Media Update: FAST Services, Digital Ad Strength, and Increased Consumer Spending
Key Highlights
- Streaming: The stampede of price increases across the major streaming platforms has stimulated viewer interest in FAST services, which have seen significant usage gains in the last year.
- Linear: Magna has increased its 2023 U.S. ad spending forecast to 5.2% due to a better economic outlook and sustained strength in digital ads, despite a decline in traditional media exacerbated by recent industry strikes.
- Ad Economy: YouTube is piloting a feature, Watch With, allowing viewers to watch commentary and analysis of live games and events from select creators.
- Consumer Economy: American consumers powered ahead in September, increasing personal consumption expenditures by 0.7% over August with an emphasis on service outlays.
Streaming
Ad-supported video supply has grown considerably in recent weeks, likely propelled to some extent by more major sports – the start of football season (both college and professional), and the MLB playoffs – being available on streaming platforms.
Industry Notes
1. The escalating prices of major streaming platforms are driving cost-conscious consumers toward free, ad-supported streaming services (FASTs), with 40% of U.S. adults increasing their viewing time on such platforms over the past year, according to CTV research firm Aluma Insights. This shift is significant as two-thirds of these viewers have concurrently reduced their consumption of other streaming and traditional TV services, such as those from Paramount, Amazon, Fox, and Google. These major players, despite offering ad-supported versions at lesser prices, continue to hike the prices of their ad-free tiers, pushing consumers toward cheaper options.
The surge in FAST consumption is particularly pronounced among certain demographics, such as viewers 55+, households earning under $50,000 annually, and homes with children under 18, who find the free or lower-cost ad-supported models more appealing. This trend underscores the challenge for major platforms to thread the needle between ad-supported and subscription models, the imperatives of which often push in opposite directions. | eMarketer
2. Speaking of escalating streaming prices, Apple announced it is raising the prices of its TV+, Arcade gaming, and News+ subscriptions. This follows moves from many other content providers and shows that even Apple, the most valuable company on the planet, would like to lose less money on its premium streaming offering.
The TV+ streaming service has been bumped up to $9.99 from its previous $6.99 monthly fee, marking its second price increase in a four-year span. It attributes the price changes to TV+’s rapid growth and a rich array of content; despite the rise, Apple’s offerings remain among the most affordable in the major streaming sector. Furthermore, Apple is gearing up to overhaul its TV app with an aim to unify its various video services, part of its broader strategy to position the TV app as the linchpin of its burgeoning video portfolio. | Bloomberg
3. Amid this trend of rising prices in the streaming landscape, Sling TV has rolled out notable discounts as part of a new promotion. Currently, both of its base plans, Sling Blue and Sling Orange, are available for just $20 a month, marking a 50% cut from the regular $40 subscription fee. This pricing strategy comes at a time when competitors like Hulu have opted to increase their prices, possibly making Sling’s offer an attractive alternative for cost-conscious viewers. | Variety
4. Netflix is stepping into the live sports domain with the launch of the ‘Netflix Cup,’ a distinctive golf tournament slated for November 14 at the Wynn Golf Club on the Las Vegas Strip. The event will feature a match play tournament where race-car drivers from Netflix’s popular Formula 1 documentary series ‘Drive to Survive’ will compete against golfers from another series titled ‘Full Swing.’
Netflix has a checkered history with live events. Some of you may remember its very public live streaming debacle earlier this year, when it tried and failed to live stream a special episode of Love Is Blind, necessitating a public apology to its viewers:
Live events are an increasingly important venue for streaming platforms, as they look to move beyond non-appointment viewing. The major prize here is of course sports, where Amazon has made a bold move with Thursday Night Football and YouTube with NFL Sunday Ticket. As it aims to be one of the victors of the streaming wars, Netflix is trying to ensure it’s prepared to entertain viewers on all fronts. | AdAge
Linear Media
As is often the case when there is a geopolitical crisis, news viewership has spiked over the past couple of weeks following the terrorist atrocities in southern Israel. Cable news viewership jumped by about â…“ over previous weeks, and is up about 8% over this time last year when we were in the run-up to the congressional midterm elections.
Industry Notes
1. In September, the allure of sports brought a much-needed boost to broadcast channels for the second straight month. The kick-off of college football and the new NFL season in particular resonated with viewers, especially those between 18 to 54 years old. This surge in sports viewership was not only great for broadcast channels but also for cable, where football-centric telecasts, mostly on ESPN, drew eyeballs in large numbers. However, this positive trend in cable was slightly overshadowed due to a lack of prime time TV, a fallout from the ongoing actors’ strike.
On the other hand, streaming platforms saw a minor dip, although Prime Video managed to buck the trend thanks to Thursday Night Football. As scripted content continues to be in short supply because of the actors’ strike, sports have become even more of a focal point for viewers, and this trend is likely to continue with the upcoming NHL and NBA seasons. This sports-driven viewership renaissance underscores the enduring appeal of live sports, which has become a linchpin for both broadcast and cable channels in attracting viewers amidst the growing popularity of streaming alternatives. | Nielsen
2. The actors’ strike, which has now lasted more than 100 days, looks no closer to resolution even as the ramifications become more dire. Bargaining talks between the union and the major studios have been delayed as the union evaluates the latest offer; major entertainment CEOs, including Bob Iger of Disney and Ted Sarandos of Netflix, don’t normally participate directly in labor negotiations; the fact that they have in recent weeks emphasizes the gravity of the situation.
During a recent session, these CEOs highlighted the repercussions of the ongoing stalemate, indicating that numerous TV shows would have to be canceled if production could not start soon. Central to the conflict is SAG-AFTRA’s demand for a portion of total streaming revenue, which the studios have uniformly opposed. The studios’ major concern at this point seems to be that if a deal is not struck in the next week to 10 days, they will have to delay more summer blockbusters and scrap the 2023-’24 scripted TV season. | Variety
Ad Economy
Magna, IPG’s investment unit, has adjusted its 2023 U.S. ad spending forecast upward to 5.2% for the full year, up from its June estimate of 4.2%. This change reflects a more positive economic sentiment and a sustained interest in certain digital ad formats; although there were initial concerns about a possible recession earlier this year, many major advertisers maintained their spending patterns. The report’s authors stated, “It’s the first time we’ve raised the expectation in three or four updates. It might be a turning point.”
Key sectors such as travel, pharmaceuticals, and retail reported consistent spending in Q2, while sectors like tech and finance saw a decrease. The growth in the advertising landscape is entirely concentrated in digital media, which is projected to rise by 9.6%, whereas traditional media is expected to decline by 3.6%. While traditional media continues to struggle with irreversible structural decline, its 2023 growth figures were made even worse by the (recently resolved) writers’ strike and the (ongoing) actors’ strike. | WSJ
Consumer Economy
1. September’s inflation data revealed stalled progress in bringing price level growth down to target, indicating that a return to normalcy may still be some ways off. Although price gains have moderated since last year’s 40-year highs, core inflation increased at a slightly faster pace recently; the present scenario suggests that inflation may stabilize around 3% absent further action, substantially above the Fed’s 2% target. September’s consumer-price index rose 3.7% year-over-year, with core prices up 4.1%.
The Fed has indicated a likely steadiness in short-term interest rates in its upcoming meeting. While this decision hinges on fresh data, a prevailing idea seems to be that borrowing costs, elevated as they currently are, may effectively substitute for increases in benchmark rates.
External factors, such as Middle East conflicts influencing oil prices and potential impacts on consumer confidence and spending, are also in focus but are unlikely to be decisive. With housing costs expected to provide some relief and used-car prices seeing a decline, the Fed’s approach appears to be one of caution, hoping to avoid an overcorrection that would induce a painful recession. | WSJ
2. Closely related to the inflation story is consumer behavior, and September’s retail sales numbers show continued strength in personal consumption. Despite high-interest rates, elevated inflation, and depleting pandemic savings, U.S. consumers upped their purchases by 0.7% month-on-month in September, surpassing economists’ expectations. The spending was tilted toward services (think restaurants & bars, travel), continuing a trend that began in early 2022.
Although the Fed has indicated no imminent rate hikes for their next meeting, strong economic indicators might prompt reconsideration in December or January. Richmond Fed President Tom Barkin mentioned the spending surge among consumers who saved during the pandemic, contrasting with observations of reduced spending among lower-income groups. Meanwhile, the personal savings rate has dropped, and delinquencies in consumer debt types like credit cards and auto loans are on the rise.
While the immediate concern isn’t heightened, economists are monitoring these trends closely as they might indicate emerging financial challenges. | WSJ
The puzzle of why consumer spending remains so robust in the face of monetary tightening and drastically higher interest rates cascading through credit markets may have a simple answer – Americans have much more wealth to fall back on than they did just prior to the pandemic. Since 1989, the Fed has conducted a triennial survey of Americans’ household finances. The latest results have just been published, and they reveal inflation-adjusted median net worth having skyrocketed by 37% to $192,900, by far the largest increase since data began to be collected.
This cushion of wealth, combined with a healthy labor market, has likely been the main factor keeping consumer spending on a robust trajectory despite overall macroeconomic tightening. The prime drivers of the wealth increase are rises in property values and more widespread participation in the stock market (whose value has increased considerably since 2019). Notably, the youngest demographic (< 35 years old), which is also the poorest, experienced the largest proportional wealth increase over the period, gaining over 140% in net worth.
Looking at averages (as opposed to medians), a U.S. family’s worth passed the $1 million mark for the first time. Once again, the youngest and poorest households saw the largest proportional gains.
We should note that the survey data ends in 2022. Since that time, benchmark interest rates have increased by over 30%, and as noted above, credit delinquencies are beginning to creep up. It would seem safe to infer that these accumulated nest eggs are under at least a little additional stress at the moment. | Bloomberg
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