Pandemic Hastening Pay TV's Decline by 18 Months; OTT Surges, Says Analyst

The pandemic accelerated the decline of pay TV by 18 months or more, said Interpret Vice President Brett Sappington on a Brightcove webinar. “Pay TV was already struggling with losses,” Sappington said, when production shutdowns due to the coronavirus cut into 2020 schedules for scripted television series. Job losses also cut into consumers' discretionary spending, he noted.

Even NBC’s highest-rated scripted series, This Is Us, had viewing declines in its season finale vs. the 2019 finale, noted Brightcove analyst Jim O’Neill, and that was at end of March during the pandemic's early peak. That’s not a good sign for future trends, he said, “because at a time when they should be filled with viewers, their viewer numbers are flat at best,” while streaming numbers are rising.

While pay TV was struggling with content, streaming services had a “wide variety,” including “many in the can ready to be released,” said O’Neill. Consumers go “where the fresh content is,” said Sappington, saying Netflix is “pulling out a new show every week. I look at that top row, and there’s always something new.”

Though traditional TV does news “really well,” and has benefited from the current cycle, it was also hurt by lack of live sports. When major sports returned, they all did so at once, which affected ratings for golf’s U.S. Open, delayed from June until September. “That’s why they have seasons,” said O'Neill. Americans spent $1 billion more per month on streaming in the past month than in January, he said, and even with the return of live sports, cord cutting has continued. Industry watchers thought the return of sports “would bring a feeding frenzy,” he said, “but it just hasn’t happened.”

Traditional TV isn’t doomed “by any stretch,” said Sappington, saying the advertising side of broadcast and pay TV remains important. Advertisers can’t get the same scale or audience via the streaming side, he said: “For years the content industry has said … the revenues in streaming are not adequate to be able to support all of the content that’s being created.” O’Neill referred to a “gradual disintegration” of traditional TV, comparing it to landline telephones and newspapers. Over-the-top video was once a supplement to pay TV, but major OTT services -- Netflix, Amazon, Hulu, Peacock and HBO Max -- “flipped the script.” For the biggest subscription VOD services, “subscriber numbers are driving huge streams of revenue” on a global scale, he said. Sappington questioned whether streaming will be able to sustain the industry in terms of content production.

The pandemic is forcing fresh looks at revenue generation, O’Neill said, citing Disney’s premium video service on top of Disney+ that brought Mulan straight to streaming when theaters were closed. The $200 million product “has pulled in a little over $270 million for Disney online,” he said, calling it a “huge turnaround.” O'Neill expects more streaming companies to offer multilevel hybrid services including SVOD and advertising-supported video-on-demand. More bundling of services and partnerships are likely, said Sappington, citing Disney’s partnership with Verizon for a free year of Disney+ when the service launched last fall.

Internet service is increasingly important for MVPDs as pay-TV subscriptions slide, they said. “Everybody wants more bandwidth, speed, performance” from their internet, said Sappington, and “operators are doubling down on that.” That’s leading to a change in “the bundle,” he said, which could now include add-ons outside of content. “How do you leverage that pipe, that utility, to get other value-added services around that?” He cited smart home and security as add-on opportunities.

Cord cutting hasn’t led to a meaningful increase in over-the-air viewing, said Sappington, though he’s curious what ATSC 3.0 will do for broadcast TV. “That’s going to be a slow roll because people have to have devices, ability to access and then have to learn how to access,” he said. The new standard does allow for ways for “broadcast to grow,” he said.

Despite the “great job” Sinclair is doing with ATSC 3.0, O’Neill thinks next-generation broadcast TV faces an uphill climb: “Consumers have been trained with OTT. If you’re going to go to an alternative service, I think it’s more likely to go to OTT than to broadcast’s next-gen delivery.” Sappington said ATSC needs to provide something “uniquely valuable that OTT can’t do. If you can define that, you can win. If you can’t define that, you’re going to struggle.”