Media Update: Paramount Merger, Growing TV Viewership, and Ad Industry Growth
Key Highlights:
- Streaming: Warner Bros Discovery and Paramount call off their merger talks, but Paramount is now looking at a streaming alliance with NBCUniversal
- Linear: Total TV viewership increased by 3.7% in January, with the month posting three of the top-ten most watched days since May 2021
- Ad Economy: The U.S. ad industry grew on a YoY basis for the tenth consecutive month, and a new forecast expects 2024 industry growth to double that of 2023
- Consumer Economy: Following several months of sustained gains, consumer confidence fell in February, possibly dented by persistently high interest rates
Streaming Media
Ad-supported video supply has picked up from its dip in late January, recovering to the levels we observed at the end of last year.
Industry Notes (Video)
We told you back in January that Warner Bros Discovery and Paramount, two of the largest legacy media companies, were discussing a potential mega-merger. The rationale behind such a deal would’ve been related to scale in streaming, where both remain sub-scale relative to Netflix, and leverage in rights negotiations, particularly when it comes to sports. We can now tell you that the WBD – Paramount merger will not be pursued, which means not only that two major Hollywood brands won’t be combining; it also means Paramount’s NFL rights won’t make it into the forthcoming sports super bundle via the backdoor of M&A.
Meanwhile, it’s being reported that Paramount is in discussions with NBCUniversal about combining forces in streaming, with some kind of tie-up between Paramount+ and Peacock in focus. From the perspective of the two companies, a combination would bring badly needed scale:; Paramount+ has about 67.5m global subscribers, and Peacock about 31m, both well short of their major streaming rivals. It could also bring significant cost synergies, which would be welcomed by both: Paramount lost about $490m in its streaming business last quarter, and Peacock lost about $825m in the same time period.
Notably, Paramount and NBCU are two of the major NFL rights holders (the other is Amazon) who are not part of the aforementioned sports super bundle being assembled by Disney, Fox, and Warner Bros Discovery. That bundle is projected to have about 55% of major U.S. sports rights, which could pose a problem in appealing to serious sports fans. Paramount and NBCU being in a position to round out that offering could create an interesting opportunity for the big five media companies. | Bloomberg, WSJ
Linear Media
Cable news viewing has been up YoY for the past several weeks, mainly owing to coverage of the primaries in a presidential election year.
Industry Notes
January saw a notable 3.7% increase in TV viewership, driven by colder weather and intense interest in the NFL playoffs, outperforming the previous year by 1.4%. The month included three of the top 10 most-watched days since May 2021, underlining the impact of football and the role of unseasonably cool weather in boosting viewership in typically warmer areas. Cable saw a slight rise, despite a shift in viewer preferences from holiday movies to news and sports.
Streaming reached new heights with record-breaking days thanks to NFL playoff games, particularly the Dolphins vs. Chiefs matchup on Peacock; this game contributed to a 29% spike in total Peacock usage, powering it to 1.6% share overall.
YouTube maintained its top position among streaming services for the twelfth consecutive month, with notable gains for the aforementioned Peacock and Netflix. | Nielsen
Ad Economy
1. The U.S. ad industry posted its tenth consecutive month of YoY growth in January, coming in 4.3% above the January ‘23 figure. While the growth rates over the past half-year have not exceeded average inflation, it is an improvement over the steep YoY declines experienced across 2022 and ‘23.
Meanwhile, a new forecast from PQ Media is projecting a 7.7% increase in global advertising investment in 2024, nearly double last year’s 4% growth. That 2023 figure was the slowest year-on-year gain since 2015.
The uptick this year is projected to come from improved macroeconomic conditions and consumer sentiment (which can never be taken for granted!), as well as ad bonanzas surrounding the Summer Olympics in Paris and the U.S. presidential election cycle, which is expected to generate about $14 billion in media expenditures. | MediaPost, AdAge
2. Most of you are no doubt familiar with Performance Max, Google’s just-let-us-handle-it optimization engine for campaigns spanning all Google Ads surfaces. The basic premise is that Google’s unimaginably vast data assets, combined with the sophistication of its machine learning capabilities, would do a better job of campaign management and optimization than any human could ever hope to do themselves. The pitch iswas essentially, “Specify an objective, supply capital and creative, and we’ll handle the rest.”
Now, that pitch may be simplified even further by taking the creative onus off of brands. The Google Ads team has recently announced that PMax will utilize Gemini, Google’s most capable AI model, to auto-generate creative for eligible campaigns. A sample of what that auto-generated creative looks like:
The major questions are around trust and control. Creative messaging is very sensitive as it relates to brand image, and most marketers are loath to relinquish control over their brand in any significant way. At the outset at least, generative technologies such as PMmax/Gemini will need to allow for significant gatekeeping by marketers if they’re to harness the power of the underlying technology. | AdExchanger, Google Ads & Commerce Blog
3. We told you last month that Meta’s Threads had grown to 130m monthly active users, despite a general perception that it has not really caught on as a Twitter alternative. When we first wrote about Threads in July of last year, we highlighted its significant structural advantages in piggybacking off the already-massive Instagram.
New data now suggests Threads really does have some momentum – the Threads app now has 3x the daily downloads of Twitter on iOS globally, and over 2x on Google Play.
This comparison is of course a bit unfair to Twitter: it is a 16-year old platform with 368m MAUs, while Threads is a brand new product scaling the early portions of the adoption curve. But what’s interesting is how close the numbers already are, given Threads’ short life as a product. If the current download trends were to hold, Threads would overtake Meta in MAU terms by February of 2025. | TechCrunch
Consumer Economy
We told you last month that the consumer confidence index had hit a two-year high following its largest monthly increase since 2005. The recent upswing was interrupted last month, as consumer confidence fell in February for the first time in four months.
The decline in confidence coincides with deterioration in views about the outlook for the economy, the job market, and financial conditions. This is somewhat puzzling, as objective indicators on these metrics have not changed in the past month and are generally trending positively. A theory that has recently emerged focuses on the role of interest rates:
Unemployment is low and inflation is falling, but consumer sentiment remains depressed. This has confounded economists, who historically rely on these two variables to gauge how consumers feel about the economy. We propose that borrowing costs, which have grown at rates they had not reached in decades, do much to explain this gap. The cost of money is not currently included in traditional price indexes, indicating a disconnect between the measures favored by economists and the effective costs borne by consumers. We show that the lows in US consumer sentiment that cannot be explained by unemployment and official inflation are strongly correlated with borrowing costs and consumer credit supply. Concerns over borrowing costs, which have historically tracked the cost of money, are at their highest levels since the Volcker-era. We then develop alternative measures of inflation that include borrowing costs and can account for almost three quarters of the gap in US consumer sentiment in 2023. Global evidence shows that consumer sentiment gaps across countries are also strongly correlated with changes in interest rates. Proposed U.S.-specific factors do not find much supportive evidence abroad.
If the above theory is valid, it is not only investors who ought to be obsessing over the Fed’s interest rate policies, given a broader-than-appreciated impact on the real economy. | Bloomberg
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