CES has become a must-attend expo for TV and digital executives looking for the next big thing in consumer behavior that might dramatically change their businesses or open up new opportunities.

Here’s what a cross-section of executives told Multichannel News they’ll be watching for in Las Vegas this year.

5G

“We continue to monitor what will be the impact of 5G. We’ve heard a lot about it from the telcos, though I think the jury is still out on how it is going to change consumer behavior. But it’s coming and we have to understand what it means and if there is a way we can take advantage of it.”
— Tom Christie, chief operating officer, Showtime Networks

eSports

“Gaming is already a huge play. A lot of people don’t realize that the gaming market in the U.S. already brings in more revenue than Hollywood. With the change in U.S. laws that allows online betting of eSports, you will see the whole category just explode.”
— Phil McKinney, president and CEO, CableLabs

New Screens and Possible Outlets for Video

“There are more screens on all the connected devices. We are going to be scouring the floor at CEs to see who has come up with the most interesting and compelling ways to drive an audience though all those new screens.”
— Brinton Miller, executive vice president of technology strategy and operations, Discovery Inc.

“We are keeping an eye on things like Facebook Portal and Amazon Echo Show because anything with a screen is something that could have a Sling TV experience.”
— Jimshade Chaudhari, vice president of product management, Sling TV

The Internet of Things

“We think the Internet of Things is a very, very important growth space for us, and we’re very focused on how to make that experience simple, easy and awesome.”
— Daniel Spinosa, vice president of entertainment services, Comcast Cable

“We are going to see more and more connections between devices. So the Internet of Things and the implications for how you move content and video around the home will be interesting to see.”
— Sameer Deen, chief digital officer, Univision Communications

OTT Video

“If anyone is thinking about how TV is going to look like in 10 years from now, it is clearly going to be on OTT. I would look for some very interesting announcements at CES from different partners on how they are going to play in the OTT space, because it is now clear they all have to be there.”
— Rob Holmes, vice president of programming, Roku

“I’m mostly fascinated and paying attention to some of the technologies that are powering things like Roku and Apple TV. There is a lot of innovation that is going to be happening relating to the monetization of OTT.”
— Chris Berend, senior vice president, digital video, CNN

Personalization

“We are very interested how personalization can continue to become more effective in serving up the content people want so they can get the content quickly and without all the difficulties of finding that content. We think it is a huge opportunity for us to work with some of the large digital platforms to do that more effectively … Related to that is voice search. It continues to be a great interest because it goes hand and glove with personalization.”
— Justin Connolly, executive vice president, affiliate sales and marketing, Disney & ESPN Media Networks

Smart TVs

“We’re very interested in developments with what you might call a truly connected TV versus peripheral device that connect to the TV like Roku or Amazon fire. I want to see how the systems [inside these TVs] are evolving at Samsung, Vizio, LG, etc. I think it will be an interesting year on that front.”
— Marc DeBevoise, president and chief operating officer, CBS Interactive

Virtual Reality (VR) and Augmented Reality (AR)

“We want to see what is in store for the wearables [in terms] of becoming lighter, having better fields of view and augmentation.”
— Chris Young, senior vice president of Nickelodeon’s Entertainment Lab

Voice Recognition
“Five years ago, it was all about search engine optimization. Now, voice recognition and voice optimization is crucial in making sure that users can easily access and interact with our content.”
— Sameer Deen, chief digital officer, Univision Communications

Artificial Intelligence and Machine Learning
“There are some tools around this that are very interesting [for production and content development] that allow you to plug in an idea and create something very interesting.”
— Chris Young, senior vice president, Nickelodeon’s Entertainment Lab

Autonomous Cars and Automotive Entertainment
“We’re looking at autonomous cars, because if you are not driving you probably want to be entertained.”
— Jimshade Chaudhari, vice president of product management, Sling TV

Edge Computing
“We are big proponents of edge computing at CableLabs because it allows you to deliver a very responsive and very low-latency experience … We actually think that consumers are going to shift from being purely speed-focused because when you get above 50 to 75 Mbps, your constraint for having a better experience is latency.”
— Phil McKinney, president and CEO, CableLabs

High Dynamic Range (HDR)
“We expect a lot more push for HDR as we get into the next year and want to get a better understand of who are the winners and finding out what HDR formats we need to be mastering to.”
— Brinton Miller, executive vice president of technology strategy and operations, Discovery Inc.

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Stagnant or declining revenues for TV advertising and pay TV subscriptions aren’t necessarily bad news for the big TV players. Add up revenue projections from PwC and Magna Global for digital video advertising, subscription VOD and content purchases, and the OTT space could grow from about $53 billion in 2018 to about $87 million in 2022, opening up $34 billion in new revenue that programmers and operators with high-quality content might capture.

Capitalizing on those shifts in subscription and advertising dollars will require significant investments in new technologies and original content, though.

“If you don’t make significant investments in original content, you are not going to have very many subs, but if you make those investments you face margin erosion,” Pivotal Research Group senior research analyst Brian Wieser said. “You have to pick your poison. Either you see slower revenue growth because you are not exposed to the growth in the market [for SVOD services], or you can have revenue growth [by launching OTT services] but you can’t have margins.”

Similar financial issues face virtual MVPDs such as DirecTV Now, Sling TV and YouTube TV. “The advantage of a skinny bundle is lower cost for the consumer, but anything low-cost has always equaled high churn in the pay TV industry,” Leichtman Research Group president and principal analyst Bruce Leichtman said. “Today, you have a growing number of [vMVPD services] that are very similar and very easy to exit.”

Survey data from Magid shows high rates of consumer satisfaction with these services compared to the traditional pay TV operators. But consumers also say they’re more willing to churn out of them. “We will see a lot more churning in the streaming space in general,” Magid senior vice president of research Andrew Hare said.

“These are great products and growing rapidly as cord-cutting is accelerating,” added Tom Ryan, CEO and co-founder of Pluto TV. “But the problem is that they tend to be negative margin businesses.” Many of the offerings are quite similar, he added, making it “a commodified business.”

Jimshade Chaudhari, vice president of product management at Sling TV, conceded that “all the new entrants might be confusing to consumers.” But he sees a bright future for those who can differentiate themselves.

“A lot of the entrants are just replicating the old pay TV model with big, bigger and biggest bundles,” Chaudhari said. “One of the reasons people cut the cord is that they are paying too much money for channels they don’t watch. So right from the beginning, we’ve focused on giving people a level of flexibility and control that no one else comes close to.”

A similar imperative to stand out from a crowded landscape faces SVOD players. Recent survey data from Magid suggests that consumers are willing to pay for about six services, costing around $38, raising concerns that the market will not support all the existing and new services planned for 2019.

Clint Stinchcomb, president and CEO of the factual subscription VOD service CuriosityStream, laid out some of the limits as to what consumers might be willing to spend. At the lower end of the spectrum, he said, a subscriber might be willing to pay $10.99 for Netflix and $7.99 for Hulu to get a large array of entertainment programming, as well as pony up $2.99 per month for a factual service like CuriosityStream. “That is about $21, for a total of about $70 if you include the cost of a high-speed internet connection.”

Other consumers might add a skinny bundle for $30 from one of the vMVPDs, for cable networks and sports, as well as subscriptions to HBO and maybe Showtime for a total of about $140.

Winners and Losers

“I think the streaming environment is going to continue to grow, but there is really only going to be room for a handful of platforms in people’s lives,” argued Chris Berend, senior vice president of digital video at CNN, which had a larger audience reach than any other digital news source in October of 2018, according to Comscore figures, with 117 million unique visitors. “If I wasn’t a player like us with a very strong brand and content, I’d be very concerned because it is really competitive and expensive, and getting people’s attention is hard. I think only the most valuable and essential brands will win.”

“I don’t think anyone knows the answer to how many of these services can scale to a mass audience,” added Justin Connolly, executive vice president of affiliate sales and marketing at Disney & ESPN Media Networks. “But with the brands and intellectual property we have, we believe we can be one of the pre-eminent players.”

Others pointed to “subscription fatigue” as an argument for free, ad-supported services. “When we launched four and a half years ago, the common wisdom was that everything was moving to on-demand and towards SVOD,” said Ryan of Pluto TV, a free-ad supported vMVPD with about 10 million active users each month. “But we’re seeing a certain amount of subscription fatigue. As people construct their own bundles, having high quality free content is an important part of their options.”

Roku vice president of programming Rob Holmes agreed. “We survey users who are considering buying OTT devices and we survey our Roku users and the thing that consistently jumps out is the desire for free content,” he said.

Other consumer trends worth watching are the subject of the next section.

As companies look to compete in the highly fragmented digital video landscape, many programmers are ramping up their ability to analyze how consumers use their products to improve the quality of their services.

“Understanding customers and engaging consumers with products that fit their needs is the best antidote to fragmentation,” Horowitz Research president Howard Horowitz said.

Taking a wide view of consumer behavior, Horowitz and others noted that TV is still the largest platform for video consumption. Nielsen data from the second quarter of 2018, the most recent period available, shows that adults 18 and older watch TV for 36 hours a week. Even 18-to-34-year-old viewers spend 23 hours and 49 minutes a week with TV, versus eight hours and 50 minutes with internet-connected TV devices.

“Over two-thirds of homes have one of these streaming-capable devices, and the use of those devices continues to increase,” particularly among younger viewers, said Nielsen senior vice president of audience insights Peter Katsingris.

Nielsen data from the second quarter of 2018 shows that 18-to-34-year-olds are spending more than twice as much time each week with internet-connected devices as they did in the year-prior period.

OTT Accelerators

“Consumer behavior has shifted faster than people imagined,” Comscore president Sarah Hofstetter said. She cited a company study showing the number of households using OTT services jumped 17% between April of 2017 and April of 2018, when 59.5 million homes were using OTT services. During that period, OTT viewing climbed 28%.

“We have seen this train coming for a while and it has sometimes seemed like that scene from Austin Powers where there is this very slow-moving bulldozer,” quipped Rob Holmes, vice president of programming at Roku. “But it’s now here and users are switching in a big way to these streaming platforms.”

For example, the ranks of Roku’s active accounts jumped to 23.8 million in the third quarter of 2018, up 43% from a year earlier. Streaming hours on the platform also climbed to 6.2 billion, a 57% year-over-year bounce. That helped Roku more than double its video ad revenue in the same period.

All of this is occurring in the context of pay TV subscriber losses.

“The industry lost about 3.1% of its subscribers in 2017 and it is looking like we will see a 3% decline in 2018,” said Ian Olgeirson, research director at Kagan, a research unit of S&P Global Market Intelligence.

These numbers included a dismal third quarter of 2018, when the largest pay TV providers lost about 975,000 subscribers, Leichtman Research Group president and principal analyst Bruce Leichtman said. “This was the most net losses ever in a quarter for the pay TV industry,” he said.

Worse, researchers don’t as yet see a bottom to pay TV subscriber declines. “It is still difficult to determine what a bottom looks like,” Olgeirson said. “There has been no big change in the rate of decline.”

But MVPD churn rates haven’t actually increased, Leichtman stressed — something you’d expect if the losses were driven by cord-cutting.

“The exit rate of subscribers from pay TV is no different from Netlifx or Hulu,” he said. “But their marketing and acquisition strategies have changed and they are now focusing on more profitable subs. That means they are not putting as many subs back into the system,” which results in video subscriber loses, particularly for satellite and telco providers.

Content Omnivores

Rather than focusing exclusively on such concepts as cord-cutting, Horowitz stressed that companies should look at the needs of different market segments, honing in on their behaviors. He divided the audience into three groups:

• Traditional viewers, or the 5 o’clock diners. Comprising 32% of the audience, they skew older and only watch TV content using traditional sources, with high pay TV subscription rates.
• The content paleos. They comprise about 7% of the audience, skewing female, with very low pay TV subscription rates.
• The content omnivores. This group, 61% of consumers, streams content and uses traditional TV sources. It over-indexes for income and for kids in the household.

“The content omnivores are really the battleground group that people have to focus on,” Horowitz said. “They love TV, but are discovering that they can cut back on the costs of TV and still satisfy their needs. Like everyone, they are tired of their cable bill and in play for anyone with video products.”

Horowitz also stressed that operators and programmers also need to play closer attention to Hispanic, African-American and Asian audiences. These groups skew younger, are among the quickest to adopt new technologies and, in many urban areas important to cable operators, comprise a majority, not a minority, of the population. (See “Diverse Audiences, Changing Content,”).

Operators also need to craft products that target people at various stages of their lives, Horowitz said.

For Comcast, these trends have translated into a variety of bundles and packages designed to appeal to different segments and needs, from younger cord-nevers who only want the internet and streaming services to high-end customers who take pretty much everything, noted Daniel Spinosa, vice president of entertainment services for Comcast Cable. “We try to offer a customer experience that meets them with what they want today with their video.”

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Engaging With Old and New Platforms
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In many ways, the story of the last few years has been more of the same. More streaming. More traditional pay TV video subscriber losses. More digital advertising spending. More connected devices in the home, delivering more streaming video to consumers. More SVOD launches. More disruption.

It’s tempting to say that all of this adds up to one of the hoariest cliches of the digital era — a tipping point. Roku vice president of programming Rob Holmes has a more prescient analogy, though. He quips that the progress of streaming video is like the slow-moving bulldozer/steamroller scene in the movie Austin Powers: International Man of Mystery, in which the audience watches the glacial progress of a steamroller piloted by Mike Myers across a large room until it finally crushes a security guard who is too stupid to move, even though he has ample time and is repeatedly warned to run.

The steamroller analogy is particularly apt for this year’s Viewer Watch, which once again focuses on the many ways that the changing use of video by consumers is transforming the TV and digital media industries.

Media executives have been talking about the impact of streaming video and the internet on the TV industry for what is an eternity in the digital age — well over a decade. It has become easy to forget how much progress the streaming video steamroller has made or how powerful its impact has been.

What’s unclear is who the steamroller is going to crush. The long-awaited arrival of the streaming video steamroller over the next 18 months can be seen in plans by The Walt Disney Co., WarnerMedia, Apple and other major players to ready subscription video-on-demand services for launch in 2019. Which of them will crush the competition? Or will Netflix, armed with an $8 billion programming budget, remain in the driver’s seat?

It will take a few more years before those questions can be answered. But this year’s Viewer Watch makes it clear that existing and planned streaming video players face serious financial and strategic challenges. Many executives interviewed for this year’s report doubt that all the existing and new entrants can survive. We are now at the point, it seems, where the disrupters are about be disrupted.

In exploring that issue and many others, we are indebted to many people. This year, 25 executives at research companies, programmers, pay TV operators, SVOD companies, over-the-top video providers, consumer electronics firms and virtual MVPDs generously gave of their time.

We are also indebted to the research companies who contributed their insights and data, including Horowitz Research, Magid, Magna, Nielsen, PwC and Kagan.

Multichannel News contributor George Winslow compiled the data, conducted the interviews and wrote the articles.

Also in Viewer Watch 2019:

Adjusting to a Post Peak TV World
Digital Margins Pose a Dilemma
New Ratings for the New Year
Engaging With Old and New Platforms
If You Build It …
What to Watch at CES
Viewer Watch: The Charts

In a world where digital delivery has put the old problem of fragmentation on steroids, many argue that content is still king.

“A very important way [programmers] can differentiate themselves is through high-quality original content that resonates with viewers and supports their brand,” Jill Rosengard Hill, executive vice president at Magid, said.

This is of particular importance in an era when TV channels and subscription video-on-demand offerings must compete with Netflix’s $8 billion programming budget.

“In the [SVOD] wrestling ring we have Netflix, Hulu Live, Amazon Prime and Disney, Apple and others coming,” Showtime Networks chief operating officer Tom Christie said. “Every one of those companies, including ourselves, is looking to increase the level of their programing and fight for the consumer’s heart and soul.”

Like other streaming players, CBS Interactive president and chief operating officer Marc DeBevoise said 2019 will be a particularly big year for originals on CBS All Access. On tap are a new Star Trek series and a Twilight Zone remake for a total of about 10 originals in 2019. “They help drive new subscriptions but they also engage existing subs and help us retain them,” he said.

SVOD Glut?

FX Networks drilled into that dynamic in a recent report which found that of the 495 original scripted series airing in 2018, the largest number, 160, were now produced by streaming services, surpassing the 146 made for broadcast networks and 144 created for basic cable.

This fire hose of content, however, creates its own problems. “In the last few years, there were a lot of people saying, ‘Let’s just scale video for the sake of scale,’ ” said Sameer Deen, chief digital officer at Univision Communications. “But now I think we are not only seeing a pivot to video but a pivot to quality.”

Deen also stressed the importance of crossplatform production, which for Univision includes a partnership with Facebook for Real America With Jorge Ramos, an English-language show available on Facebook Watch, and a midday newscast that started on digital but now has a window on the network’s owned-and-operated TV stations.

Such fare is increasingly easy to monetize on newer platforms like mobile, because people are spending more time on those platforms. “Mobile viewing has become the default, not the exception,” CNN senior vice president of digital Chris Berend said, pointing to the fact that in October of 2018, CNN ranked No. 1 among news organizations on mobile with 92 million unique visitors. “Audiences are accustomed to watch very long episodes on their phone and that has begun to extend the length at which audiences are staying with video.”

AT&T’s recent acquisition of CNN and the other Turner networks makes mobile even more important and improves CNN’s ability to monetize mobile offerings, Berend noted. “We have already begun to see monetization on mobile improve,” he said.

Players are also pushing into newer platforms like virtual reality, where PwC predicts revenues will rise from $2.6 billion in 2018 to $7.1 billion in 2022.

Nickelodeon’s Entertainment Lab, which was set up to research and develop concepts for emerging platforms and new technologies, has been developing a Meet the Voxels project, Lab senior vice president Chris Young noted. The multiplatform project is designed for TV as well as virtual reality and augmented reality series.

Previously, the Lab had created SlimeZone, a multiplayer social VR experience, and the Rise of the Teenage Mutant Ninja Turtles VR Interview Experience.

“Kids are passionate about video and games and handheld devices and are consuming content in totally different ways than they have in the past,” he said. “That is opening doors to new ways of creating content.”

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Digital Margins Pose a Dilemma
If You Build It …
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TV and digital executives rarely agree on anything. But the 25 executives interviewed for this year’s Viewer Watch report were unanimous on one point: The next 18 months promises to be a pivotal period in the future of the television business, thanks to the fact that many major companies are planning to launch new subscription video-on-demand and digital services this year.

“Consumers are going to be treated to some tremendous content in 2019 as Disney, WarnerMedia, Sony, Apple, Amazon and Netflix all crank up their consumer offerings,” said Clint Stinchcomb, president and CEO of CuriosityStream, which has already produced 2,000 programs and will further expand its slate of originals in 2019. “It’s a good time to be a viewer.”

Or, as many companies believe, a provider of streaming video services. CBS Interactive president and chief operating officer Marc DeBevoise noted that subscribers for CBS All Access have been trending ahead of expectations, with the service hitting 3 million subs at the end of 2018.

“We are feeling good about reaching 4 million next year and 8 million in 2022,” DeBevoise said.

The big push into OTT reflects major changes in consumer behavior and massive multibillion-dollar shifts in advertising and subscription revenues.

“The migration of time and attention to streaming, often at the expense of linear traditional video … has really caused a crisis in the industry,” Frank N. Magid Associates senior vice president, digital research and strategy Andrew Hare said. “The major players are saying, ‘We have to do something really aggressive.’”

Digital Milestones

The dollars driving that imperative are made evident by examining a few numbers. Magna Global expects digital ad revenue to top $164 billion by 2023, more than three times the $51 billion it forecasts for linear TV, and predicts digital video and social media advertising will increase to $66 billion in 2023.

Those tectonic shifts have pushed companies to launch direct-to-consumer SVOD services and the plethora of virtual MVPDs such as Sling TV, DirecTV Now and YouTube TV.

“It seems like every other week we have a new entrant into this space,” Sling TV vice president of product management Jimshade Chaudhari said. “We’ve moved past the early adopters and are really getting into the next tranche of people, the majority of whom have been traditional pay TV subscribers,” he said.

Meanwhile, programmers, faced with a decline in traditional pay TV subscribers, have been readying direct-to-consumer subscription offers or ramping up their existing offerings. “We want to ensure that our content is easily available for consumers whenever they want,” Justin Connolly, executive vice president, affiliate sales and marketing at Disney and ESPN Media Networks, noted.

Much of this is occurring in the context of pay TV subscriber losses, noted Tom Christie, chief operating officer at Showtime Networks, which has also launched a direct-to-consumer SVOD service. “We continue to see significant cord-cutting and cord-shaving,” he said. “Our calculations and research indicates the traditional cable, DBS and telco operators are losing about 3 million, 3.5 million subs a year.”

But the news isn’t all bad for those with high-quality content. “We’ve actually growing the traditional business in most cases outside of DBS,” he said. “The competition from Netflix has reminded the operators how much demand there is for commercial-free entertainment services like Showtime and HBO.

I Want My Netflix

Major changes can also be seen among pay TV operators. “Operators have really been rethinking the way they approach video,” Walt Horstman, senior vice president and general manager of advanced media and advertising at TiVo, said.

Comcast Cable vice president of entertainment services Daniel Spinosa agreed, noting that since the operator launched X1, it has aggressively added such OTT content as Netflix, YouTube and most recently, Movies Everywhere and Amazon’s Prime Video.

“What we want to do is aggregate all this fantastic programming,” Spinosa said,” Our stated strategic position is to be the aggregator of aggregators.”

“Offering the improved user interfaces, search and personalization that consumers are craving are table stakes to keep us competitive as we move forward,” Atlantic Broadband vice president of programming and products Heather McCallion said. Atlantic was one of the first operators to integrate Netflix into its TiVo boxes and in 2018 added voice search capabilities.

But as companies work to adapt to the new digital video landscape, new SVOD and digital video face some serious headwinds.

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Adjusting to a Post Peak TV World
Digital Margins Pose a Dilemma
Engaging With Old and New Platforms
If You Build It …
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Viewer Watch: The Charts

Multichannel News began publishing its annual Viewer Watch Special Report in 2006 with an eye toward seeing how the changing use of video was transforming the TV business. It is extraordinary what has happened in the ensuing years to digital media, which was long referred to by executives as “emerging” and “new media.”

Early on, they debated some issues that now seem quaint. Should cable networks put their content online? Was it wise to sell their content to Netflix? Why would anyone watch video of dubious quality streamed over the internet when they could view it on a beautiful, large TV in this emerging video standard called high-definition?

Viewer Watch 2018: Why TV’s Golden Age Isn’t a Gilded One

Often the discussion veered into apocalyptic terrain. Will Google Fiber wreck the pay TV sector? How fast will cord-cutting destroy the cable industry? Or, alternatively, just how quickly will young people return to the pay TV fold as they get older and presumably wiser?

Over time, discussions of the power — or poverty — of new media have thankfully disappeared. In transcribed interviews with 22 TV executives and researchers for this 2018 report, the phrase “new media” appears not at all — and for good reason. Heading into the New Year, Magna Global was predicting that the digital media ad spend would exceed TV advertising revenues by more than $30 billion in 2018 and that it would hit $105 billion in 2019, slightly more than the $101 billion PwC is predicting consumers will spend on pay TV subscriptions.

Viewer Watch 2018: Putting Consumers First With Digital

And those trends make many of the central business and economic issues that have long been the obsession of this report more relevant than ever. If new media has passed into a mature media, the old questions of how to make money from video content or craft consumer-pleasing products are now central.

Given the difficulties many face in turning those old problems into newfound profits, we hope that this report will once again help readers understand the major trends that will impact their businesses in 2018 and beyond.

Viewer Watch 2018 | The Charts

As usual, we are indebted to many people who helped with this report. In addition to the executives at pay TV operators, networks, OTT players and research firms who generously gave of their time, many research companies also contributed their insights and data. Among those, we’d particularly like to thank Frank N. Magid Associates, Horowitz Research, Magna Global, PwC, Nielsen and SNL Kagan for sharing their data with us.

To download the full Viewer Watch report, please click here.

Contributing writer George Winslow compiled the data, conducted the interviews and wrote the articles for this report.

The TV industry’s efforts to adapt to new consumer habits have evolved for many years. Yet much remains to be done right now, particularly in the areas of measurement, designing consumer friendly products and building technical infrastructures for the digital age.

Progress in those areas will be particularly important in 2018, given the signs that the basic glue holding together the pay TV industry is melting, with subscriber losses accelerating and more programmers launching their own over-the-top services outside the multichannel ecosystem.

Viewer Watch 2018:‘New Media?’ No Longer| Why TV’s Golden Age Isn’t a Gilded One|The Viewer Watch 2018 Charts

Underlying this transformation is new technology for operations. “We are very focused on the idea that we have to make our content available literally anytime and anyplace,” Diane Tryneski, HBO executive vice president, technology, and chief digital officer, technology, said. “That is a real change and the tech that supports that has to be very different than it used to be.”

To do that, HBO has embraced cloud and internet protocol technologies and adopted workflows that allow the programmer to quickly respond to new business opportunities. “The fact that we aren’t siloed means that we are seamlessly delivering content to anywhere, whether it’s TV everywhere, HBO Go or one of our affiliates’ platforms,” she said.

Discovery Communications senior vice president of technology strategy and architect Brinton Miller said he sees the same advantages and prospects. “Discovery has been very focused on getting our content on every screen and every platform, from [multichannel video programming distributors] to social or whatever the next big thing that comes around will be and we have been executing on that strategy in the last few years,” he said. “That has meant a big shift in the way we approach infrastructure, so that we can react quickly to this quickly changing landscape.”

It’s Hard to Make Things Easier
Achieving those goals isn’t easy, given the scale and complexity of major programmers’ operations.

Discovery, for example, has more than 420 linear networks and publishes to more than 380 different nonlinear platforms. Each year, the company takes in about 3,000 hours of new content that must be versioned for 220 countries around the world.

Read More:Download the Complete Viewer Watch 2018 Report

To simplify those operations, Discovery has already completed its “On Ramp” project, which allows it to get content from producers and process it in the cloud using Amazon Web Services (AWS). The company has also moved all of its U.S. linear networks to native cloud infrastructure with AWS.

Notable progress can also be found at pay TV operators. During a lengthy interview, Phil McKinney, president and CEO of CableLabs, ticked off a long list of initiatives helping the cable industry transform their infrastructures.

These range from the transition to IP and cloud-based technologies, which are allowing operators such as Comcast to launch next-generation interfaces on the X1 platform, to the close alliances CableLabs is setting up with consumer electronics companies and Silicon Valley firms that are bringing new technologies into the industry.

One particularly important area is increased bandwidth to enable a host of new services. “Improved broadband is a critical foundation for the future of our business,” said Heather McCallion, vice president of programming at Atlantic Broadband, which has rolled out 1 Gigabit-per-second service in two markets and is working on DOCSIS 3.1 upgrades.

DOSCIS 3.1 infrastructures will let operators handle broadband speeds of 10 Gbps downstream and 1 Gbps upstream, with even more bandwidth in the pipeline. CableLabs, for example, has developed technologies that use coherent optics to dramatically speed up existing hybrid fiber coaxial networks with no need to lay down new fiber or dig up old infrastructure.

Counting on Measured Progress
Another major issue is measurement. “The industry has to get to the point where it has reliable syndicated cross-platform measurement, but at the moment we still don’t have it,” Turner chief resource officer Howard Shimmel noted.

Cary Meyers, senior vice president of fan and media intelligence at ESPN, highlighted the importance of better measurement by citing recently released data from the first seven weeks of the Nielsen Total Live Audience service.

Read More: Viewer Watch 2016-2018

Between Sept. 25 and Nov. 12, the addition of out-of-home and streaming viewing to traditional viewing numbers meant that ESPN’s ratings were up among millennials aged 18-34 by 28% in primetime over ESPN’s traditional viewing. “We can now see that the millennials that have been missing from [traditional] ratings are in fact viewing our programming in large numbers,” Meyers said.

Overall, the new data from millennials — who account for 46% of the streaming of ESPN programming — boosted ratings for college football by 16% and for Monday Night Football by 13%.

A number of other major programmers have also made great strides in cobbling together a more complete picture of total viewing across platforms.

For example, Shimmel noted, Turner has ramped up its big data capabilities and analytics by combining its own digital consumption data with more traditional measuremements to document cross-platform viewing. Turner recently signed up for Nielsen’s new SVOD ratings and has also been working with 21st Century Fox and Viacom to form Open AP to help standardize the definition. But Shimmel said he was still frustrated by the lack of industry progress toward objective third-party syndicated ratings. “We have to make it easier for advertisers,” he said.

One issue has centered on Nielsen’s SDKs, which are required for the new measurement systems to work. “These SDKs are difficult to implement and you are missing a bunch of networks that haven’t turned them on,” said Jane Clarke, CEO and managing director, Coalition for Innovative Media Measurement (CIMM).

Sara Erichson, executive vice president of client solutions and audience insights at Nielsen, disagreed, noting that “SDK implementation has improved substantially over the past year. … There is a lot of implementation and trialing of products going on behind the scenes.”

Other promising developments include work on new standards. In the fall of 2017, the Media Rating Council issued standards for digital measurement and in 2018 they will be tackling the larger issue of creating a standard for cross-platform measurement, noted George Ivie, executive director and CEO at the MRC.

“There are a lot of big issues to be solved, but we are doing a ton of heavy lifting and I think there is hope,” Ivie said. “We are making progress.”

Confusion Still Reigns
Improving the consumer experience is another major area of focus for many companies. Todd Supplee, a partner with PwC’s Entertainment & Media practice, noted that rapid proliferation of choice and high quality TV programming is making it harder for consumers to find the content they want.

“There is a lot of confusion among consumers,” he said. The recent PwC Content Discovery survey, for example, found that 62% of respondents complained of struggling to find something to watch and that consumer frustration with the way they access programming is actually higher among streaming-only consumers, with pay TV subscribers reporting less annoyance.

Many companies hope to attract subs by solving these problems. “We see a real opportunity in the idea of bringing all this [OTT and pay TV] content together and making it easier for consumers,” Daniel Spinosa, vice president of entertainment services at Comcast Cable, said.

Spinosa argues that the improved interface of their X1 platform has helped boost VOD consumption by 30% year-over-year and that it has allowed them to build a successful electronic sell-through business.

Atlantic Broadband’s next-generation TiVo platform has also paid off in subscriber retention, Heather McCallion, the operator’s vice president of programming, said. After purchasing a system in Connecticut that had been losing video customers for years, the new TiVo platform and bundling strategy quickly turned things around. “For the first time in that market in many years we actually grew subscribers,” she said.

“Usability is a major driver in everyone’s future success,” added Howard Horowitz, president and founder, Horowitz Research, who also stressed the importance of building programming packages that appeal to consumers at different stages of their life.

Comcast’s Spinosa agreed. As part of an effort to attract younger consumers, the MSO launched Xfinity on Campus and then Internet Plus, which is now turning into Instant TV. “It gives them an entry point to the ecosystem that gives them the content they love,” he said. “But it also allows them to buy up into other elements, getting premium networks, Netflix and ultimately buying into bigger and bigger platforms as they migrate from young millennial to having a family.”

Interfacing With Consumers
Finding the sweet spot with improved interfaces and better program offerings is also key to the increasingly competitive virtual MVPD space. “There are a lot of these other services that are just creating and replicating the model you saw in traditional pay TV on a different delivery mechanism,” Jimshade Chaudhari, vice president of product marketing and management at Sling TV, said. “We are offering a la carte packages that are as granular as you can get in our industry so they can pick and choose the channels and genres that are most important to them.”

Sling has also worked to improve navigation, with a universal search engine that includes both the live content from the over-the-air broadcast networks and on-demand content.

Richard Irving, vice president of product at Hulu, also stressed the importance of the user experience. “Our goal is to create a decidedly unique experience and a deeply personal one,” he said, with a better interface, better search and personalization\ and voice recognition.

FuboTV has worked to differentiate its offerings by focusing on sports and Spanish-language content, head of content acquisition and strategy Ben Grad noted, though it does offer a wide array of other programming.

Last September, the young service hit 100,000 subscribers, with more to come, and Grad said he likes where things are headed.

“One of the biggest things impacting the consumption of video is just the fragmentation and diffusion of viewership,” he said, making the pay TV bundle less valuable — and boosting the popularity of services such as FuboTV.

In yet another sign that digital media has firmly come of age, digital advertising is expected to hit $95.2 billion in 2018, easily eclipsing the $64.0 billion that will be spent on TV.

And the digital advertising industry is expected to hit $124.6 billion by 2021 — just three years from now — more than doubling the TV advertising market, according to forecasts from Magna Global.

“The economy is doing well, the stock market is high and consumer confidence is good, so total ad sales are coming in higher than expected,” Magna senior analyst of market intelligence Michael Leszega said. “But when you look closer at the various media, the outlook is not as good. More than 100% of the gain is coming from digital media, and traditional media are declining more than expected.”

Viewer Watch 2018:‘New Media?’ No Longer|Putting Consumers First With Digital|The Viewer Watch 2018 Charts

Video streaming has also firmly established itself as a mass-market phenomenon. Consulting giant PwC predicts total over-the-top/streaming revenue from subscription video-on-demand and transactional viewing will hit $15.3 billion in 2018, while Magna estimates the digital video ad spend will vacuum up another $11.3 billion. That combined total of $26.6 billion exceeds the $23.1 billion PwC expects will be spent on cable network advertising.

“Streaming SVOD services, OTT video … are all part of the way consumers watch video and now a major part of the business,” Howard Horowitz, president and founder of Horowitz Research, said.

Maturity also brings new responsibilities and some thorny problems.

Fake Data?
For one, data on digital media usage has its downsides, to be sure. In addition to the hue and cry over charges that digital media platforms such as Facebook and Twitter had endangered democracy by profiting from the proliferation of “fake news” in 2017, ad agencies and advertisers also launched pointed critiques of existing digital measurement and some of the entrenched business practices of both Google and Facebook.

In 2017, those complaints prompted a number of major brands to pull ads from Google’s YouTube after reports of their ads showing up alongside extremist videos; both Google and Facebook also came under fire for the accuracy of their data. Separate reports from Pivotal Research Group and the Video Advertising Bureau (VAB) claimed Facebook had greatly overstated the reach of its ads.

The VAB report noted that Facebook metrics showed its ads reach more people in every state than the actual population of those states.

Meanwhile, there were some encouraging signs that more traditional TV players were taking major steps to better compete with digital media, improving ad sales measurement and digital products for dissatisfied pay TV subscribers and revamping their technical infrastructures.

On the ad side, “TV is battling back against Google and Facebook with new studies showing the effectiveness of TV,” Jane Clarke, CEO and managing director of the Coalition for Innovative Media Measurement (CIMM), said. “They’re saying we can show some of the same data for TV that digital can.”

Read More:Download the Complete Viewer Watch 2018 Report

Multichannel video programming distributors are also working to operate more like digital companies, with next-generation set-top boxes and video offerings, such as Comcast’s X1 platform.

“There is so much great content being produced inside and outside of pay TV,” Comcast Cable vice president of entertainment services Daniel Spinosa said. “So our No. 1 focus has been to bring all that content together” with the cloud-based X1 platform that allowed the operator to offer Netflix, YouTube, Pandora and other OTT content on the same platform as its pay TV lineup.

Similar thinking can be found at Atlantic Broadband. Heather McCallion, vice president of programming at the Quincy, Mass.-based operator, said its 2013 decision to launch the next generation of the TiVo platform has allowed Atlantic to launch OTT apps such as Netflix and offer greatly improved search, she said.

“As customers’ perception of a traditional video product dramatically changed, we had to rethink our view of the video product,” she said.

Flanker Brands
Some operators have also capitalized on the rise of OTT video by launching their own virtual MVPDs, such as Dish Network-owned Sling TV and DirecTV Now from AT&T’s DirecTV.

“With Dish and Sling, we basically have a product for everyone,” Sling vice president of product marketing and management Jimshade Chaudhari said, allowing Dish to reach consumers who want a traditional pay TV experience with satellite TV and cord-cutters with Sling.

Read More: Viewer Watch 2016-2018

Hulu’s expansion from a library of on-demand offerings to include live channels has also tapped into growing consumer demand for streaming media, vice president of product Richard Irving said. “We have seen a 98% increase in signups since we launched the live product,” he said, along with greater usage. “Since the launch of the fall season, with the new network programing and football, we seen a 70% increase in viewership of live content.”

CBS Interactive reported that use of CBSN, its 24-hour streaming news service, was up 35% in the first three quarters of 2017, CBSI president and chief operating officer Marc DeBevoise said. The jump was particularly notable given the record-breaking news audiences since the 2016 presidential election.

OTT services are exposing younger viewers to established TV brands. SVOD service CBS All Access, which has more than 2 million subscribers, has an average viewer age of 43; the average age of CBSN viewers is 38.

“The two products are really younger than the typical audiences and, in that respect, it strengthens us for the future,” DeBevoise said.

More of the Same
The success of some operators and programmers in streaming video doesn’t mean the age of digital disruption is over, though.

“No one likes to hear this, but the pace of disruption is just accelerating,” Magid Advisors president Mike Vorhaus said, citing survey data showing 6.1% of pay TV subscribers intend to cancel their video subscription in the next 12 months and not get a new one, up from 1.9% in the 2011 survey. “That’s the highest percentage we’ve seen,” he said.

Others agree that the decline in pay TV subs is accelerating, but disagree about what that might mean. “The first quarter, second quarter and the third quarter all had rates of decline that were higher than a year earlier,” SNL Kagan research director Ian Olgierson noted. “We haven’t seen those kinds of losses before. We’re plowing new ground here.”

However, SNL Kagan doesn’t include virtual MVPDs like Sling TV in its pay TV subscriber count.

“If we don’t include those virtual MVPDs, it creates a more dramatic decline and a very different narrative about the industry’s future,” Leichtman Research Group president and principal analyst Bruce Leichtman said.

Magna, for instance, predicts there will be only 74.7 million traditional pay TV homes in 2021. But add that figure to its forecast of 28.9 million virtual MVPD subscribers, and the total count of 103.6 million households in 2021 is actually higher than the 100.9 million total pay TV subscriber count reported in 2012.

Even so, the economics of the industry are worrisome.

“This is certainly the golden age of TV and continues to be,” Horowitz said. “But the finance guys are saying, ‘We aren’t seeing that. We are pulling our hair out on how we can make money on our business models.’ ”

Big Brand Woes
One big factor is the health of the TV ad market. “The top 200 advertisers that are 90% of network spending and 60% of all TV are struggling right now,” Pivotal Research Group senior research analyst for advertising Brian Wieser said. “You have what I suspect is a perpetual weakness and that is something the industry needs to be thinking about.”

Other problems stem from the economics of streaming media.

Major players are reporting rapid increases in the use of streaming video in the third quarter. In the third quarter of 2017, Roku reported that its active accounts hit 16.7 million, up 48% from a year ago. Streaming hours were up 58% year-over-year, to 3.8 billion.

Researchers such as Nielsen are also reporting big spikes in usage. “Adults are watching about the same amount of video as they had in the prior year, about six hours a day, but there is a shift in how that video is being accessed,” Nielsen executive vice president of client solutions and audience insights Sara Erichson said.

About 60% of U.S. homes have an SVOD service, Erichson noted. “For the first time, more homes have an SVOD service than a DVR, which is a real milestone,” she noted.

In contrast, Nielsen data shows a decline in the amount of time spent with traditional live and on-demand TV viewing by viewers 2 and older, from 29 hours and 18 minutes a week in second-quarter of 2016 to 27 hours and 44 minutes in Q2 2017.

The rise of streaming has been good for some OTT providers, such as Netflix, which had a market cap of around $82 billion in mid-December. But its profits remain skimpy. “Netflix has everyone in a tizzy,” Leichtman said. “It has a market cap bigger than Time Warner. But does that model actually work for another company? I think it is a very challenging model.”

These changes are also putting stress on the economics of programmers and producers.

Todd Supplee, a partner with PwC’s Entertainment & Media practice, said that on the production side, “the growth of OTT and streaming services are generating new demand for content,” with Amazon expected to spend about $4.5 billion in 2017 and Netflix planning to spend $8 billion on content in 2018. But the proliferation of these services accelerates ongoing audience fragmentation, making it harder for networks to build brands or fund new content.

“The whole cost model of production has to change,” he said.

The Multichannel TV Landscape
Estimates of traditional pay TV subscribers continue to fall, with Magna Global now predicting there will be about 74.7 million traditional pay TV homes in 2021, a drop of 23 million since 2016. Magna also predicts rapid growth in virtual MVPDs, though — they should hit 28.9 million subs by 2021.

The Multichannel Business
Given ongoing subscriber losses, PwC has revised downward its estimates for U.S. subscription fee revenue growth: It now predicts growth will remain relatively flat at $100.8 billion in 2018 and sees only a modest increase to $101.1 billion by 2021. But total broadband access spending will continue to see healthy growth, rising to $59.9 billion in 2021.

Spotlight on Advertising
Digital advertising first surpassed the TV ad spend in 2016, and Magna predicts that it will hit levels at more than double the TV ad spend by 2021, when digital will hit $124.6 billion versus $57.4 billion for TV.

The Content Game
PwC predicts strong growth for the electronic home video sector, with electronic video rentals growing from $11.4 billion in 2017 to $15.7 billion in 2021. Revenue from sports media rights will increase to $22.7 billion in North America by 2021.

OTT and Gaming: A Closer Look
Revenue from subscription and transactional video services will jump from $13.6 billion in 2017 to $18.8 billion in 2021 while video game revenue will grow to $28.2 billion by 2021, according to PwC.

The Emerging Platform View
About 42% of users still select TV as their primary digital platform, versus 11% for mobile phones and 25% for computers, according to recent survey data from Frank N. Magid Associates, which also reports increased interest in live streaming video and virtual reality technologies.

The Multichannel, Multidevice World
While 82% of 18-to-34-year-olds still have a multichannel subscription, 91% of these young adults have an SVOD service, and even more than half of Americans age 50 and older are SVOD subscribers, according to Horowitz Research.

The Multicultural, Multimedia Universe
Hispanics have embraced digital video in a big way, with 79% having an SVOD service, versus 72% of the general market and 87% of Hispanics reporting that they can stream video to the TV, according to Horowitz Research.

Cord-Cutting Close-Up
A recent survey from Magid notes that the intention to cut the cord has reached record levels, at 6.1%, while Magna expects the number of cord-cutters to hit 27.1 million by 2021.

In many ways, 2016 and 2017 will be go down as landmark years for the TV industry. After years of complaints, excuses, technical hurdles and much hard negotiating, consumers will enter 2017 able to view a vast array of TV content available on just about every available digital platform and consumer-electronics device, with more to come in the next 12 months.

This is a very notable development, though its gradual, evolutionary progress has made the near-ubiquity of digital video less of a headline than it deserves. When Multichannel News started this annual report in 2006 and decided to focus on how the changing use of video was affecting the TV business, hardly any high-quality TV programming was available outside of the traditional arena (that is, “over the top”). Even five years ago, a host of issues relating to rights and widespread worries that digital distribution would cannibalize existing businesses, severely limited available content.

Related > New Normal: Digital Distribution

Today, many researchers and executives would argue that the proliferation of digital content has generally been a very positive development. Despite widespread predictions four or five years ago that Apple, Google, Amazon and Facebook would use their combined market capitalization of $2 trillion to swallow the TV industry like a shark digesting a minnow, the industry remains relatively healthy. Cable operators that have embraced new consumer habits, such as Comcast, have even begun adding subscribers, turning around years of declines.

Much uncertainty remains, though. As this year’s special report stresses, there are many major debates over basic issues like rate of decline in pay TV subscribers, the size of the potential OTT market and even the usefulness of widely used terms like cord-cutting. By diving into many of those debates and parsing some very complex data trends, we hope this report will once again help readers understand many of the major trends that will have a major impact on their businesses in 2017 and beyond.

Related > Old Controversies and New Businesses

In putting together this special report, we are indebted to many people. More than 20 pay TV, network, digital and research executives generously gave of their time, producing over 40,000 words of transcribed interviews that are the basis of the 2017 Viewer Watch feature stories.

A number of research companies also contributed their insights and data. Among the organizations that were particularly helpful in providing data, we’d like to thank Frank N. Magid Associates, Horowitz Research, Magna Global, PwC, Nielsen and SNL Kagan.

To download the complete "Viewer Watch" special report, please click here.

Contributing writer George Winslow compiled the data, conducted the interviews and wrote the articles.

Related > Viewer Watch 2017: Download the Complete Report

Though TV has long been a numbers game, hard data showing changes in the way consumers access video remains a hotly debated subject.

It’s not just that there’s considerable disagreement over how to interpret these changes among executives overseeing what Magna calls the $67 billion TV ad market and PwC describes as the $101 billion subscription pay TV business. There is also much grumbling over the kind of data that is available to answer these multibillion-dollar questions.

“I don’t think we’ve made as much progress as we should have made” in measuring the consumption of video on all platforms and devices, Turner Broadcasting System chief research officer Howard Shimmel said.

There also isn’t much agreement on how the growth in multiplatform video consumption will affect pay TV subscriptions. Some contend that the rise of over-the-top streaming options will sharply reduce the pay TV subscriber ranks; others believe the issue is much more complex.

“From its peak in the first quarter of 2012, the major providers have lost about 1.8 million subscribers,” Bruce Leichtman, president and principal analyst at Leichtman Research Group, said. “The industry is clearly saturated and in a slow decline.”

Interpreting those numbers remains controversial, in part because data on the size of the pay TV universe rests on different assumptions. Leichtman, for example, includes data from services like Sling TV in his company’s estimates, while SNL Kagan does not.

Nielsen also provides different numbers. It reports the number of homes that have TVs connected to a pay TV service, which is different than the number of total pay TV subscribers reported by operators, Nielsen executive vice president of research Glenn Enoch said.

“You have to be very careful about the numbers you use and [about] drawing a straight line from those numbers to revenue, because things are much more complicated than that,” he said.

Related > New Normal: Digital Distribution

CORD-CUTTING CALCULUS

A number of researchers agreed. The proportion of “people dropping pay TV subscriptions is now about 2.6%,” Leichtman noted, which is about the same rate as 10 years ago, when the industry was growing.

“The problem is that the number of new customers has declined,” Leichtman said. “We only see 1% [of homes] moving into pay TV. That is down from 3.5% a decade ago and it has had a real impact on the dynamics of the pay TV industry.”

The declines have been smaller than some had expected, SNL Kagan research director Ian Olgeirson noted. “We are seeing a slight acceleration in the decline in subscribers for multichannel services from a roughly 1% decline in 2015 to a decline of what will probably be 1.3% or 1.4% in 2016,” he said.

The causes of those declines are also hotly debated. “Service providers would say that a lot of those declines are driven by price” and economics, Olgeirson said. But that isn’t the whole story, as the economy has rebounded and housing starts have grown over the past two years, he said.

A recent Frank N. Magid Assoicates survey found that 75% of likely cord-cutters said the ability to watch content via the Internet and OTT platforms was a key reason to drop pay TV service, Magid Advisors president Mike Vorhaus said. Only 29% of respondents cited costs.

Research also challenges the prevailing assumption that pay TV and SVOD services are competing offerings, said Howard Horowitz, president and founder of Horowitz Research, who sees them as complementary to traditional pay TV.

Horowitz survey data shows that 52% of whites and 58% of Hispanics have both a multichannel subscription and a subscription VOD service, while only 5% of whites and 6% of Hispanics have just a SVOD service.

STAGNANT AD SPENDING

Much unease also surrounds the ad market. Brian Wieser, senior research analyst, advertising at Pivotal Research Group, said the economy faces considerable uncertainty over the next year.

“I don’t think anyone can say with any certainty what is going to happen next and that uncertainty is going to curtail advertising,” he said.

National TV ad revenue will drop slightly by 0.4% in 2017 to $44.6 billion, Wieser predicted, and remain essentially flat through 2020, when it will hit $45.2 billion.

Magna’s Letang also sees a weak TV ad market combined with bullish prospects for digital media. “In 2017, we see high single digital inflation [in pricing] but high single-digit declines in ratings,” Letang said. “National TV will be up 1% in 2017 from 2016 if you exclude P&O” — meaning the 2016 revenue from political ads and the Summer Olympics — “and down 1% if you include P&O.”

With political and Olympics spending included, Magna projects that total TV spending will drop by 4.8% to $64.2 billion in 2017, declining further to about $62.2 billion in 2021.

Digital spending, though, will continue to grow rapidly. By 2020, Magna forecasts that mobile advertising will more than double to $78.4 billion (38.2% of all advertising) and social media will hit $31.8 billion in 2020 (a 15.5% share). TV, meanwhile, will slip to a 32.4% share.

Given the uncertainty over the ad market and pay TV subscriptions, programmers and operators have been rethinking their operations.

NEED TO BE NIMBLE

The drive to adapt to new consumer habits has prompted a number of projects to make operations more nimble, Discovery Communications chief technology officer John Honeycutt said.

For example, Discovery’s recently deployed “On Ramp” project allows about 80% of the content produced by 600 production suppliers to be uploaded to the Amazon cloud, where it can be immediately available to Discovery employees and channels all around the world.

“Going from 0% to 80% makes us so much more flexible and efficient,” Honeycutt said.

Equally dramatic upgrades are occurring in the pay TV infrastructure. After ticking off a long list of new products and initiatives to deliver more content to more devices, Comcast Cable executive vice president, general manager, video and entertainment services Matthew Strauss noted that these efforts are built on major improvements to the MSO’s infrastructure.

“We are rolling out DOCSIS 3.1,” he said. “We are rolling out Gigabit speeds. We are transitioning more and more to all-IP, which will allow us to innovate and deliver more of these newer services.”

Rapid innovation has also become the norm for digital platforms. “In 2016, we launched 30 new products and made hundreds of enhancements on dozens of platforms,” Alex Wellen, senior vice president and chief product officer at CNN, said.

Much remains to be done, particularly in the area of measurement. This year will mark a notable improvement on that front, with Nielsen planning to begin syndicating its Total Content Ratings on March 1.

“But some of the networks have been saying they won’t be ready for Nielsen’s public rollout in March, and it isn’t clear if everything will be ready in time for the upfronts,” Jane Clarke, CEO and managing director of the Coalition for Innovative Media Measurement (CIMM), said. “It is a very complex process to get it implemented in the apps for every kind of player and all the devices.”

Others worry about the TV industry’s ability to maintain its share of ad spending without better data. “Measuring crossplatform video consumption is important, but it is a 2006 problem,” Turner’s Shimmel said. “Today, when we talk to advertisers, what they really care about is outcomes [such as sales] and I don’t see that kind of measurement anywhere in Nielsen or comScore’s future.”

More debates surround commonly held perceptions of the OTT market.

Michael Leszega, senior analyst of market intelligence at Magna, said that “in 2016, we have [more than] 25 million cord-cutters and cord-nevers,” and that this group will continue to grow. By 2020, he predicted, about 28.6% of all households will be outside the traditional pay TV ecosystem. “It is a sizable portion of the population that can’t be ignored,” he said.

That has prompted a number of companies to develop streaming bundles of channels like Dish Network’s Sling TV, Hulu, Sony’s PlayStation Vue and AT&T’s DirecTV Now.

“If you look at the rumors about Amazon or YouTube coming out with OTT bundles, there could be a whole bunch of them, maybe seven or eight by the end of 2017,” Steve Shannon, general manager of content and services at Roku, said.

Tony Goncalves, senior vice president of strategy and business development for AT&T Entertainment Group, described DirecTV Now “as a mobile-first-centric platform” that will deliver the kind of advanced digital features consumers expect from their mobile apps.

“DirecTV Now is pay TV as an app and it opens up a market that has not historically been addressed by pay TV,” he said.

Dish Network also sees great promise in the melding of pay TV packages, OTT delivery and app experiences, Niraj Desai, the company’s vice president of product management, said.

“TV is becoming an app,” he said. “We have been talking about that trend for a while, but 2016 was really the year TV as an app came into its own” with better TV everywhere offerings and the streaming OTT bundles such as Dish’s Sling TV and DirecTV Now.

COMPLEMENTARY PLAYS

Even better, these products open up new markets and are not designed to cannibalize traditional pay TV offerings, he added. “Sling is complementary to DBS,” he said, meaning Dish and DirecTV’s satellite-TV platforms. “Sling over-indexes with urban millennials and DBS resonates with suburban and more rural customers that are more traditional TV watchers.”

Similar views come from programmers that have aggressively targeted consumers without traditional multichannel TV subscriptions.

“We launched HBO Now with the theory that its subscribers were going to look very different from the traditional subscribers,” Bernadette Aulestia, executive vice president of worldwide distribution at HBO, said of the premium programmer’s standalone app.

HBO Now subscribers are 10 years younger than customers of HBO’s premium cable network and typically live in broadband-only households, she said.

“We look at it as an entry point to customers that are coming into the category,” Aulestia said.

The growing popularity of skinny bundles and streaming OTT offerings has also helped HBO’s premium pay TV business, she added.

“There was a time, as a premium service, that we were only sold at the top of the bundle,” Aulestia said. “The idea that HBO should be sold at every level of the bundle, and even as a standalone service, means there are fewer barriers to get HBO.”

The rise of OTT and skinny bundles has been more worrying for ad-supported networks.

“Getting more creative packaging of content to create more customized solutions for the consumer can be very challenging for content providers because you have increasingly fragmented audiences,” Joe Atkinson, technology, infocomm, entertainment and media advisory leader at consultancy PwC, said.

Atkinson and others said OTT distribution can also open up a number of new opportunities.

For instance, the growing SVOD market encouraged Turner’s recent launch of an OTT movie service called FilmStruck, Coleman Breland, president of Turner Content Distribution and president of TCM, said.

“As the bundle became tighter, we decided to go direct to consumer instead of trying to launch a linear network and push it through the ecosystem,” which would be difficult in the current pay TV environment, he said.

Turner has also been pushing to expand the content made available on all platforms both in terms of reach and quantity, with the addition of offerings like full seasons on-demand.

“We now have 450 affiliate partners for our TV everywhere products” and have seen usage jump by “triple digits” in the last year, Breland said.

TIME TO TARGET

Many of these newer products can be traced to a more fundamental change in the way operators think about their customers.

“Today, service providers have to figure out how to target different individuals in household,” PwC’s Atkinson said. “That is a tough challenge, but I think it is really the keys to the kingdom.”

One example of such a targeting effort is the development of packages targeted to consumers at different life stages. “College students have different needs than a single-family home with kids, and we are very focused on meeting all those different needs,” Comcast’s Strauss said. He said the Xfinity on Campus product has been a success in that regard.

Operators have also been greatly expanding the content sources via apps on Internet connected set-top devices such as Dish Network’s Hopper. “You can watch live TV with your Dish subscription, or recorded TV on your DVR or you can watch Netflix and YouTube all in one convenient place,” Dish’s Desai said.

Adding more choices has also been a top priority for Cox Communications, Steve Necessary, executive vice president of product development and management at the Atlanta-based cable operator, said. “We have more than doubled our VOD offerings from 50,000 to over 120,000,” he said.

Cox also has revamped its TV app to expand the content available on digital devices and speeded up the rollout of Contour — Cox’s version of the Comcast X1 Internet-connected set-top platform — from 3,000 customers to more than 600,000 in 2016.

Very importantly, such efforts are also beginning to pay off. Both Comcast and Cox are seeing some of their best video-subscriber efforts in a decade.

Programmers are also reporting strong gains from their digital platforms.

“There is a blending of content types and expansion of the platforms,” translating into some record-setting numbers, ESPN vice president of digital media research and analytics Dave Coletti said.

In year when some live sports audiences have declined, Coletti noted that Watch ESPN’s live stream of the Nov. 26 college-football game between third-ranked Michigan and second-ranked Ohio State — which went into double overtime before OSU prevailed, 30-27 — tallied 1,273,000 unique viewers, making it ESPN’s most streamed regular college football game. (The game telecast also aired on ABC.)

“Eight of our top 10 most-streamed regular season college football games have occurred this year,” he noted.

The 2016 presidential election helped CNN set a number of network records, Wellen said, including a record audience level on Nov. 9 with 77 million unique users, 83 million video starts, 483 million page views and 29 million live streams.

Equally notable was social media. CNN racked up 169.7 million video views on Facebook and 47.6 million Facebook Live views, he said.

“Those results show that it has become very important to be both a destination for content and a distributed brand,” he said. “We have apps and websites where people can access our content but, we’ve also seen that we can be very successful on Facebook Live” and other outside platforms.

Additional encouraging news can be found in TV use, Nielsen’s Enoch said. “The decreases that we saw in TV usage that really started to accelerate in the mid-2014 have lessened,” he said. “TV consumption remains at near record level.”

“We are also seeing a shift back to the more traditional way of hooking up a TV” to a pay TV service or an antenna, he added. “The universe of homes that can watch TV or can stream video to the big screen has actually grown,” reversing a trend that began with the digital transition and the 2008 recession.

That said, Enoch said the “fastest growing area of overall usage — not just video — is the smartphone.”

In the second quarter of 2016, Nielsen reports that consumers ages 18-34 spent almost as much time each week with their smartphones (14 hours and 36 minutes) and tablets (three hours and 27 minutes) as they did with traditional TV (18 hours and 27 minutes).

Less discussed but equally important are connected TVs. “TVs connected to the Internet by any device have grown from about one-quarter of all households in 2010 to about two-thirds of all households,” Leichtman said. “There are now more connected TV devices in American than there are pay TV set-top boxes.”

Said CBS Interactive president and chief operating officer Marc DeBevoise, “We are seeing explosive usage in those connected TV experiences.” He added that “time spent on connected TVs with our products has grown by more than 300%.”

As an illustration, consumers in October of 2016 spent about 347 minutes per month consuming CBS news content via desktop computers, compared with 360 minutes via Apple TV and 496 minutes via Roku, per unique viewer, DeBevoise noted.

“That is a lot of usage, and we are spending a lot of time making certain we can capitalize on that by getting those experiences right,” he added.

LINES ARE BLURRING

Connected TVs also offer much more advanced capabilities for search and discovery. For example, the Roku platform allows users to search for TV shows and movies across more than 100 apps, Roku general manager of content and services Steve Shannon said.

Advanced features are helping to blur the line between connected devices, pay TV operators and the new bundles of streaming channels.

Companies such as Hulu and Sling are increasingly bundling their subscription packages of channels with a free Roku, Shannon said. Also, Charter, Comcast and a number of other operators have either launched or plan to launch TV everywhere apps on the Roku platform so that subscribers can access a large bouquet of channels on the pay TV apps, he said.

“You have the normalization of OTT, where you are seeing massive amounts of traditional broadcast style content viewing on OTT platforms,” Shannon said.

Related > Viewer Watch 2017: Download the Complete Report

With new business models proliferating almost as fast as new consumer-electronics devices at this year’s CES, TV executives are recalling 2016 as a year of landmark changes that will produce even more profound developments in 2017.

“In the last year, there has been more change in the video business than we saw in probably the past five years,” said Matthew Strauss, executive vice president and general manager of video and entertainment services for Comcast Cable. “We’re just continuing to find the competitive landscape shifting. There are more services being delivered over the top to consumers. There is the growth and proliferation of Internet-connected TV devices like Roku, Apple TV or Amazon Fire. And you are also seeing new services that are delivering bundled over the top channels like Sling TV, Sony’s PlayStation Vue and DirecTV Now.”

In response, programmers and operators have introduced a flurry of new products. “In terms of video, this has been one of the biggest for Cox in all the years I’ve been here,” Steve Necessary, executive vice president of product development and management at Cox Communications, said.

Less obviously, operators and programmers continue to make massive investments in their technology infrastructures with important implications for their offerings in 2017 and beyond.

“As a company, we are investing and positioning content to be consumed on more and more platforms every day,” Discovery Communications chief technology officer John Honeycutt said, stressing that the programmer is rapidly deploying new cloud and software-based infrastructures so it can adapt to consumer needs and quickly roll out new services. “We are in the middle of a revolution in our supply chain.”

Related: Old Controversies and New Businesses

DIGITAL-FIRST REALITY

Much of this reflects longstanding changes in consumer behavior and the underlying economics of the TV, digital and media industries.

Vincent Letang, executive vice president of global market intelligence at Magna, said 2016 was the first year digital advertising exceeded total TV advertising in the U.S., garnering 39% of the total ad spend versus 37.4% for TV. Digital advertising is set to exceed total TV advertising worldwide for the first time in 2017, he added.

“We are forecasting that in five years, digital will grow to 56.0% of total advertising [in 2021 in the U.S.] while TV will plateau at 29.9%,” he said. Meanwhile, content creators and distributors are following the flow of money into digital media, fueling rapid growth in consumption of TV shows on mobile devices, computers and TVs connected to the Internet.

“The cliché of how consumers ‘want my content when I want it, where I want it and how I want it,’ is now a truism,” Mike Vorhaus, president of Magid Advisors at Frank N. Magid Associates, said. “Just five years ago, it was hard to find a lot of content. But now, in 2017, I’m really the captain of my media ship in a way that was not true in the past.”

Given ongoing rapid growth in the usage of mobile and connected TVs, it is difficult to call digital video “mature.” But researchers stress that the tectonic changes in how video is consumed and delivered have already made digital media a central part of the TV business.

“After four or five years of talking about alternative ways to access video and watching significant growth in its usage, we are now at a point where it is pretty much established,” Howard Horowitz, president and founder of Horowitz Research, said. “It’s not a fly in the ointment, but part of the business. Digital self-managed access to video content is with us and mostly that is a good thing for all the players.”

DISRUPTIVE GAINS

Others agree. After ticking off a long list of new products and initiatives designed to realign their offerings with newer consumer behavior, Comcast’s Strauss said: “Our third-quarter video results were the best we’ve had in 10 years. We added 32,000 video customers, which is an 80,000 improvement year over year. And if you look at the last 12 months, we are video-positive.”

Some programmers have been buffeted by the changes, which have hurt ratings, but those that have aggressively moved to capitalize on the newer delivery platforms are pleased with the results.

Bernadette Aulestia, executive vice president of worldwide distribution for HBO, noted that the launch of the OTT service HBO Now has allowed the programmer to tap into new markets and see healthy growth in the overall business. “Less than 1% of [the OTT] HBO Now subscribers are coming from our linear multichannel subscribers,” she said.

Executives from Dish Network and AT&T cited similar experiences with their respective OTT channel bundles, Sling TV and DirecTV Now, which are designed in part to tap into viewers outside of the pay TV ecosystem.

“There are about 20 million households in the U.S. that are either not engaged with pay TV or have opted to leave the pay TV ecosystems,” Tony Goncalves, senior vice president of strategy and business development for AT&T Entertainment Group, said.

That doesn’t mean that the industry can sit back and pretend it will be business as usual in 2017.

An acceleration in the decline in pay TV subscribers has caused Magna to revise its estimates of pay TV subscribers downward. There is also a great deal of uncertainty about the ad market.

These trends raise important questions about the changing use of video on various platforms — traditional TV, mobile, Internet-connected TVs, set-top boxes and other technologies. How these trends will impact the health of the industry and the kind of products that get launched in 2017 is the subject of the next story.

It’s been more than a decade since the first YouTube video was posted in April of 2005, and the impact of over-the-top video remains hotly debated.

Some look at the increase in multichannel-video subscriber losses in the first nine months of last year as confirmation of a generational shift, with millennials coming of age as cord-cutting OTT consumers. Based on those trends, Magna Global is now predicting that multichannelvideo subscribers will decline by more than 6 million homes between the end of 2015 and the end of 2020.

Others dispute those projections and go even further, contending that terms such as cord-cutting make it di_ cult to truly understand how the market is changing by reducing the behavior of younger consumers to headline-grabbing stereotypes. Yes, pay TV subscribers are declining, these researchers have said. The losses remain small, though — roughly 1% of the market — and the oft-predicted dramatic collapse has yet to occur. In fact, cable companies in 2015 had their best year since 2006.

This “glass half full”vs. ”glass half empty” debate, as researcher Howard Horowitz has called it, won’t be settled anytime soon. Nonetheless, “the market changes aren’t trivial,” Horowitz said. “Complacency is out. You have to take the market seriously and pay attention to millennials by providing them with the kind of services they want.”

We hope that imperative will make Multichannel News’s annual Viewer Watch report, with its focus on the impact of the changing use of video, more valuable than ever.

As usual, this report is based on interviews with a wide array of senior TV executives and a number of top researchers. The features based on those interviews are then followed by eight pages of data, covering virtually every aspect of the industry, from trends in traditional pay TV subscribers to subscription video-on-demand customers and the use of new consumer-electronics devices.

Taken together, the features and data are designed to help readers to dig deep into the trends that are transforming their businesses, and to better understand the opportunities and challenges facing the industry.

Like previous versions of this annual report, the 2016 Viewer Watch was made possible with the help of a number of researchers. Among the organizations that were particularly helpful in providing data, we’d like to thank Horowitz Associates, Magna Global, PwC, Nielsen and SNL Kagan.

Contributing writer George Winslow compiled the data, conducted the interviews and wrote the articles.

To access the full report, including charts, please click here.

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Pay TV operators and programmers have increasingly planted their feet on both sides of the raging debate over shifts in TV viewing, dipping their toes into over-the-top video while continuing to embrace the traditional ecosystem.

“Many operators have decided that they will look beyond TV everywhere to support and offer OTT services, and we’re seeing content producers going direct-to-consumer, rather than working exclusively through the pay TV system, to compete in the OTT space,” Parks Associates director of research Brett L. Sappington said. “That is really changing the economics of the flow of content to the consumer.”

It will also make this year a pivotal one for pay TV, both for some of its older offerings, such as video-on-demand and TV everywhere, and for newer efforts such as Dish Network’s Sling TV or direct-to-consumer products like HBO Go.

“While we’ve been seeing declines in the traditional pay TV model, there are increased opportunities in OTT segment, where there are about 25 million homes that have not been touched by pay TV,” Ben Weinberger, senior vice president and chief product officer at Sling TV, said.

This relatively large market has produced “a very strong year ahead of forecast and budget” for Sling TV subscriber numbers, Weinberger said.

Meanwhile, Comcast, Verizon Communications and a number of other operators have launched bundles for OTT devices or mobile platforms as part of a larger push to revamp their product packages.

“The traditional bundle works very well for many people, but there are also a lot of people who don’t want to pay for things they don’t value,” Ben Grad, executive director of content strategy and acquisition for FiOS TV at Verizon. The telco has launched mobile-video service Go90, the Custom TV “skinny bundle” and expanded TV everywhere content, with live streams of more than 120 services available outside of the home for mobile devices.

But some analysts have worried that the move to embrace OTT services might hurt operators, who risk cannibalizing their traditional bundle, and programmers, who might lose ratings as they sell more content to subscription VOD services such as Netflix.

Turner Broadcasting System’s launch on Sling TV, a virtual MVPD available on a subscription basis, has been a positive experience, executive vice president of brand distribution Jennifer Mirgorod said. “It is very important that our larger networks reach as many people as possible,” she said.

The slimming of the bundle has prompted fears that some networks might not be able to survive. But stronger programmers should continue to thrive, Disney & ESPN Media Networks executive vice president of affiliate sales and marketing Justin Connolly argued.

“The success of packages depends on the channels that underpin the package, and we have a handful of the strongest brands in the business,” Connolly said. “That is why providers like Dish and their Sling TV package took to us to help them build a sub base.”

Operators also view TV everywhere services as a way to improve the value of the bundle. “The price/ value equation is being challenged on the full pay TV bundle for $80 to $100 a month,” Tony Goncalves, senior vice president of strategy and business development for AT&T Entertainment Group, said. “That makes TV everywhere a very, very important component in our business.”

SEARCHING FOR VALUE

A number of other operators are also rolling out advanced set-top boxes that greatly improve the user interface and make it much easier to find content.

“As all these platforms multiply and the content multiplies, search, discovery and the consumer experience becomes everything,” Joe Atkinson, U.S. advisory entertainment, media and communications leader at PwC, said.

“As operators, we also need to recognize that there is a world of content beyond our set of linear offerings and on-demand capabilities,” David Isenberg, president and chief revenue officer at Atlantic Broadband, said. “The more we can integrate all that content together, the better the consumer experience and the better position we will be in.”

To that end, Atlantic Broadband has deployed TiVo boxes, which offer advanced search features and allow users to access both cable networks and OTT services like Netflix, with plans to launch Hulu. “It is not a matter of providing either pay TV or over-the-top services but both,” Isenberg said. “It is natural to bring the two of them together and, since we’ve launched Netflix, we’ve seen a strong and very positive customer response.”

Many of these efforts are in the early stages, but there are signs that a combination of advanced set-tops, improved interfaces and better TV everywhere offerings can pay off in better subscriber numbers.

“Our third-quarter video results were the best results we’ve had in nine years, and we’ve had 20 consecutive months of improvement in churn,” Matthew Strauss, executive vice president and general manager of video services for Comcast Cable, said. Comcast, the No. 1 U.S. MSO, has been rolling up 30,000 to 50,000 X1 advanced set-top boxes per month while expanding its VOD and TV everywhere offerings.

Along with an expansion of its VOD offering, which now has “the 100 top Nielsen shows” and “over 700 series” with a full season of episodes, Strauss said the improved interface and search capabilities of the X1 box have improved on-demand usage. “We now have over 85% of our subs on the X1 platform using VOD and we’ve seen a 40% increase in VOD usage of 40%,” he said.

Expanded TV everywhere products are also catching on. “We now have about 7.5 million subscribers using TV everywhere each month, which is over 35% of our subscribers” consuming about eight hours of video per month, Strauss said.

SPEEDING TO IP

Comcast and other operators are also continuing to upgrade their networks to provide faster broadband speeds, new services and expanded Internet-protocol delivery.

“In the past, when you looked at our road map, you might say there was a video lane and a broadband lane,” Cox Communications executive vice president of product development and management Steve Necessary said. “But now those lanes are merging.”

Atlanta-based Cox has rolled out Internet service at speeds of 1 Gigabit per second in a number of markets, with plans to make its G1GABLAST product available through its entire footprint by year-end.

“The G1GABLAST initiative is one of the major initiatives we’re working on to provide a big highway on which can we bring all of those capabilities together,” Necessary said.

But much work remains to be done with TV everywhere and other initiatives. While the number of TV everywhere video streams jumped 104% between September 2014 and September 2015, according to a recent report from Adobe, the share of households accessing the service grew to just 13.6% in the third quarter of 2015 from 12.6% in Q3 2014.

“TV everywhere has a lot of potential upside, but 2016 is the time when the industry has to come together and make it work or [they risk] having Netflix and Amazon become the place where new viewers start to learn to find content,” Adobe Digital Index principal analyst Tamara Gaffney said.

Measurement is another key issue. “I think it is very encouraging to see the products Nielsen and comScore and Rentrak are developing to improve measurement,” Keith Kazerman, head of advertising sales product strategy and development at Discovery Communications, said. Programmers such as Discovery have also bulked up their own in-house data and analytics efforts, he added.

Over time, that could help radically change the way TV inventory is sold. Turner chief research officer Howard Shimmel said a variety of outside and in-house analytical tools has allowed the programmer to sell much more targeted audiences, such as would-be car buyers — something once only possible on digital platforms.

“We were selling TV on age and sex demos from when Lyndon Johnson was president,” he said. “We want to get to a world where we don’t deliver a report saying we’ve delivered the right amount of ratings points, but deliver a report saying how many sales we generated.”

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Faced with rapidly changing consumer habits, programmers and multichannel video providers have spent much of the last five years bulking up their offerings to provide more content on additional platforms.

Like the inhabitants of a besieged medieval town, they’ve hunkered down inside the traditional pay TV ecosystem, devoting enormous resources to building up their defenses by adding new products like TV everywhere or by improving existing bundles with faster broadband speeds or even Gigabit offerings.

All of that changed in 2015. With over-the-top video usage doubling on an annual basis, a growing number of programmers and operators decided it was time to step outside traditional pay TV distribution methods and take the fight directly into enemy territory by offering new over-the-top services such as Dish Network’s Sling TV or HBO Now.

Much of this can be traced to the subject of Multichannel News’s annual Viewer Watch survey — changing video-usage patterns that have produced a slump in TV ratings and slight declines in pay TV subscriber numbers.

“There is a new generation that is consuming TV differently,” Magna Global executive vice president and director of global forecasting Vincent Letang said. The New York-based firm has forecasted a 6% drop in pay TV subscribers and flat or sluggish TV advertising in upcoming years.

“We have been talking about cord-cutting for a few years, and it wasn’t really happening,” Letang said. “But now it is happening, because young people are adopting MVPD subscriptions at a significantly lower rate than previous generations.”

Horowitz Research president Howard Horowitz added, “You can look at it as a glass and say it is half-full or half-empty, depending on your PR objective of the data.” Though the number of cord-cutters remains small, “the market changes aren’t trivial,” Horowitz said. “Complacency is out. You have to take the market seriously and pay attention to millennials by providing them with the kind of services they want.”

Companies must also carefully parse these video-industry developments to better understand the forces that are changing consumer habits, Horowitz and others said.

CORD-CUTTING CONFUSION

Two of the thorniest topics are cord cutting and the habits of the millennial 18-to-34-year-old set.

“We’ve spent a lot of time talking about and reacting to cord-cutting,” Bruce Leichtman, president and principal analyst of Leichtman Research Group, said. “But I think that is a dangerous term that leads people to bad assumptions, bad conclusions and bad decisions, because they are really nonsubscribers.”

The ranks of those nonsubscribers are clearly growing, though not at the precipitous rate some had predicted. Total multichannel video subscribers fell from 100.7 million in the fourth quarter of 2013 to 100.5 million in the fourth quarter of 2014, according to SNL Kagan.

Those declines, however, accelerated in the first nine months of last year, falling by more than 1 million subscribers to 99.4 million in the third quarter of 2015, SNL Kagan principal analyst Ian Olgeirson noted.

Some of this has been attributed to economic issues. The U.S. housing base has increased by about 4.5 million, according to Leichtman, but home ownership is actually down by 1 million and there are 5 million more renters.

“Renters tend to be younger, they tend to be more mobile and all of these things have always correlated a with a lower likelihood to subscribe to multichannel TV,” Leichtman said. “The number of people dropping subscriptions is about the same as it was a decade before we started talking about cord-cutting. The difference today is that fewer people are coming into the top of the funnel.”

Satellite-TV and telco providers have been also more cautious in pursuing new subscribers given the high cost of hook-ups, Leichtman and Olgeirson said.

The declines also have occurred during an economic recovery, Olgeirson said, so other factors are also at work. “A more likely source of erosion than economics comes from changing viewing patterns and the fact that [viewers] can find programming from other sources,” he said.

Millennials can’t be viewed as a monolithic group, researchers have cautioned. For instance, a recent analysis of millennials by Nielsen found 30-to-34-year-olds living in their own home with children had a pay TV penetration rate of 81.4%, versus a 72.4% rate among 18-to-24- year-olds living in their own home with no children.

MILLENNIAL DIVERSITY

“People talk about millennials as if they are a unified group, but of course they aren’t,” Nielsen senior vice president of audience insights Glenn Enoch said.

Nielsen’s study also analyzed how these households changed their pay TV subscriptions over time, Enoch noted. “Our data shows that householders aged 18 to 34 are more likely to drop cable, but they are also the most likely to add it,” he said. Lower-income homes were also “more likely to add and drop a multichannel subscription,” he added.

That’s due to the fact that younger and lower-income households are more likely to rent and drop their pay TV subscriptions when they move. But that doesn’t mean that viewing patterns, particularly among the young, aren’t changing dramatically.

“The big theme that we are seeing in video consumption is how expansive and immersive the viewing ecosystem has become with so many devices and options,” Viacom executive vice president and chief research officer Colleen Fahey Rush said. “It used to be that you had to wait to watch a show one night a week and wait until work the next day to talk about it.

“Now, you can follow the characters and cast on Twitter. You can watch shows on apps and go back and watch all the old seasons on so many different places. Everyone has a TV in their hands, a smartphone, which is an amazing tool for discovery and loyalty,” she said.

“Most of the growth is on mobile, OTT devices and the connected TV,” ESPN senior vice president of global research and analytics Artie Bulgrin said. For example, the WatchESPN app set viewing records in September with 11 million unique visitors — up 50% from a year earlier — watching 2.2 billion minutes of video for a 92% bounce rate.

That trend has been particularly evident with younger viewers. In the third quarter of 2015, TV viewing by 18-to-24-year-olds fell by 2 hours and 4 minutes from a year earlier, per Nielsen, while viewing on multimedia devices such as Roku was up 34 minutes, to 1 hour and 25 minutes a week.

Not surprisingly, these shifts are have affected digital and TV ad spending. “In 2016 digital advertising will overtake TV in the U.S. for the first time ever.” Magna’s Letang said.

Despite this, TV advertising was stronger in the second half of 2015, so spending in 2016 and 2017 isn’t likely to see the type of declines that occurred in 2013 and 2014, Letang and others noted.

“There is a pretty significant amount of truly premium TV viewing just not being included in current ratings definitions,” Pivotal Research Group senior research analyst for advertising Brian Weiser said. “Viewing is not anywhere near down as much as people think it is. It might even be up, but I’ll go with flat.”

The TV-advertising picture also isn’t as bad as some believe. “The third quarter came out reasonably well and the fourth quarter looks even better,” Weiser said. “Based on the idea that digital is eating TV’s lunch, the overwhelmingly dominant view of TV advertising is pessimistic. But TV still remains the most efficient way to build awareness.

“The problem has been that ad spending has been weak, not that we are seeing a secular shift of TV money to digital.”