After years of predictions on the decline of TV, the day may finally be here.
According to a report from Bloomberg this week, TV advertising sales fell 7.8 percent to $61.8 billion last year. Per the report, this is the steepest drop outside of a recession in more than 20 years. Even ad sales at cable networks slowed, for the first time in nearly a decade.
The more worrying news? Television ad sales are declining even as global advertising spending grows.
Where has all the money gone? The answer appears to be to online platforms like Google and Facebook, and, increasingly, Amazon. All three have increased their investments in video – Amazon notably with its billion-dollar acquisition of Twitch – and have captured nearly every new ad dollar entering the industry.
According to Bloomberg, this latest decline may be the long-predicted secular shift away from TV advertising, with analysts suggesting that the industry may never recover.
Major media companies like Disney, Fox, Comcast (owner of NBC) and Viacom should be very worried. All of them derive significant revenue from the TV-media industrial complex, which is fueled heavily by advertising.
Why are advertising dollars moving away from TV? Simple. They’re finally following viewers, who have been moving from TV to digital for years. Even live sporting events – long thought to be immune to the cord-cutting problem – have declined in viewing. Even major live events like the Olympics and the coming midterm elections have shown no signs of reversing the trend.
In response, media companies are starting to shift to digital. Fox, CBS and Disney are all developing their own online video services while Hulu, started by a consortium of media giants, already generates $1 billion in advertising revenue a year in addition to significant subscription revenue.
The problem for media companies? Digital advertising is fiercely competitive and driven by engagement and ROI, metrics which TV advertisers have typically been deprived of.
Worse yet, traditional media companies lack the scale advantage in the digital realm that they had in TV. They have no monopoly in the digital realm, where the barriers to entry are much lower than they were for TV channels and traditional media empires.
Without a modern monopoly of their own, traditional media companies are in trouble. They are all attempting to replicate Netflix – which has combined traditional, linear content production with the lower costs and greater scale of digital distribution.
But there are only so many subscription dollars out there that consumers will pay, especially highly prized younger consumers. And as all of these media giants compete against each other for more and more content, they will spark an inevitable race to the bottom, as margins will be eaten up by increasing spending on premium content. Netflix is already spending some $16 billion on content, and that’s before a real digital competitor emerges.
Traditional media companies have tried to address this imbalance via massive consolidation. But when you’re competing with the scale of Google and Facebook – which get billions of users based off of free, user-generated content – that’s a losing battle no matter how many competitors you acquire.
In the digital world, you can’t compete long term based on restricting supply. You compete by building a large network of third-party content producers.
This is exactly what Facebook, Google and Amazon have done. But that’s not all. They’re also combining that modern monopoly in user-generated content with increased spending on linear, premium content. Given the considerably deeper pockets of these tech behemoths, traditional media companies hoping to compete on scale should think twice.
Traditional media’s best hope? Creating a modern monopoly of their own. Oddly, while all of the major tech monopolies are exploring premium content, almost none of the traditional media players are trying to build their own platforms around user-generated content.
The scale provided by a successful platform business is exactly what media companies need to win against their digital competitors. Otherwise there’s no chance they’ll compete successfully for ad dollars against the sheer volume of eyeballs and data that Google, Facebook and Amazon capture.
For traditional players, the time to act is now, while they still have the advantage of significant revenue from TV and other traditional advertising. The more this revenue stream declines, the harder these companies will find it to invest in building digital platforms.
Even worse, if media companies wait too long, one of the tech monopolies will crack the code on combining their networks of content creators with premium, linear content. For advertisers, this is the holy grail – combining scale, eyeballs and data with high-quality, ad-friendly content that brands want to associate themselves with.
Major media companies should be chasing after that opportunity as fast as they can. All the major tech companies are already trying. For now, traditional media companies still have a chance. But likely not for long.