What to Watch...

Watching TV used to be a relatively straightforward affair. The U.S. had three dominant broadcast networks that offered up a set list of programs. True, your viewing choices were limited and there was a lot of advertising but ah…life was simple! Cable TV, first introduced in the 1970s, disrupted this lucrative business model. By the 1990s, broadcast companies were losing significant market share to pay TV networks like HBO and TBS.

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Today, the cable industry is now the one having to defend its turf. Cable subscriptions, which peaked at 68.5 million back in 2000, total an estimated 48.6 million today. High speed internet service which paved the way for “on-demand” streaming services like Netflix and Hulu is driving this “cord-cutting” trend.

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Consumers have largely benefitted from the shifting landscape – they have access to a broader array of entertainment choices then ever before at cheaper prices. But for most media companies, the last decade has not been easy. As consumers have moved away from traditional cable and broadcast networks, so too have advertisers. Data research firm eMarketer estimates that almost 50% of all ad dollars will be spent on mobile outlets by 2022, up from just 34% today. Subscription fees, a main revenue source for cable firms, are also under pressure. Instead of paying $100/month on average for cable, consumers are opting for “skinny” bundles more tailored to their tastes. Americans, on average, watch 38 hours of video content per week and of this, almost 40% today is streamed (see chart above). Free streaming services available on the internet (e.g., YouTube) are further complicating the outlook for Media firms.

Companies are responding to the increasingly competitive environment in several ways. First, owning premium content (think Game of Thrones) that attracts viewers and, more importantly, advertisers is increasingly critical today. The Economist recently estimated that Netflix spent between $12 billion and $13 billion on content in 2018. Companies such as Disney and CBS are also changing the way they get paid, abandoning age old licensing agreements and instead distributing content through their own Direct to Consumer streaming services. Meanwhile, a range of companies outside of traditional media are also entering the race for consumer “eyeballs.” Tech giant Apple, for example, is cutting a deal with major providers such as the Washington Post to offer a streaming news service.

Finally, the escalating cost for content is driving consolidation across the industry; Disney has moved to buy 21st Century Fox, AT&T has purchased Time Warner, and CBS is likely to merge with Viacom. Increased scale broadens the range of choices these firms can offer customers and drives down per - user costs

It is hard to find an industry undergoing more change than Media today. Against this backdrop, age old alliances are being broken and many new ones formed. Picking winners and losers is no easy task. While we can’t be sure of the ultimate outcome, we can assemble a list of the traits needed to succeed. What is on it? One – the ability to own or create content. Two - strong finances to help navigate a prolonged period of disruption and Three - a proven ability to adapt and innovate.