In the words of MoffettNathanson Senior Analyst Michael Nathanson, “nothing grabs your attention better than a detailed report about cord-cutting and what it means for the long-term health of the Pay TV eco-system.”
Nathanson recently did just that, and senses “another crucial consumer trend” — the shift in linear consumption from non-live to live content. As Nathanson observes, this shift has been wreaking havoc on the underlying economics of networks for some time now.
“These shifts in viewing are the leading edge of how networks monetize viewers through advertising dollars and affiliate fees,” he notes in an investor presentation that offers an in-depth review of U.S. viewing patterns of the top 4 broadcast networks and the top 20 cable networks.
For those looking for quick shorthand, “it is fairly simple,” Nathanson writes.
Rule #1: Live content equals stability, non-live content spells doom.
Rule #2: Older viewers remain sticky, younger viewers have hit the exit.
He says, “While these tectonic shifts have been in place for much of the past decade, the bifurcation between live and non-live content accelerated in 2019.”
Across broadcast and cable, P2+ consumption was down an aggregate 8%, with live down 5% and non-live down 11%. Among the top 20 cable networks, consumption among people 2+ was down 9%, with live content down 5% and non-live down 11%.
Among broadcast networks, P2+ consumption was down an aggregate 7%, with live content down 6% and non-live down 8%. Six of broadcast’s top seven most watched “series” were Fall/Winter sports, dominated by the NFL, NCAA Football and MLB.
“Whiles ports remain ever-dominant, we are witnessing the negative damage from’Peak TV’ as the surplus of original scripted content across the ecosystem has weakened demand for original linear basic cable (down 26% in time spent in 2019) and original broadcast shows (down 11%),” Nathanson notes. “In addition, the wide availability of on-demand libraries continues to damage second cycle off-network re-runs on basic cable with consumption down 20% in 2019. These data points make cord-cutting look benign.”
Nathanson’s analysis is admittedly lengthy, with “a ton of data” in his investor report.
At the end of the day MoffettNathanson believes its analysis supports its Buy recommendations of two media stocks: Disney and Fox.
“Disney management recognized the challenges facing linear television years ago and has done well to create a lifeboat for the company with the successful rollout of Disney+,” Nathanson says.
In contrast, he believes investors will not embrace ViacomCBS’s business plan. “Management also needs to prove that the content spend at ViacomCBS can create much higher long-term value than each of the independent companies were able to do on their own before merging,” Nathanson says, reiterating MoffettNathanson’s “Neutral” rating on ViacomCBS (VIAC) and target price of $35.