Archive | June 2016

#CalledIt! TV viewing by US 18-24 year olds declines 10% in the last year.

The Nielsen Total Audience Report for Q1 2016 came out this week, and (as always) it is filled with a trove of information for those tracking the traditional television industry, and the habits of viewers, especially the key 18-24 year old demographic. You can download the full report for free.

Those who know me know that my view on the US TV market is “erosion, not implosion.” Across a number of metrics, people are watching only slightly less traditional TV and a few are cancelling cable, but not as many as you think. The only real area of concern for me is what is going on with those 18-24 year old millennials: they may be a bellwether. In my post on the Q4 2015 data, published on March 26, I put up a chart of the year over year changes in live and time shifted TV minutes for the 18-24 demographic, and said:

“…annual declines of 25% feel like they were an exception, and were likely a bit of a one-off. Next, it is possible that annual rates of decline may stabilize at around 10% in the US, or that they may improve even more, and we may see single digit annual decreases in traditional TV viewing. I don’t have enough data yet to know, but my hunch is that a 10% annual decline is the most reasonable assumption. The five year CAGR is exactly -10% since 2010.”

I nailed it: in the same quarter last year this age group watched 155 minutes per day of traditional TV, and in 2016 they watched 140 minutes daily, for a 10% annual decline. (9.8% if you want to be exact!)

It is nice to have your hunches confirmed so quickly, and I am going to stick with that hunch: I am predicting that viewing minutes for 18-24 year olds do not start dropping by crazy amounts, but neither have we hit a floor. Viewing minutes will continue to decline at around 10% per year for this age group, and this is a very real, very serious issue for traditional broadcasters and cable/satellite/telco bundle providers. See below, but the rate of decline in TV minutes for young people is about ten times the rate for the overall US population.

Additional observations from the Nielsen report:

1) Traditional TV for the population as a whole is declining…but SOOOOO slowly. Adult (18+) live and time shifted TV dropped from 5 hours and 7 minutes daily in Q1 2015 to 5 hours and 4 minutes daily in Q1 2016. That is THREE minutes less TV per day, or a 1% decline. Not quite the death of TV, eh?

2) Paying for traditional cable, satellite or telco TV bundles is falling. Cord-cutting is a thing, and is growing: there were 100.77 million homes paying for TV last year, and only 99.22 million this year. That loss of 1.5 million homes is meaningful, but needs to be put in context. The number of US homes paying for traditional TV fell 1.5% in the last year. That’s not good, but neither is it catastrophic. It will likely continue to fall, but may still be around 90 million by 2020.

3) In my view, the key source of FUTURE cord-cutters are those who watch the least TV. (Duh!) In Q1 2014 the 20% of Americans with internet access who watched the least live and time shifted TV (48.2 million people) watched 29.2 minutes of TV daily. By Q1 2016 that quintile (now 47.5 million people) watched only 15.4 minutes daily, or 47% less in only two years (see chart below.) Although TV viewing for the average American is barely dropping at all, for one in five Americans it is collapsing. These are the cable cutters, the Netflix-only folks, and they tend to be young, well-educated and highly employed. This matters to advertisers.

Quintile Q1 2016

4) The PC continues to hang in there too. Yes, smartphone usage is up year over year, but time spent on a PC for those 18+ rose by over an hour per week (from 5h36m to 6h43m), and it even rose for 18-24 year olds (4h26m in 2015 to 4h32m in 2016.)

 

Ad spending has fallen off a cliff forever. Or not.

Advertising as a percentage of GDP has fallen in the US. Is that the new normal, or will it go back up one day?

The chart above fills my little data-geek heart with joy: it has 90 years of data, the data comes from literally thousands of independent sources, and it covers a large and very well-measured market. At a 99% confidence level, I am sure that the chart is showing a genuine and important trend: US advertising spending as a percentage of GDP was highly stable in a 1.1-1.5% range between 1947 and 2007 (60 years), but in the last ten years has fallen sharply to below its historical range. It has never been this low before, except during WW2.

But will this last?

Theory #1: Yes, this is the new normal, and will persist. If you have heard of “trading analog dollars for digital dimes” you will be on the right track. Digital advertising is more targeted, more effective, more measurable, and therefore more efficient. That means advertisers don’t need to spend as much to get ad effectiveness, and therefore don’t spend as much. We can expect ad spending to stay under 1% for the future, and may even drop further as more ad dollars move to efficient digital and away from inefficient traditional ads.

Theory #2: No, this will not last. Advertisers are like kids at Christmas playing with a new toy. Digital is novel, and does have some advantages, but the rates of ad fraud, bots, ad skipping and ad blockers means that advertisers are going to need to spend much more than they are today, on a mix of both digital and traditional advertising. The 1% level is not sustainable, because digital isn’t as effective as its proponents believe.

Theory #3: Digital advertisers (especially Facebook and Google, who share 55% of digital ad spend and 2/3 of the annual growth: see chart at bottom) are doing what all new entrants do: they are coming into a market, and low-balling pricing because that’s how you gain share as a new entrant. Once digital becomes 30-40% of total ad spend, and customers are entrenched in their buying habits, they will raise prices, and we will see ad spend go back into its historical range. It is clear that advertisers are more than capable of paying 1.1-1.5% of GDP for ads over the long term, so why shouldn’t digital players (once they are sufficiently established) charge all the market can bear?

I would be interested in any thoughts on the above. Theory #1 tends to be widely held by new media/digital media types, #2 is widely held by traditional media players, and (so far as I know) Theory #3 is original to me, and hasn’t been discussed elsewhere.

I kind of like #3, but everyone loves their own babies. 🙂

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