In a new report titled Pouring Recessionary Gasoline On a Secular Fire, S&P Global outlines trends that will increase the pressure on an already challenged media industry.

The trends are impacting both traditional TV and streaming, and revenue from advertising as well as distribution.

“Margins and cash flow for global media companies, more than their leverage, will remain depressed as streaming struggles to achieve profitability and linear TV weakens,” is the bottom line, as far as S&P is concerned.

The impact of the recession depends on how long it lasts and what a recovery looks like, S&P says in its report. 

“Recession increases vulnerability of linear TV with higher cord-cutting, declining audience ratings, and weakened advertising,” S&P said. ”Overall advertising showing signs of weakening, with limited visibility heading into 2023. Upfront remains resilient because advertisers need TV’s reach, but scatter weakened over the second half of 2022.”

Also: 12 Television Business Executives To Watch as 2023 Unfolds

S&P forecasts that total TV ad revenue will fall 8.2% in 2023, with network TV down 5.7% and cable down 3.5%. Local TV, including political advertising, is expected to drop 18.9% in a non-election year. By contrast, digital advertising is expected to grow by 9%.

“Is 2023 the year when both affiliate fees and advertising declines finally hurt financial metrics?” the S&P report asked. The credit ratings agency’s forecast calls for cord-cutting to hit 9.7% in 2023, up from 9% in 2022. Including virtual multichannel video programming distributors (MVPDs), cord-cutting is seen as reducing the number of pay TV subscribers by 6.5% in 2023, compared with 6% in 2022.

“Can legacy linear television continue to hold on? TV has thus far performed better than expected,” S&P said. “While cord-cutting has reaccelerated and audience ratings continue to free-fall, advertisers have remained committed to advertising on linear TV. But for how long?”

The move to streaming isn’t helping the media business yet.

"Streaming is not as profitable as linear TV," the S&P report said. "Not every direct-to-consumer (DTC) service will succeed — what will companies do to survive if their service underperforms?"

Interesting statistic: On average, consumers subscribe to four to five streaming video services. Subscribing to the ad-free tier for all nine SVOD services (including Amazon Prime Video) would cost $104 per month.

“General-entertainment SVOD services can only achieve profitability and free cash flow with economies of scale (global reach and scaled content),” S&P said, noting that only Netflix, The Walt Disney Co. and Warner Bros. Discovery have scale in owned content and global reach.

Also: ESPN Spinoff By Disney Leads Analyst's Media Predictions for 2023

“Growth in new content spending should stabilize in 2023 as companies embrace DTC profitability,” S&P said.

Content remains king, the report also says, as spending on programming is not declining.

The report notes that there is still healthy demand from streamers for original programming to drive new subscriber growth and for library content to retain subscribers, but warns that selling to streamers weakens studio metrics.

“Standalone studio financial results no longer reflect true economics of the business,” S&P said. ■

You don't have to look hard these days to find a downer report about the fate of linear television. 

And only a few key earnings calls into the Q3 reporting cycle, the news seems likely to get worse. 

Update: Several hours after this story was filed, Google announced that YouTube had experienced its first quarterly decline in ad sales ever, with Q3 revenue dropping nearly 2% to $7.07 billion. You can read that story here. 

As the first major pay TV operator to offer third-quarter customer metrics, Verizon reported the loss of around 95,000 Fios TV customers. As elegantly showcased by Lightshed Partners, that represented a surge of around 8.8% over the circa-87,000 customers lost to Verizon Fios TV in the second quarter. 

The rate of cord-cutting also increased by a similar .8% rate from Q1 - Q2 for the wireless giant, after it had held largely steady for 18 months (see graphic). 

With Comcast and Charter Communications set to deliver their Q3 reports later this week, expect video cord cutting to quite possibly re-emerge as a key issue. Comcast has lost 512,000 and 520,000 customers, respectively, in the first and second quarters of 2022. 

Meanwhile, Lightshed analyst Richard Greenfield triangulated another early-Q3-season earnings report from Snap Inc., during which strong concerns were expressed about the current advertising sales market. 

Snap Co-Founder and CEO Evan Spiegel spoke at length about navigating "this difficult macro environment that has impacted our advertising business over the past few quarters." 

Responding to both Verizon's and Snap's metrics, Greenfield tweeted over the weekend, "Not a good start to earnings for anyone in the broadcast or cable TV network biz," noting that the Snap report signals a meaningful "pullback in brand ad spend in Q4 as recession fears build." 

Tracking the executive pessimism on its latest "Earnings Scorecard," Lightshed also  found that, among the 69 companies it tracks, mentions of the term "recession" increased to 60 in the second quarter vs. just two in the third quarter of 2021. 

Observing the behavior of one of the video business' biggest advertisers, Procter & Gamble, during its Q3 call last week, we didn't find a mention of the "R" word even once. 

But the company did discuss a "very challenging cost environment, with CFO Andre Schulten noting, "When you think about our marketing spend, we estimate there is still significant opportunity to optimize in the ability to reach consumers more broadly and more effectively at significantly lower cost as our digital reach increases." ▪️

The Dow Jones Industrial Average fell nearly 3,000 points Monday (March 16) as investors, fearful of the long-term economic impact of the coronavirus outbreak, worried that federal recovery efforts won’t be enough to stop another recession.

Stocks fell 13% Monday (after another trading halt at the start of the day) to 20,188.52, down 2,997.1 points (its worst single day since 1987) as investors fretted that moves by the government over the weekend won’t be enough to prevent a worldwide recession. On Sunday, March 15, the Federal Reserve dropped its benchmark interest rate to near 0%, and pledged to purchase $700 billion in government bond debt, moves investors took more as a sign of bad things to come. 

While restaurant and hospitality stocks seemed the hardest hit -- some down nearly 40% Monday -- as Americans were urged not to leave their homes, media stocks, which were supposed to benefit from that restriction, also took it on the chin.

The downturn erased a near 2,000-point gain in the Dow on Friday amid hopes that the federal government would step in to avoid an economic disaster. While the stimulus package was reminiscent of the 2008 federal bailout, that may have been the problem. With such a massive effort underway so soon, some investors may have seen it as a sign that things are only expected to get worse.

That sentiment trickled down to the cable sector, which just days before was expected to benefit as an increasingly home-bound populace would likely spend more time taking advantage of their pay TV subscriptions and watching streaming video. While that may still be the case, investors had other things to worry about.

In a press conference March 16, after admitting the coronavirus pandemic could take at least until July or August to control, President Trump acknowledged the sharp stock market decline, telling reporters that the U.S. “may be” headed into a recession, before adding that he expects a “tremendous surge” once the virus runs its course.

On the pay TV side, Altice USA led the decline for cable stocks, down 23% ($5.02 each) to close March 16 at $17.20 per share. The rest of the sector fared a little better, with Charter Communications down 14.3%, CableOne off by 13.4% and Comcast down 8.4% on Monday. As a whole, the sector was down about 32% since Feb. 13.

Satellite TV giant Dish Network fell 13% ($2.80 each) to $18.79, culminating a month where it lost more than half of its value, when Dish shares were priced at $40.18 each.

AT&T, which expects to launch its HBO Max service in May, fell about 7.7% ($2.66) to $31.81 while its telco counterpart Verizon Communications dipped 6% ($3.18) to $50.99 each.

It continued to be a tough day for programmers. The Walt Disney Co. stock fell 7.3% to $95.01 each while ViacomCBS dipped 17% to $13.61 per share. Discovery fell 10% to $20.63 and Fox Corp. was down 8.2% to $24.01. AMC Networks finished the day up slightly, closing Monday at $28.06 each, an increase of 12 cents per share, or less than 1%.