We are living in interesting times where society’s default perception of what television means has fundamentally changed. When many of us think of television today, our frame of reference is cable television, but for a growing population of younger consumers, their frame of reference will never be cable TV. Instead, it'll be some type of video on demand (VOD), and whether that comes with or without ads remains to be seen.
In October 2010, more than 90 percent of US TV homes were pay-TV subscribers, representing more than 105 million households. Since then, we’ve watched pay TV in the US die a very slow death, largely because the decline began from such a huge level of penetration. But now, the pace is accelerating, with pay TV“in free fall,” according to Business Insider. By the end of next year, it predicts that less than half of US households will subscribe to pay TV. What’s more, 25.5 million households — or more than 50 million adult viewers — abandoned pay TV altogether between 2016 and 2021.
All of this means that we need to revisit our long-held assumptions about linear TV being a great medium for mass-market reach and frequency. Instead, we must realize that the smaller but still sizable population of US consumers who continue to subscribe to pay TV is skewing very much toward an older demographic. In fact, baby boomers are now the only demographic to still watch cable TV in “significant numbers.” Thirty-eight percent of Americans 55 and older spend more time consuming content on cable TV than any other platform. In comparison, only 21 percent of Gen X adults watch cable more than anything else, followed by 16 percent of millennials, and 9 percent of Gen Z adults.
Unfortunately, many marketers haven’t received the memo. There is still a sizable portion of marketing budgets that are committed to a medium whose relevance in people’s lives continues to shrink. In the space of a generation, TV has gone from a dependable mass-market strategy to a very niche play. If you want to pitch to older, more traditional audiences, linear TV is still the medium for you. But if you're a marketer trying to reach people 18 to 34 years old, linear TV is probably no longer an option. This is a huge shift in mindset for marketers who must strategize where to place their advertising bets.
This transition is rife with practical challenges. There's still an entire ecosystem of media sales and upfront-sold TV deals that will somehow need to be untangled and shifted elsewhere. At this point, the industry’s answer to this quandary seems to be connected TV (CTV). Some estimate that CTV ad investment has more than doubled in the last two years, from $9 billion in 2020 to an expected $19.1 billion this year, according to Adweek’s “CTV at the Crossroads” report. But CTV isn’t a universal solution for a few reasons. First, there simply isn’t enough inventory for every marketer who might want to buy CTV ads. Although CTV ad spending is growing quickly, it’s still only roughly a quarter of linear TV ad spending, which speaks to both the disparity in available ad inventory and the fragmentation of the CTV ecosystem. Second, as consumers leave traditional pay TV, they are moving in droves to ad-free environments, namely paid streaming video platforms. It’s a perfect storm of dwindling pay-TV subscribers and a less-than-ideal mechanism to enable ad dollars to follow consumer attention.
Further complicating the CTV discussion is the huge difference between buying linear TV and CTV ads. Digital advertising buyers were the first to jump on the CTV bandwagon and have some sort of understanding of how CTV works compared to old-school linear TV buyers, who, like the cable TV audience, are also becoming increasingly niche. If marketers want to shift budgets from linear to CTV, their first step should be to bring their linear and CTV buyers together so they can understand each other's KPIs and goals and how the requirements from an upfront-sold linear TV campaign, for example, would map to CTV or other types of digital ads that can be bought and executed closer to run time.
We can’t talk about linear and connected TV without also addressing measurement. As we all know, Nielsen just went private when it was acquired for $16 billion by a private equity consortium, after seemingly losing nearly every accreditation and hearing for years from disgruntled clients that it wasn’t counting large parts of its audiences correctly. Is there a measurement product that can simultaneously reconcile the needs of linear TV and digital buyers and consumers? Whoever solves this challenge will be a big winner in the post-linear TV era.
Already, there are several contenders. The NBCs, CBSs, and other networks of the world now have a range of measurement companies to choose from, rather than depending solely and exclusively on Nielsen’s numbers. Agreement on whose numbers will be trusted and who will be the auditor will become a matter of contract negotiation. We believe this is a good thing — so long as the measurement companies are transparent with their clients about how they approach measurement, what they measure, the methodology they use, where it might work, and where it may not.
And while many have turned to streaming video services as a way to mitigate the losses of pay-TV subscribers, there are limitations to the SVOD subscription model. As we’ve previously written, consumers aren’t necessarily going to want to spend more money on various entertainment subscriptions than they would on cable just because they’ve been unbundled. We believe the Rule of Threes will apply to consumers, who will eventually settle on three paid subscription services, with the rest being long tail. Subscription fatigue could also be a factor, creating an opportunity for forward-thinking companies to reimagine the ad-supported VOD experience to grab a shrinking share of wallet.
One question
What would your media plan look like if you wanted to reach a younger audience at mass scale all at the same time if broadcast isn’t an option anymore?
Dig Deeper
Adweek’s CTV at a Crossroads report (registration required)
Thanks for reading,
Ana, Maja, and the Sparrow team
Enjoyed this piece? Share it, like it, and send us comments (you can reply to this email).
Who we are: Sparrow Advisers
We’re a results oriented management consultancy bringing deep operational expertise to solve strategic and tactical objectives of companies in and around the ad tech and mar tech space.
Our unique perspective rooted deeply in AdTech, MarTech, SaaS, media, entertainment, commerce, software, technology, and services allows us to accelerate your business from strategy to day-to-day execution.
Founded in 2015 by Ana and Maja Milicevic, principals & industry veterans who combined their product, strategy, sales, marketing, and company scaling chops and built the type of consultancy they wish existed when they were in operational roles at industry-leading adtech, martech, and software companies. Now a global team, Sparrow Advisers help solve the most pressing commercial challenges and connect all the necessary dots across people, process, and technology to simplify paths to revenue from strategic vision down to execution. We believe that expertise with fast-changing, emerging technologies at the crossroads of media, technology, creativity, innovation, and commerce are a differentiator and that every company should have access to wise Sherpas who’ve solved complex cross-sectional problems before. Contact us here.