Media Update: Netflix Grows Ad-Supported Subscriber Base, Cable Providers Lose More Customers, and Consumer Spending Rises

The ad-supported video supply rose towards the end of July.
Industry Notes (Video)
1. In a competitive streaming world filled with so much consolidation it’s hard to predict who is going to come out on top. One thing that is clear is that YouTube (YT) continues to dominate the online video landscape with impressive numbers. Google announced that YouTube Shorts now boasts more than 2 billion logged-in users monthly, a significant increase from the 1.5 billion reported the previous year. This surge in user engagement gives YT an edge over its competitors, TikTok and Instagram Reels.
YouTube’s dominance extends well beyond its short-form video realm, as the platform’s ad suite becomes more robust with each passing day. Notably, the introduction of 30-second unskippable ads and NFL Sunday Ticket have bolstered YouTube’s advertising offerings, providing advertisers with new and effective ways to reach their target audience. This strategic approach ensures higher engagement rates and a greater impact for ad campaigns.
Furthermore, YouTube’s influence now transcends computers and phones – the platform has made significant strides in the CTV world. An impressive milestone is that almost half of YouTube’s viewership now occurs on large TV screens. This has translated into substantial traction, with YouTube capturing 1 in every 10 hours of TV viewership in the US. The platform’s TV viewership has witnessed a staggering 65% increase since the start of the ‘21/’22 broadcast year, underlining its growing appeal as a mainstream entertainment hub.
All of this to say, the proof is in the pudding. YouTube’s ad revenue has shown strong growth, surpassing analyst estimates and reaching an impressive $7.67 billion, reflecting a 4% YoY increase. This impressive performance has positioned YouTube as a media giant, even outshining pure-play media companies like Paramount, Netflix, and WB Discovery. YouTube’s continuous expansion and increasing user engagement demonstrate its resilience in a competitive streaming landscape. With its robust ad suite, foray into live sports, and growing usage on TV sets, YouTube looks set to maintain its dominance and reshape the future of online video and TV advertising. | TechCrunch, The Information
2. It seems like an understatement to say that Netflix’s entrance into the advertising space was a big deal. Because of the company’s size, the news cycle has been fixated on every story that relates to the ad-supported tier – and to be fair, the introduction of advertising and paid sharing (password sharing crackdown) have introduced major changes to the subscriber base. The Netflix ad-supported tier now boasts 1.5 million subscribers, and the streamer has eliminated its Basic ad-free tier to drive even more subscribers. This means there is now a $8.5 gap between the $6.99 ad-supported tier and the next tier. However, it’s essential to recognize that Netflix’s ad-supported tier, while growing, hasn’t reached the massive subscriber numbers that ad-supported SVOD platforms like Hulu and FAST platforms like Freevee boast. Hulu commands a vast 43 million ad-supported subscribers, while Freevee’s FAST service has an astounding 65+ million users.
Netflix’s decision to eliminate the Basic ad-free option is a strategic move rooted in several intertwined factors. By doing away with this tier, the company effectively nudges its users towards its newer, ad-supported model, which not only offers an affordable viewing experience but also opens up a revenue stream from advertisers. Additionally, Netflix is looking to rework its partnership with Microsoft in order to upgrade its advertising capabilities, ensuring a seamless integration of ads with content. The streamer is looking to enhance the targetability of ads, allowing advertisers to reach specific segments of the user base more effectively. Moreover, the significant moderation in CPMs, dropping from a lofty $45-$55 bracket to a more competitive (but still premium) $39-$45 range, makes advertising on Netflix a more attractive proposition. By revising its pricing structure, Netflix appears to be positioning itself as a formidable player in the ad-driven streaming space, balancing user experience with revenue optimization. | WSJ
3. Comcast Corp. shares rose up to 8% following Q2 earnings with profits surpassing analyst estimates. Despite significant losses of internet and TV subscribers, Comcast’s earnings, excluding certain costs, stood at $1.13 per share, marking a 12% increase from the previous year and outpacing the anticipated 97 cents. The company’s revenue rose by 1.7% to $30.5 billion, beating the analysts’ average forecast of $30.1 billion. However, this was a period of mixed performance across different units. While the company reported a loss of 19,000 broadband service subscribers and shed 543,000 cable-TV customers, it added 316,000 mobile phone customers, albeit fewer than the anticipated 345,000.
There was a glimmer of hope in Comcast’s streaming service, Peacock, which garnered 2 million new subscribers in Q2, totaling 24 million. This marked a nearly two-fold increase from the previous year and boosted the unit’s revenue by 85% to $820 million. Nonetheless, the company expects Peacock to record losses peaking at $3 billion this year. Moreover, while studio revenue dipped by almost 1% to $3.1 billion, the success of The Super Mario Bros. movie, which grossed $1.3 billion, was a significant high point. Amidst these varied trajectories, the company is exploring potential growth in the gaming sector. | Bloomberg
Digital Audio
Back in Q3 last year, Apple made a bold move by increasing the price of Apple Music by a single dollar. A 10% hike might not seem monumental given the consistent price escalations in the streaming industry, but the $9.99 price point had been a hallmark for music subscriptions since Spotify Premium’s debut in 2011. At that juncture, we delved into the issue of escalating music royalties, which have perennially eaten into the profits of music streaming platforms. This financial pressure has only intensified because a lion’s share of the gains funnels to the proprietors of the actual content. A significant contributing factor is that no solitary platform, be it Spotify, Apple Music, YouTube, Tidal, Amazon Music, and the likes, wields enough clout over user demand. As such, they lack the leverage to potentially disconnect listeners from desired content.
Almost a year from then, Spotify’s challenges persist. Despite marking its most robust quarter in terms of new subscriber additions, its financial losses have only deepened. This backdrop sets the stage for the recent announcement: Spotify Premium will increase its price by $1/mo., marking the first hike since its inception over a decade ago.
Yet, in this tumultuous landscape, Spotify has found some solace in the podcasting domain. Curbing investments and optimizing costs, they’ve observed a profitability resurgence in this sector. A strategic pivot entailed relinquishing exclusive rights to certain podcasts, a maneuver aimed at expanding their audience and bolstering ad-generated revenues. This trend echoes the tactics of their video streaming peers: striking a balance between ad-supported and ad-free tiers and pivoting from exclusive content hoarding to a more liberal licensing model. While there’s no overt sign that audio streamers will continue to increase prices or introduce charges for their ad-supported tiers, it wouldn’t be a stretch to hypothesize they’re contemplating such avenues. | WSJ, RIAA
Sports viewership came down after a large spike in July.
Industry Notes
The once dominant cable and satellite TV industry continues to experience a significant downturn, with subscriber numbers dwindling at an alarming rate. Recent reports from key players in the industry paint a bleak picture. Comcast experienced a substantial loss of 543,000 cable-TV customers, marking a year-over-year decline of 13%. Although the company did register growth in Peacock as noted above, this uptrend couldn’t overshadow the significant drop in cable subscriptions. Additionally, with the backdrop of key executive departures, the company is grappling with how to recalibrate its approach in an era marked by the increasing popularity of cord-cutting.
DISH’s narrative wasn’t much brighter. The company, alongside its streaming counterpart Sling TV, witnessed a loss of 294,000 subscribers during the second quarter of 2023. Crunching the numbers, this translates to the staggering loss of 3,230 subscribers daily. By the end of this quarter, DISH’s pay-TV subscriber count stood at 8.9 million, a considerable drop from the 9.9 million reported during the same timeframe in 2022. In a year, DISH alone lost close to a million subscribers. Although the company is exploring other avenues, like its merger with EchoStar and attempts to position itself as a wireless phone competitor against giants like AT&T and Verizon, it’s evident that traditional cable and satellite TV is on a declining trajectory. As consumers increasingly gravitate towards alternative entertainment and information platforms, companies in the traditional cable and satellite TV sector are faced with the urgent need for adaptation and innovation. | Bloomberg, Cord Cutters News
1. Snap’s recent quarterly earnings showcased a continuation of its revenue decline for the second consecutive quarter, reflecting the challenges faced by the broader digital advertising sector. The company, which owns the popular social media platform Snapchat, revealed that its sales dropped by 4% to $1.1 billion in the second quarter, following a 7% decline in the first quarter. This is particularly notable as it was the first time the tech giant experienced a decrease since it became a publicly traded entity. The downtrend in Snap’s revenue highlights the systemic weaknesses in the digital advertising industry, impacting even major players in the social media landscape.
There are several factors contributing to Snap’s decline in revenue. One of the major challenges is Apple’s privacy-policy changes, which have imposed restrictions on tracking ad campaign performances and targeting specific user groups. These changes have created obstacles in optimizing ad campaigns for maximum efficiency and reach. Additionally, Snap’s own adjustments to its advertising platforms have temporarily disrupted sales to certain customers. However, it’s worth noting that Snap has taken proactive measures to counter these setbacks. The company has initiated several programs, including expanded revenue sharing for creators and the integration of artificial intelligence-driven chatbots, aiming to enhance targeted advertising. Furthermore, CEO Evan Spiegel emphasized the platform’s commitment to prioritizing genuine connections among friends and family over the competitive nature of social media popularity.
In conclusion, while Snap is navigating through a turbulent ad economy and confronting external challenges like Apple’s policy changes, it remains forward-thinking, making strategic investments and changes to adapt and recover. The company’s resilience and innovation may well set it on a trajectory for long-term success, even if short-term challenges persist. | WSJ
2. After the slight bounceback in the advertising market in May, we would have expected positive growth in June as well. However, the actual results, according to the Standard Media Index, is that the U.S. ad market declined YoY in June. While comps were tough in the first half of the year, as indicated by the significant declines in Q1, comps are favorable for the latter half of the year. With ad sales at Meta and Google showing positive growth, it is likely that we will see the overall ad market grow – or maintain its course, at the very least – through the third and fourth quarters. | MediaPost
1. Economic data from the past two weeks has confirmed the narrative that consumers and the economy are doing surprisingly well. Consumer spending increased 0.5% in June, up from 0.2% the month prior. GDP also increased 2.4% in the second quarter, broadly surpassing expectations. While there is still some concern that high interest rates will take their toll on economic growth in the coming months, it does seem that the U.S. won’t see a recession in the near-term. | WSJ
2. At the same time, the labor market is beginning to cool, a potentially necessary step for the Fed to stop or slow interest rate hikes. The labor market added 187,000 jobs in July, almost exactly on par with the month previous. This gain is strong and significant in that the unemployment rate is still floating around 3.5%, even if it is far below the +400,000 jobs/month average of last year.
Evidence of the labor market cooling comes from the fact that job openings have fallen to its point since 2021. For the past two years, the strong ratio of available jobs to unemployed persons has driven wage growth. That ratio has only fallen slightly, an indication of the health of the labor market. As the labor market is expected to gradually cool in the coming months, we should see the number of available jobs continue to decline. | WSJ, Bloomberg