Connected TV's 'Turbulence' to Persist, With Consolidation Rising: EMarketer
Consumers are flocking to streaming services, “and advertisers are following them,” said an eMarketer study on U.S. video trends to watch in 2022. The average North American internet user more than doubled the number of subscription VOD services they used from 2016, to an average 8.8 in Q2 2021, eMarketer said, citing TiVo data.
But after a “whirlwind year” in 2021, eMarketer expects more “turbulence” in 2022, as the “snowballing” number of streaming services leads to consolidation, which will concentrate advertisers’ audiences. Growing retransmission and affiliate fees will restrict growth of virtual MVPDs and have a negative impact on the effectiveness of TV’s reach, it said. As a result, connected TV devices will “flourish,” prompting more companies to build their own operating systems vs. outsourcing them, it said.
The number of streaming services continues to grow worldwide, now at over 200, with some media companies operating several, notably ViacomCBS with Paramount+, Showtime and BET+ and its free CBS News and Pluto TV apps. EMarketer expects some consolidation this year, similar to NBCUniversal’s move to absorb the WWE Network into Peacock: “Companies operating numerous streaming services will combine their audiences to simplify the user experience and placate advertisers.” It expects Paramount+ and Showtime to become a single app and for HBO Max and Discovery+ to combine after the parent companies’ merge.
U.S. retransmission fee revenue jumped from $8.1 billion in 2016 to a projected $12.4 billion last year, according to Kagan figures, “and they’re on pace to keep growing,” eMarketer said. Sports account for 40% of TV programming costs for traditional pay-TV providers, with ESPN’s fees highest. Rising programming costs caused carriage disputes that led to customers losing access to certain stations, a further driver for cord cutting, it said. Rising programming costs will keep driving up vMVPD prices, restricting their growth -- and their ability to take share from traditional pay-TV providers, it predicted.
Following connected TV’s popularity, more companies are investing in TV operating systems that monetize through ads, eMarketer said, referencing Comcast and Amazon. Google revamped Chromecast and expanded its licensing deals with TV makers, it noted. Most TV makers have outsourced their operating systems to Amazon, Roku, and Google, but LG, Samsung and Vizio developed their own systems.
About two-thirds of the U.S. population use smart TVs to access streaming services. CTV device operators typically receive about 30% of advertising and subscription revenue from streaming services, making it “big business” to control the CTV interface, eMarketer said. CTV ad spending will approach $20 billion this year; subscription revenue from streaming services will top $45 billion, according to eMarketer forecasts. Combined ad revenue from smart TV operating systems is pegged at $1.37 billion for 2021, soaring to $6.17 billion in 2026. “With so much ad revenue on the line, expect a few more TV brands to build CTV operating systems, stop licensing from tech giants, and go in on advertising in 2022,” eMarketer said.