Online video ads offer growth as linear TV ads suffer ‘recession’

The US’s linear TV ad market will likely suffer a recession in 2017, according to Us finance analysts who follow the media sector. Michael Nathanson, analyst for MoffetNathanson, this week lowered his projections for TV ad revenue growth in 2017, saying that the 2017 TV upfronts lacked the urgency of last year’s market. Nathanson predicts TV ad revenue growth will drop 4% in 2017, a bit more than the 3.5% dip he predicted earlier this year.

The decline in growth can be attributed to a number of trends: shrinking linear TV audiences and demand from consumers for lighter ad loads being two important ones. The rising tide against ad loads and in favor of subscription, ad-free services isn’t helping TV networks nor pay TV providers, either.

“We expect Q2 broadcast and cable networks to be each roughly flat, which could prove to be too optimistic depending on the extent of deceleration in scatter pricing,” Nathanson said in a research note, which he titled “Are We Entering an Ad Recession?” PricewaterCoopers (PwC) made similar statements in its annual Media Outlook report, released last week. It said the entire media and entertainment industry is approaching a plateau.
TV networks are now forced to improve the viewing experience on their channels and online sites in order to compete against the OTT video players who have essentially taught consumers how to be their own nightly entertainment programmers.

OTT SVoD services will enjoy an annual growth rate of 11.3% between 2017 and 2021, PwC said, while pay TV providers’ revenue will remain flat over the next five years. PwC pegs total pay TV revenue at $100.9 billion in 2016, and predicts it’ll reach just $101.1 billion in 2021. Overall, US TV ad revenue will grow 1.3% yearly to reach $75.2 billion in 2021.

It’s not so obvious that consumers are, in fact, sick of ads. Rather, consumers seem to be becoming increasingly intolerant of linear TV ads and how they’re delivered – i.e. in big chunks interspliced within the content the consumer is watching. This points to linear TV’s greater problem with user experience. According to FreeWheel’s latest Video Monetization Report, out this week, online video ad views grew 15% during Q1 2017.

Meanwhile, multi-channel advertising revenue derived from ads on digital properties, VoD platforms and TV Everywhere apps will see double the growth for TV networks in 2017, according to PwC’s report. Multi-channel ad revenue will grow 2.6% each year to reach $30.2 billion.

Internet video will see an annual growth rate of 9.6% over the next five years. “Nearly 75% of revenue at this time will be attributable to subscription video-on-demand services (SVoD), with transactional VoD platforms accounting for the remainder,” PwC said.

Consumers continue to watch as much TV content as possible, only not on linear TV. In online video, full-episode content viewing grew 14% year over year, and now accounts for 60% of online ad views, according to FreeWheel. It noted that live streaming sports and news are now the top two drivers of digital video advertising views. Live streaming ads accounted for 25% of total ad impressions, representing an impressive 47% jump over last year.
FreeWheel’s connected TV data underscores how adverse consumers are to linear programming schedules. The TV set remains the most popular screen to watch premium content, thanks to increasing penetration of connected TV platforms and devices. According to the report, OTT and STB devices together accounted for half of total digital ad impression in Q1, and STB VoD ad viewing jumped 33% year over year during Q1 2017. OTT devices, however, saw more growth during that period: 45%. “For the first time, OTT devices claimed the top title in terms of ad view share,” Freewheel said.
As digital video advertising continues to grow – and linear TV advertising doesn’t – the TV networks will become only more desperate for better measurement across linear and digital channels. That’ll open up opportunities for the likes of Kantar and comScore, who are hoping to wrestle away measurement territory from Nielsen.