US ad-supported broadcast and pay TV networks saw more ratings declines in the third quarter of the 2017, according to analysis from MoffettNathanson and Nielsen. 2017 is the third year in a row for linear TV networks to suffer significant live TV rating falls, and we’re beginning to see the effects of those declines in content production.
TV network advertising in Q3 is down 10%, and Nielsen’s C3 ratings for primetime viewership among viewers aged 18-49 is down 14%. Cable networks have fared much better, according to MoffettNathanson’s analysis. Cable networks saw only a 4% dip in primetime viewing.
Broadcast networks are down 18.5% over Q3 2016, which Michael Nathanson has dubbed “the greatest decline over the past six years.” But it should be noted that steep declines can be attributed to last year’s Summer Olympics in Rio de Janeiro, which occurred during Q3. Without the Olympics, broadcast network advertising would be down only 1%. Still, Nathanson isn’t confident that the broadcast networks will rebound. Broadcast TV viewership is down a whopping 31% among viewers aged 18-49, according to Nielsen data. NBCUniversal is down a full 50%. Fox, which actually saw a 6% increase in viewing, is the only broadcast network in the US to gain viewers during the third quarter.
“We currently project a return to growth in the [fourth quarter], but given the current ratings trends, this could prove to be too optimistic,” Nathanson said.
The declines come at a time when demand for – and supply of – content has never been higher. TV network executives have often touted demand for premium programming to assuage fears around the future of linear TV. Nathanson pointed to shifts in content consumption as the main culprit for the viewership drops, a trend that linear TV providers have been slow to respond to.
“We continue to believe these declines are driven by bifurcation of consumption into live (sports, news, events) and on-demand (VOD, DVR, SVOD) buckets,” Nathanson said.
Big trends in the space created the high water mark for demand for content in 2016: shifts in consumption, coupled with new competition coming from OTT service providers and social video networks, prompted TV networks to engage in a premium content arms race. But audience fragmentation has meant many TV networks were overspending on expensive content that couldn’t draw the audiences needed for the networks to make returns on those shows.
Content production has actually begun to decline, according to a report from IHS Markit. Production of premium content declined 3.4% over the past three years, while OTT premium content production has more than doubled during the same period. In fact, scripted content from online sources has grown 53% since 2014, outpacing scripted linear TV content production in both Canada and Australia in 2016. Scripted content from linear TV networks have dropped 2.2% since 2014.
“The fall-off in production of originals we’ve observed in the US shows that in some markets, the supply of drama is starting to outstrip demand,” said Tim Westcott, research director, channels and programming at IHS Markit.
Interestingly, most of the output drawback is coming from cable TV networks, not the national broadcast networks. Original drama hours, transmitted by cable networks, have dropped from around 1,000 hours in 2014 to 822 hours in 2016, according to IHS. Cable networks are likely pulling back in content production as margins continue to be squeezed from cord cutting. Pay TV subscriber losses negatively impact cable TV networks’ carriage fees, which is serving to further squeeze margins for content owners. According to Leichtman Research Group, the US pay TV industry has collectively lost 1.3 million subscribers since 2014. We would put the figure far higher.
But OTT content production is still ramping up. Netflix this week announced it’ll spend another $7 billion on original content production. Amazon has pledged $4.5 billion, and Hulu is spending $2.5 billion on originals.
HBO chief Richard Plepler, speaking to CNBC earlier this month, argued that throwing money at original content production doesn’t ensure the content is actually good. He said HBO won’t be spending as much as Netflix on its originals. “We’re going to spend what we need to spend to continue to make sure we’re creating outstanding programming,” Plepler told CNBC. “There’s a surfeit of content out there. Some of it is good. Some of it is mediocre. Some is not so good.”
Meanwhile, HBO recently announced it’ll begin bringing more programming to the US from other regions, rather than producing content purely for US audiences – mirroring a strategy Netflix has employed in creating global programming hits. At MIPCOM this month, Plepler said the content, which is produced by the company’s international networks in Europe, Latin America and Asia, “regularly outperforms even Game of Thrones’ record audience numbers in their respective markets,” and “lives up to the high-quality storytelling that is expected of the HBO brand.”