Video viewing is becoming more global, more mobile and more selective as over-the-top options let consumer connect with programming on more devices, but linear TV remain the most lucrative platform for content companies, according to new Wall Street analyst report.
The Whitepaper, entitled “The future of TV: Mobile, Live, Immersive, Social,” as published by Laura Martin of Needham & Co. Thursday but released to reporters on Sunday.
“Consumers are adopting an ever broader range of devices, which are creating ‘new windows of time’ for video consumption, both inside and outside the home,” Martin writes. Devices used per capital are expected to grow globally by 55% to 3.4 by 2020 from 2.2 now, and even faster in the U.S. But Martin notes that “devices monetize at different rates and content consumed also differs by device.”
Martin calculates that content companies earn 30 cents per person for each hour of content viewed on linear TV. That compares to 11 cents per person for each hour of content viewed on Netflix and 3 cents per person per hour for content viewed on YouTube.
“The most revenue upside should accrue to U.S. content companies that treat small screens as an adjacency to the 30 cent per person per hour (dual revenue stream) linear TV platform,” Martin says.
Martin says the rise of subscription VOD services like Netflix have grown the overall TV marketplace by between $4 billion to $8 billion in revenue. A decline in pay-TV households lowered TV revenues by About $210 million per month, but that decline is more than offset by consumers subscribing to Netflix, Hulu and Amazon Prime.
Looking at what’s next, Martin looks at several trends.
In a more mobile-oriented environment, “Content that is omni-channel should have a competitive advantage over content that is only available on a subset of devices because it can engage its fans all day,” Martin notes. In the social media world content does not work equally well across Facebook, Instagram, SnapChat, Pinterest and others. “We expect this to be true for content as well, suggesting that teams of 1-3 people must be dedicated to editing TV content into shorter clips to maximize engagement across each digital devices. We expect different lengths, genres and interactivity levels to work better on different video sites.”
Martin also notes that live video adoption is on the rise on streaming services, including CBS All Access with Big Brother, You Tube live, Facebook Live, live viewing of video streams form the political party conventions and even the Periscope and Facebook video of the congressional sit-in over gun control.
Another thought: “Because smartphone are always with their owner and these devices are personal, this creates options for new types of content that could never exist in the home environment, where more than one person is often watching the TV simultaneously,” Martin says. “Personalized content and advertising suggest greater targeting and pricing upside.”
Despite all the talk about cord shaving and skinny bundles, Martin expects skinny bundles to account for less than 10% of U.S. subscription revenue and less than 10% of total revenue when they mature. She explains that Netflix and Hulu are succeeding now because they are themselves large bundles. “As the aggregators become unbundled into dozens of a la carte channels, choosing among hundreds of total channel choices is hard work for the consumers,” she says. That should lead to inertia among consumers.
Unbundling destroys $100 million of market capitalization and even more value for consumers as channels below the top 50 disappear,” Martin calculates.
In the environment Martin describes, she sees CBS and Scripps Networks Interactive as the best positioned TV stocks.
Both CBS and Scripps CEOs have outstanding records (based on one-year and five-year market capitalization growth), excellent programming teams, upward ratings momentum, a handful of ‘must-have’ channels that we expect to be included in every skinny bundle, and ownership of deep libraries of content that they can sell globally over all digital platforms, including smartphones,” she says.
With Facebook getting 83% of its revenue coming from mobile device usage, and mobile advertising increasingly becoming a must-buy, Martin also sees the big social network’s stock as a winner. Other positives for Facebook include having its users registered with real names and potential revenue streams from areas including video and payments, plus incremental revenue and profits from other Facebook apps including Instagram, WhatsApp and Facebook Messenger.
She recommends Apple as well, because of its smartphone eco-system., which is creating a new global distribution network. Apple experience little churn with its devices, which give it pricing power and predictable revenue streams as it takes 15% to 30% of any revenue earned via its devices worldwide.
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