U.S. Digital TV Proliferation:  Implications for Advertisers

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Believe it or not, TV went digital a long time ago. This is why so many U.S. homes have TV set-top boxes and there exists a plethora of over-the-air broadcast sub-channels.


It is also the reason The Nielsen Company had to change the basis of its TV-measurement system from tuner frequencies to network codes embedded in program content.

The digital TV discussed today is a bit different from those early days, thanks to “over-the-top” (OTT) apps. What does this mean for broadcast TV, and what does it mean for advertisers? Guest Media Information Bureau columnist Ed DeNicola, Head of Television for Cambridge Analytica, chimes in on the subject.

It’s a good analysis of your digital competitors — unless you’re at CBS.


By Ed DeNicola
Head of Television
Cambridge Analytica

Digital TV  today is a little different from those early days.  Over-the-top (OTT) applications (apps) now allow TV content to be displayed via any smartphone, tablet, computer or internet-enabled smart TV or dumb TV attached to a streaming device like an Apple TV, Roku, Amazon Fire TV or Google Chromecast.  It does not require a TV set-top box or a subscription to a traditional pay-TV service provider such as cable, satellite or telco.

According to comScore, 51 million homes7 in the U.S. have some non-traditional OTT capability.  Unfortunately for advertisers, that does not mean that there are 51 million newly minted OTT homes that they can digitally send video ads to via the Internet.

Amazon Video, Netflix, Hulu and YouTube account for 80 percent9 of all OTT viewing time and more than half of that content is commercial free.

Amazon Video and Netflix have the largest reach but do not accept advertising.  As a result, they are not an opportunity for advertisers.  In fact, they draw viewers away from traditional ad-supported TV thereby reducing the total number of ad-supported TV impressions available for advertising.

Adding to the shift of TV viewing impressions away from ad-supported traditional TV are TV-network specific OTT SVOD services. Not all; but some of these are choosing ad-free subscription models; e.g., HBO Go, Showtime, Filmstruck and Boomerang. Bucking the commercial-free trend are CBS’ All Access and CBSN, both of which are ad-supported OTT products.9

Facebook and Apple are two new entrants to the TV game; the latter will shift more ad-supported viewing minutes from traditional TV to yet another ad-free OTT SVOD option.  These companies are each planning to spend $1 billion dollars on original video content this year.  While these investments sound like a lot, they are relatively small when compared to what Netflix and Amazon plan to spend, $6 and $4.5 billion11, respectively.  Facebook intends to make the original content available on its video watch tab.  The good news for advertisers is that Facebook is ad supported.  Apple on the other hand, has a different ad-free business model in mind:  it wants to use the original programming to gain share of music subscribers from Spotify.

At this time, the best opportunities for advertising across the OTT SVOD space comes from Hulu’s lower-priced ad-supported OTT SVOD service and from TV-network specific OTT SVOD products like the two CBS options mentioned above.  We estimate the subscriber count for these to be somewhere below 18.6 million.  This estimate is not very precise due to the fact that the actual number of ad-supported Hulu subscribers is not reported.  We only know that most Hulu subscribers opt for the ad-free offering and that if we subtract Hulu’s  vMVPD (Hulu with Live TV) subscribers from the total 17 million Hulu subscribers count it puts the Hulu OTT SVOD ad-supported subscriber count somewhere below 16.6 million.  Add to that number 2 million subscribers for CBS All Access and we’re at the below 18.6 million subscriber estimates.

YouTube accounts for 18 percent9 of OTT time spent viewing, behind Netflix but ahead of Hulu and Amazon Video.  It is predominately ad-supported; however, it began offering an ad-free version called YouTube Red.  YouTube Red is not free; it costs $10 a month to subscribe.  The good news for advertisers is that YouTube Red represents a small portion of YouTube’s considerable reach13.  YouTube is an excellent advertising opportunity for brands that do not mind advertising in user-generated content.  It is not a good option for companies that are hyper sensitive about where their ads are placed; although, it is beginning to offer more professionally produced original content that would be a good option for any company.

The vMVPD providers represent an excellent digital video advertising opportunity; although, the current scale is somewhat limited.  All of the subscribers for all of the vMVPDs – DIRECTV Now, Sling TV, YouTube TV, Sony Playstation Vue, Hulu with Live TV and fuboTV – add up to about 4.5 million subscribers.  If we make the assumption that there is one subscription per home, the vMVPD universe would comprise 3.8 percent of the 119.6 million TV homes in the U.S. (as reported by The Nielsen Company).

Based on our estimates, the current scale of the digital TV advertising opportunity excluding user-generated fare is some number below 23.1 million (sum of vMVPD, ad-supported Hulu and CBS All Access subscribers).

This number will grow over time as more people cut the cord and opt for vMVPD subscriptions.  Below are projected coverage estimates for vMVPDs based on current run rates.

vMVPD Coverage Projections 2015 – 2025

Source:  Cambridge Analytica projections from public subscriber counts

As you can see above, total vMVPD coverage is projected to hit 35 million by 2025.  This does not include new vMVPD services that have yet to launch or projections for OTT SVOD services.  If Amazon Video decides to allow advertising between now and 2025, it alone could dramatically increase the reach of ad-supported OTT SVOD advertising.  It is also difficult to predict how Facebook’s new TV content will impact the OTT SVOD space:  Whether or not viewers will go to Facebook to watch original TV shows?  The answer to that question will likely depend on the quality of the programming, whether it is fully distributed on streaming devices and how well it is marketed.


References:

  1. Fortune, By Don Reisinger, October, 18, 2017 “Here’s How Much Amazon Prime Customers Spend Per Year”
  2. Statista
  3. TechCrunch, By Lucas Matney, June 22, 2017 “YouTube Has 1.5 Billion Logged-In Monthly Users Watching a Ton of Mobile Video
  4. CNBC, Alex Sherman, January 22, 2018 “In Their Battle Against Big Cable, YouTube TV and Hulu with Live TV Have Signed Up Hundreds of Thousands of Subscribers”
  5. Zack’s Equity Research, December 6, 2017 “AT&T’s DIRECTV Now Exceeds 1 Million Subscribers, OTT a Boon”
  6. Deadline Hollywood, By Dade Hayes, January 9, 2018 “Hulu Reaches 17 Million U.S. Subscribers; Library of 75,000 TV Episodes More Than Double Those of Netflix and Amazon”
  7. comScore Blog, By Adam Lella, July 12, 2017 “How Important is the OTT Device Market if ‘Future of TV is Apps’”
  8. Digiday, By Sahil Patel, January 11, 2018 “OTT Video Takes Center Stage for TV Networks at CES”
  9. comScore, State of OTT Report, 2017 By Mike Rich and Andrew Lipsman
  10.  MarketWatch, By Trey Williams, August 21, 2017 “Apple’s $1 Billion Investment Helps Company Compete with Spotify in Near Term”
  11.  The Verge, By Kaitlyn Tiffany, September 8, 2017 “Facebook Will Spend as Much as $1 Billion on Original TV in the Next Year”
  12.  Variety, By Todd Spangler, August 16, 2017 “Apple Sets Budget for Original TV Shows, Movies”
  13.  Fortune, By Jonathan Vanian, July 27, 2017 “Google Play and YouTube Red May Merge”