Though we still watch a lot of TV, its usage is declining while SVOD continues to grow. The TV experience is at the root of the trend, and the industry is not doing enough to fix it.
TV viewership is falling
It is no secret that traditional TV viewing is declining. Nielsen data shows that viewing (live and timeshifted) is down 9% in the last three years. It also shows that in specific age groups the decline is much sharper. Teen viewing is down a third since 2013.
Of course, people still watch a lot of TV: 4 hours and 23 minutes was the average daily consumption per person in Q1 2017. So, is there really anything to worry about?
According to broadcasters and sports leagues, there is a lot to worry about. Disney Channel, which targets young children, and Freeform, which focuses on teens, each have lost 4M viewers over the last three years. The NFL has seen ratings in the 18-34-year-olds tumble since 2011. Viewership is down from 4.3 million per game to 3 million in the season just ended.
The most direct impact of fewer TV viewers is lower advertising revenue. ESPN reported a 13% year-over-year decline in ad revenue in its Q4 2016 results.
Competing with ad-free SVOD
A big part of TV’s problem is that it has some serious competition from online providers. You only have to look at Netflix Q2 2017 results to see that. In a quarter that is traditionally a weak one for the industry (top pay TV providers lost 670,000 subs in Q2 2016) the company gained 1 million new US customers.
Reed Hastings, Netflix CEO, is acutely aware he is in competition with traditional TV. In the Q2 2017 earnings call he said:
“We’re such a small player in our viewing compared to linear TV, compared to YouTube. We’ve got a long way to go to have more content to please more people.”
What’s more, Ted Sarandos, Netflix’s head of Content, sees the company covering many of the categories of programming that traditional TV provides. When asked if he saw Netflix as a channel for video, he replied:
“I think about us more as a super network…We are doing across the board programming.”
And SVOD services like Netflix are taking up an increasing amount of consumer viewing. Recently released Roku data shows that the average active Roku user is watching 2 hours and 44 minutes per day, 13% higher than a year ago.
What’s wrong with TV?
We might summarize the reason for TV’s downward momentum and SVOD’s upward trajectory simply: the experience of SVOD services is better.
How is it better? There are many ways but consider the Netflix proposition. A simple online signup gets you access to a vast, quality library in many genres and with a steady stream of new shows. You can access that library everywhere, on all your devices, and you watch everything ad-free. It costs just $10 a month, and you can cancel anytime.
To get access to pay TVs vast library you need to sign-up for a year or more. Nearly 30% of viewing time is ads. There are silly, confusing rules about in-home and out-of-home content access. Some content can be watched on some screens and not on others. It can cost 6-to-8-times more than Netflix. And when you are done with your contract period, you need to fight with a retention agent to cancel your subscription.
There are strong arguments that TV represents great value, is reliable, and more. However, the sad truth is that, in the eyes of the consumer, the TV experience doesn’t match SVOD on just about every measure. Ericsson asked consumers to rate satisfaction with scheduled linear TV services and on-demand services against 11 separate criteria. TV lost out to SVOD on every single one, and by a wide margin. Even for criteria such as video quality and available content. Overall, Ericsson showed that on-demand online services had a net promoter score (NPS) of 41 compared to 14 for broadcast TV services.^ What’s more the company says the difference between the two scores is widening.
TV is not doing enough
Executives at TV companies such as Turner and Disney are experimenting with lower ad loads. The NFL is even talking about changing ad breaks to lessen the impact of ads, while still retaining the same load. But this activity seems to be more window dressing as each industry participant tries to protect its share of the $70 billion TV ad market.
Operator’s like Comcast are reinventing the pay TV interface to improve discoverability and reduce the time to content. However, progress on delivering all subscribed content on every device in and out of home is slow. And the price problem just keeps getting worse.
Meaningful change to the experience of traditional television still seems far, far away. Which, in turn, means the move toward online services looks set to continue and may accelerate.
Why it matters
Experience is at the root of the move from traditional television to online viewing.
Consumers rate the experience of online services much higher than television.
Though TV executives seem to be aware of the problem they appear powerless to fix it.
^NPS is calculated by subtracting the percentage of people that would not recommend a service from the percentage that would. In the Ericsson study, 42% would recommend their pay TV provider and 28% would not, yielding an NPS of 14. A larger NPS is better.