Paid Media Updates

Media Update: Disney Resetting Streaming Strategy, Android Privacy Sandbox, and 3% Retail Sales Growth in January

By Tinuiti Innovation & Growth Team
Media Update header 2/15/2023

Key Highlights

  1. Streaming: Disney is cleaning house and resetting its streaming strategy, which may or may not include Hulu.
  2. Linear: Super Bowl LVII raked in 113m viewers, making it the third most-watched TV program of all time. 
  3. Ad Economy: The Android Privacy Sandbox has been released in beta, marking another mile on the road of signal loss. 
  4. Consumer Economy: Retail sales grew 3% MoM in January, the largest gain in almost two years. 

Streaming

Ad-supported video supply remains very stable, neither increasing nor decreasing very much since the Q4 seasonal bump.

Ad-Supported OTT Video Impression Availability

Industry Notes (Video)

1. Big Tech is not the only industry experiencing revenue headwinds and major pressure on the cost structure built up during the pandemic – Disney last week announced Q1 YoY revenue growth of 1% in its media & entertainment business, which yielded a modest operating loss, and outlined plans to lay off 7,000 employees in order to realize $5.5b in savings.

Like its peers, Disney is struggling with the rapid decline of its profitable linear networks and the failure, thus far, of its streaming business to show that it can generate free cash flow. Linear networks saw a 16% decline in net income YoY, generating about $1.25b in profit for the quarter, while DTC streaming’s loss ballooned from $600m to over $1b. In other words, the streaming business is consuming almost the entirety of the cash that is being produced by the TV business.

On the subscriber front, Disney’s big three showed modest growth in Q4: Disney+ added no net subscribers in the U.S. & Canada, and 1.2m internationally; Hulu added 700k subs; and ESPN+ added 600k subs. You may recall that all of these properties raised prices in recent months (ESPN+ in August, Hulu in October, Disney+ in December) – despite raising prices across the board, ARPU has not moved much at all. Disney+ actually saw ARPU decline in the quarter, from $6.10 to $5.95; Hulu’s increased very modestly, from $12.23 to $12.46; ESPN+ moved a little more, up 14%, but that equates to less than 70 cents per user per month.

The final major note from the earnings call was new (and old) CEO Bob Iger signaling that Disney could explore a sale of Hulu. Hulu is currently owned â…” by Disney, â…“ by Comcast, a vestige of its origins as a joint venture among major media companies. It has long been assumed that Disney will take up a contractual option to buy out Comcast’s share and take full control of Hulu, but Iger said last week, “Everything is on the table right now. I’m not going to speculate about whether we are a buyer or seller of it.” The concern seems to be the inexorable rise of programming costs, and Hulu’s lack of major differentiation: “I’m concerned about undifferentiated general entertainment, particularly in the competitive landscape that we are operating in.” In a world of major competition among buyers of programming, Iger is certainly correct that it will be near impossible to win in general entertainment; that suggests either getting out entirely, or initiating the kind of consolidation the industry clearly needs.  |  WSJ  

2. Disney is not the only entertainment company whose DTC streaming business is hungrily consuming the cash thrown off by other parts of the business – we noted a couple of weeks ago that Paramount is looking to combine Paramount+ and Showtime into a single platform in order to streamline costs and forge a path to profitability. In its latest earning results, Paramount announced that it will increase the price of Paramount+ by $2/month, as an encouraging gain of almost 10m subscribers in Q4 was accompanied by a less encouraging operating loss of almost $600m. Again mirroring Disney, Paramount saw deterioration in its legacy linear business, with revenue declining 6.6% due to softer advertising demand and declining affiliate fees (i.e. cord cutting). As we’ve repeated ad nauseum, the economics of streaming are not sustainable, and we should expect to see more in the way of price increases, bundling, heavier ad loads, and platform consolidation.  |  WSJ  

3. Netflix’s entrance into the advertising realm in 2022 was a surprise to many given the streamer’s longtime position as the ad-free alternative to cable. With limited adoption of the ad tier thus far, there has not been a huge reaction from the public. However, there is another policy with a much broader impact that Netflix plans to forsake: password sharing. The decision to restrict the sharing of passwords is somewhat peculiar, since for years Netflix assured viewers that it was apathetic to the issue. Indeed, many point towards this now infamous tweet from 2017:

Netflix tweet: "Love is sharing a password."

Netflix began testing policies to mitigate subscriber leakage in South America last year and is now expanding paid sharing (read: password sharing crackdown) to North America and Europe, beginning with Canada, New Zealand, Portugal and Spain. You may have seen news about this two weeks ago, when the site unintentionally released details about its password sharing policy on the U.S. FAQ page. Netflix quickly retracted that info, as paid sharing is not yet in effect in the States — but the policy in Canada looks identical to the leak, so it’s probable that we will see a crackdown in the U.S. before the first quarter is out.

Unlike with advertising, where Netflix followed competitors, the streamer is the first in the field to meaningfully crack down on password sharing. The only place we have seen this type of policing is with live TV – and even then, the restriction has more to do with local broadcasts and distribution rights. There is no other 1:1 example to compare how this will affect Netflix’s subscriber count, ARPU, or churn. However, if this policy is successful it seems likely that we’ll see other streamers adopt similar practices, much to the disappointment of viewers.  |  TechCrunch 

4. According to a recent report by Samba TV, “subscription cycling” (when a person signs up to watch one program and then cancels and signs up for another) increased in the second half of the year. More importantly, the percentage of U.S. adults who cycle is expected to increase dramatically in the next year:

Percentage of U.S. adults who have cycled in the past six months (29%) and who plan to cycle in the next six months (69%)
Percentage of viewing households that only watched for one month (by streaming service)

This should come as no surprise to readers of this newsletter, as we frequently discuss the challenge of attracting and retaining subscribers with so much competition in the marketplace. However, the notable point here is that heavy content investment alone is not sufficient to retain subscribers and services with more limited catalogs (such as Paramount+ and Apple TV+) especially struggle. According to Samba TV, streamers have seen success in elongating the cycle by spreading out the rollout of shows. For example, the most recent season of Stranger Things was broken into two releases separated by a month, and the second installment actually saw greater premier viewership than the first.

If we examine the Google Trends (which is not an official measure of viewership, but Netflix used it in its investor letters last year, so it’s good enough for our purposes), we can see that the declining slope in the first installment of Stranger Things looks very similar to that of Dahmer.

Google Trends chart for Stranger Things vs Dahmer viewership in U.S.

The notable difference is that the interest in Dahmer trails off towards zero while interest in Stranger Things does not. Considering that Stranger Things was the most streamed program of 2022, it stands to reason that this release method is much more effective at increasing subscriber retention and viewership.

As streaming companies look to optimize their offerings and content, it is likely that they will continue to experiment with release schedules, providing more opportunities for brands to advertise on specific shows over a period of time.  |  Samba TV

5. Total TV usage increased by 1.3% in January, propelled by sports and drama viewership on broadcast television. Streaming usage likewise increased, and the category maintained its share of 38.1% from December.

Nielsen pie chart - January 2023 Total Day Person 2+

The composition of the streaming section was relatively consistent month to month, notable only for Amazon Prime’s 0.2-point gain in share (boosted by the releases of Jack Ryan and Shotgun Wedding) and Disney+’s 0.2-point loss in share.  |  Nielsen

Graph showing Streaming trended by service January 2022-January 2023

Linear Media

Sports and news viewership both ticked up notably on a YoY basis, sports owing to a slight offset in the week-in-year in which the Super Bowl fell, and news possibly owing to coverage of the earthquake in Turkey and Syria.

P2+ Audience, Selected Genres

Industry Notes

Super Bowl LVII viewership rose slightly above last year, drawing 113 million viewers across linear, streaming, and Spanish language broadcasts. The thrilling game ranks as the third most watched TV show in history, narrowly trailing the record 2014 Super Bowl. While the game certainly drew a large audience, there is some debate over how large.

Nielsen, the industry standard for TV ratings, has been under scrutiny in the past two years. During the pandemic, the company lost its accreditation from the MRC after admitting to underreporting audiences and has yet to be reinstated. Since then, competitors like iSpot have made strides to seize market share. The issues with Nielsen are ongoing: you’ll recall that during the regular season, Amazon and Nielsen disagreed on viewership, with figures diverging around 18%. Similarly, this Super Bowl, iSpot is estimating that viewership averaged 118 million, slightly above Nielsen’s estimate. And during the NFL playoffs, competing measurements varied as much as 13.5%. The disparity might be explained by out of home viewership (bars, restaurants, airports, etc.), which is difficult to measure and verify. We may not see a resolution to the issue for some time because at its core, it is incredibly difficult to prove that a certain measurement system is more or less accurate than another since there is no objective baseline to compare it to. However, as networks bring on additional measurement partners, we should begin to have a more clear idea of the average. 

Super Bowl in-home / out-of-home viewership breakdown

Regardless, by every metric Super Bowl viewership was incredibly strong. This includes record streaming viewership and approximately 118 million viewers during the halftime show.  |  Ad Age, Ad Age, SMW

1. Back in December we told you about Google’s plans to begin beta testing of the Android Privacy Sandbox in early 2023, a follow up to the company’s announcement the previous February that it was looking into ways to limit collection of Android users’ data. Well it’s now early 2023, and Google has (surprisingly) stuck to its timeline and rolled out beta testing of the Android Privacy Sandbox to a small number of users. And what is this Android Privacy Sandbox, you ask? One answer is that it’s the mobile app analog of the Chrome Privacy Sandbox for the web; another answer is that it’s a collection of API’s:

A major issue in this initiative is the fate of the Google Ad ID (GAID), a persistent, device-specific identifier very similar to the IDFA that Apple deprecated in April 2021 with the rollout of App Tracking Transparency. While Google did not address the GAID specifically in this beta release, the company did say last February that it would continue to support the identifier “for at least two years,” meaning we should have at least a year left with mobile ad IDs on Android devices.  |  The Keyword, AdExchanger

2. A brief note as there is no actual news yet, but it’s been reported that the Justice Department is ramping up work on a potential antitrust complaint against Apple. Apple has probably been feeling left out as one of the few big tech companies not currently in the government’s antitrust crosshairs, but that may be about to change. Any case would be likely to focus on the App Store, which has already been the subject of intense (private) antitrust litigation – Epic, the developer of the wildly popular Fortnite, sued Apple in 2020 on grounds of monopolistic abuse following its expulsion from the App Store after it (Epic) tried to circumvent Apple’s rules for payment processing. Epic ultimately lost that case, but Apple may not be out of the woods entirely. Many have argued that the company has tempted antitrust fate with policies like App Tracking Transparency, and it now seems that the government may be inclined to agree.  |  WSJ   

Consumer Economy

Retail sales grew 3% MoM in January, the largest gain in almost two years(!). Coupled with the incredibly strong jobs report last week, this data seems to indicate that consumers are in much healthier shape than expected. Economists grappling with this information are proposing a few different (non mutually exclusive) factors in this increase:

With the possibility of a recession still looming, the strength of the labor market and consumer spending is somewhat perplexing. This information will likely lead the Fed to increase interest rates again with the aim of slowing spending growth and tamping down inflation.  |  WSJ

Retail and food services sales, change from prior month
Retail Sales by Select Items in January, monthly charge

Inflation fell on a yearly basis in January, dropping to 6.4% from 6.5% in December. This represents a slight moderation in the decline of inflation, which has been on a downward trajectory for the past six months. Month to month, the Consumer Price Index (CPI) rose 0.5%, higher than expected, as housing/shelter and energy prices increased unexpectedly. As has been true for the past few months, prices in the service sector continue to be the largest contributor to core inflation. | WSJ

Core services and goods prices from a year earlier

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