30 October 2023 On-Demand Media (Continued from Cover) (Continued on page 32) There are other differences: The on-demand economy is a technological creation, and its B2C model is a niche business. Granted, we have learned a lot about cume audiences in recent years. Cable TV has educated us on that front. But with cable we’re still talking live-plus-seven at most. Not live-plusa-year-from-now like SVoD! For example, the highest audience of one of streaming’s most popular series, Succession, which airs on Max (formerly HBO), has reached 2.9 million same-day viewers, and eight million total delayed viewers. In comparison, a third-ranked evening news show like CBS News, reaches 4.28 million viewers at any one time. With 7.4 million viewers, the top-rated news show, ABC World News Tonight, almost reaches the whole of Succession’s cume audience. The media business is now littered with various measurement companies, but ad buyers don’t believe there is one measurement company that provides adequate ratings figures for multi-viewing, including streaming. The best VideoAge could come up with is combining ratings from various Nielsen reports indicating that streaming is now capturing 38.7 percent of Americans’ viewing time, cable television accounted for 29.6 percent, while broadcast attracted 20 percent, meaning that traditional linear TV is still the dominant factor. Clearly, it doesn’t make business sense to replace mass media with cumulative on-demand media as it would turn the whole mass marketoriented economy upside down to replace it with a model that hasn’t yet been developed for a mass scale. So who then is pushing for such mass media upheaval? In a report issued by MoffettNathanson, the New York City-based financial analysis firm, it was written that “the linear model can no longer be saved, and that there is less and less energy being devoted to saving it.” The report went on to say that “the entertainment networks have been stripped bare, with their best programming having long-since moved to SVoD.” But it isn’t that linear TV is only generating peanuts. Yes, the overall ad spending on national TV networks is expected to decline 6.7 percent this year, but it’s still expected to reach some $38.4 billion. According to some reports, between carriage fees (for cable channels), and retrans fees (to broadcasters), cable operators shell out an estimated $47 billion a year. Of these, between $12 billion to $14 billion go to broadcasters and all of it is borne by subscribers. Plus, the recently renegotiated deal between Disney and U.S. cable operator Spectrum is expected to bring to the studio $2.2 billion a year for retransmission (for its ABC-TV stations) and carriage fees (for its cable channels). In effect, broadcasters want to keep intact their two-tier business model: advertising and retrans fees, even if they’re both rapidly losing steam. In reality there is a third business tier that has lately been coming back, sales of international content rights, which in the past was curtailed in order to reserve it for the streaming platforms. On page 36 of this Issue, Mike Sneesby, CEO of Australia’s Nine Network, provided the reasons for the return of a more traditional business model: “Building scaled distribution through direct-to-consumer streaming has proven to be challenging and very costly and in many cases content creators and studios have realized lower returns than the traditional models of licensing to third parties. Today we are seeing a shift back to more traditional distribution and licensing as well as hybrid distribution models and business partnerships”, he said. In addition, the linear TV model is now being adopted by the streamers with ad-supported services and live events, especially with sports. One could say that Disney is looking for a reality check, and Fox is making a reality show. While Disney is waiting for the cable cord-cutting threshold level whistle sound for its ESPN sports network to go just streaming, Fox continues to see value in its cable sports channels. According to Lachlan Murdoch, Fox’s CEO, the cable-television paywall “drives value of FOX Sports, and will for a long time to come.” (Lower-case Fox indicates the company, while upper-case FOX refers to its TV channels.) This upbeat view comes despite an eight percent decline in FOX Sports subscribers due to cord-cutting. However, carriage fees for the FOX channels were up for the quarter that ended on June 30, 2023 even though advertising decreased by four percent compared with the same period last year. FOX cable channels’ revenue reached $3.03 billion, allowing the group to post quarterly earnings of $375 million (compared with a profit of $306 million a year earlier). Then, if Disney were to move ESPN from cable to a stand-alone streaming service, it would have to charge an estimated $40 to $50 a month to match today’s revenue. Currently, ESPN has about 70 million paid subscribers, but that is expected to drop to 50 million by 2027. Cable can only blame itself, disserved by the U.S. regulatory framework that permitted it to bundle channels rather than offer a-la-carte packages like the ones that saved Canadian cable operators with the country’s innovative regulations. Cable sports channels are considered the main culprits for the increasing “cable cutters”, since those channels are the reason for the high costs of cable subscriptions. ESPN takes $9.42 from the average cable TV bill, compared with an average of $0.50 per sub for other U.S. cable networks. The solution to reduce the number of cord-cutters would have been to change the “bundle” model into an a-la-carte model (as Canada did with success years ago) where subscribers could exclude sports channels in their cable line-ups, however the cable-cutter process would have been slowed down, yet still not eliminated. So there you have it. The linear model is clearly not dying of natural causes, but was coma-induced by the SVoD proponents whose only goal was to replace the “middleman” and bring content directly to the consumer. In doing so they are inadvertently replacing a wellestablished mass media marketing model with a still unproven cumulative on-demand media. In the process the U.S. studios that have fully embraced streaming are not fully monetizing their assets on all fronts: Linear TV, international TV sales, and DTC, when with just some grandfatherly advice, they could have all been making money all along. After all, as the expression goes, good capitalists are those who sell the ropes with which they will be hanged. Indeed, in his upcoming book, Mathias Döpfner, CEO of Berlin, Germany-based Axel Springer, argues that U.S. politicians failed when in 2001 they admitted China into the World Trade Organization. Since then, 40 percent of the word’s population turned up in countries that are ranked “not free”, the U.S. share of global GDP has fallen to 24.15 percent (from 31.47 percent) while China’s share has grown to over 18 percent (from 3.98 percent), and China’s CO2 emissions have increased by over 200 percent. And this journalist is not the only one expounding this narrative. On July 21, The Los Angeles Times quoted actor Adam Conover, who’s also a negotiating committee member of the Writers Guild of America, as saying: “These companies blew up a successful business model that the public enjoyed, that was immensely profitable, and they replaced it with a mishmash that we have now.” Besides, once again looking at the recent Disney-Spectrum deal, cable will keep its middleman status and will now be offering ad-supported Disney streaming services to its subscribers. Under this new plan, Disney will reportedly receive a wholesale rate of between 40 percent and 70 percent of the $7.99-a-month subscription rate. All in all, in 2024 Disney is expected to get $420 million more than it did in 2023 from just Spectrum. Under these conditions why damage a welloiled linear TV business model that brings money in in order to focus solely on a moneylosing streaming model? Cord-cutting is blamed for the dying linear TV business, but this process was accelerated by the same studios that pulled the best programming out of their linear channels to make their direct-to-consumer streaming services (which were outside of cable’s control) more attractive. This action accelerated cord-cutting, which resulted in lower ad revenues (because of fewer viewers) and reduced revenue from retrans and cable fees (because of fewer subscribers). These actions pushed the programmers, such as Disney, to demand higher fees to compensate for The indoor digital TV antenna is a good alternative to cord-cutting subs.
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