover, while in others such as Mexico and South Africa it could take up to five years. Countries with effective public health strategies are seeing their economies recover more quickly – a ‘more jabs, more jobs’ scenario. The dependency on different sectors such as tourism is also a key factor.

    Consumer confidence is crucial

    As the pandemic is wrestled under control, consumer confidence and spending will increase, bringing relief to hard-hit industries. The pandemic deeply impacted consumer spending. There were a lack of opportunities to spend but also concerns around job security and future uncertainty. Real personal consumption expenditure (PCE) in the US contracted by 3.9% in 2020, compared to 2.45% expansion in 2019.

    Meanwhile, savings increased as even people in secure employment avoided spending. The US personal savings rate ended 2020 at 14.25%, nearly double what it was in December 2019. In the UK, consumers are estimated to have amassed an extra £180 billion ($245 billion) in their bank accounts over the course of lockdowns, equivalent to almost 10% of the country’s annual GDP. Experts agree that the easing of restrictions will spark a surge in consumer spending, especially by wealthier households. Deloitte estimates that US consumers have saved around $1.6 trillion more than if there been no pandemic.

    Alongside the increased spending power are higher confidence and a change in mood as health-related anxieties ease. In the US and elsewhere, there is likely to be a huge rebound in spending on services in the coming months. Consumers will be eager to go on vacation, eat at restaurants and go to sporting events, for example. In March, PCE on services grew year-on-year for the first time in 13 months, rising to 19.3% in April. That’s still 4.7% lower than what it was in February 2020, but a reassuring rise.

    A boost to the advertising industry

    Anticipating the rise in confidence and resultant unleashing of latent savings, advertisers are investing heavily in media strategies to encourage consumers to spend those savings and celebrate the easing of lockdown with their brands. This has led to an uptick in media pricing, as ECI Media Management predicted in January in our annual Inflation Report – an update will be released in September. Both Magna and GroupM revised their previous projections for the post-pandemic media market upwards.

    GroupM predicted in June that global advertising will grow by 19% in 2021, a significant increase on their December forecast. This represents a level of ad revenue 15% higher than 2019, and high growth should persist into the foreseeable future. Remarkably, GroupM anticipates that global advertising will exceed $1 trillion in 2026, a huge increase on 2020’s $641 billion. Regions including the UK, India, China and Brazil could see growth of over 20% in 2021 versus 2020. The US, Australia and Canada could see an uptick in the high teens.

    The Magna report forecasts that digital ad formats will be the big winners of the post-pandemic media market, capturing two-thirds of total ad sales for the first time. This is down to a 13% growth expected from digital ad sales, including search, social, video, display and audio. While linear ad spend has suffered as much as it did in the recession of 2008 and 2009, the market is recovering much more quickly. Spend on linear channels are expected to have grown in Q2 after four negative quarters. The last recession led to 11 consecutive negative quarters.

    Learning from previous downturns

    The global recession of 2008 and 2009 was very different in nature to the one caused by the pandemic. The economic depression caused by Covid-19 has been very sharp, but is also expected to be ‘v-shaped’. Experts predict that the global economy should be back above pre-Covid levels soon, while the recovery after the 2008-2009 recession was much slower. However, the last recession offered brands some valuable lessons in how to handle the current situation and recover more quickly. Millward Brown found in 2008 that 60% of brands that spent nothing on TV for six months saw brand use decrease 24%. Brands that cut their ad budgets more than their competitors were at a greater risk of share loss. Businesses that continued to maintain share of voice and share of market during the downturn showed longer-term improvement in profitability that outweighed short-term savings.

    Specific strategies for a pandemic

    While those lessons continue to be relevant in the challenging times advertisers face today, the specific nature of this downturn, driven by a global health pandemic that has affected almost every single person in the world, should be addressed in a very specific way. Kantar found that 77% of consumers want brands to talk about how they can be helpful in their everyday lives. 75% want brands to showcase their efforts to face the situation. 70% want brands to offer a reassuring tone.

    Many advertisers have moved their focus away from performance-based, sales-focused channels and metrics and investing in long-term brand-building strategies. Meanwhile, caused-based marketing is on the rise, as brands seek to position themselves as socially and environmentally responsible.

    The answer, as always, is to focus on the consumer

    By learning from previous downturns and focusing on brand loyalty and the consumer, many brands will emerge stronger, better and with a more loyal following than ever. These will be the perfect conditions to capitalize on the economic recovery and consumers’ appetite to spend. The post-pandemic media market will be stronger and more resilient than ever.

    Header image: Dean Drobot / Shutterstock

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