Recent industry statistics are confirming a major trend which has been in place for several years now: American consumers, especially the young, are moving away from traditional TV and increasingly spending their time and attention watching videos online or engaging in social media. This tectonic shift in consumer demand is having massive implications for different players across the entertainment industry.
The following chart by Statista, using data from Nielsen's Total Audience Report, clearly shows that traditional TV viewing among Americans aged 18 to 24 has consistently declined over the last five years. Viewership time fell 10% year over year in the first quarter of 2016, and it's down by almost 40% compared to the first quarter of 2011.
You will find more statistics at Statista.
Consumers are far more inclined toward video streaming services such as Netflix (NASDAQ:NFLX), Hulu, and Amazon (NASDAQ:AMZN) Prime. In addition, young Americans are particularly fond of Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube video platform, and they spend plenty of time on social media platforms such as Facebook (NASDAQ:FB) and Instagram.
According to data from The Acumen Report from DEFY Media, 90% of consumers aged 22 to 24 use social media as a top source of video content, 86% of the respondents go with YouTube, and 67% of them consider Netflix to be one of their main video sources. Cable and satellite TV came in fourth position in the survey, with 59% of consumers choosing it as one of their leading sources of video.
The report indicates that consumers in the 13-to-24 age group are considerably more attached to YouTube, Netflix, and social media than to traditional TV. Nearly 67% of respondents in the survey said they can't live without YouTube, Netflix was chosen by 51%, and social media was picked by 48%. Facebook is the clear leader in the social media space: 27% of consumers say they can't live without Facebook, and 14% of them chose Instagram, which is also owned by Facebook. As for cable and satellite TV, it came considerably behind other choices in the survey, as only 36% of respondents said they can't live without their pay TV subscriptions.
Offering a similar perspective, the Digital Democracy Survey from Deloitte says that nearly half of U.S. consumers now subscribe to a streaming video service. Among those subscribers, 61% consider streaming one of their top three subscription services, and millennials aged 14 to 25 value their streaming video service subscriptions more than pay TV.
From a demographic perspective, the fact that millennials are losing their interest in traditional TV is particularly relevant. To begin with, the millennial generation is the largest generation in U.S. history, and millennials are reaching their prime working and spending years, so this will have a huge economic impact. Besides, lots of millennials will be moving out from their parents' houses in the years ahead to form their own households, and this will probably mean increasing demand for streaming services -- to the detriment of traditional TV players.
Investing to profit from the death of traditional TV
Netflix is clearly the most direct bet to profit from the death of traditional TV and the rise of streaming. Netflix is a pure play on the streaming industry. The company owns the first-mover advantage in the sector, and the service has reached considerable scale: Netflix ended the second quarter of 2016 with 83.2 million streaming members around the world, 47.1 million of them in the U.S.
The company is investing massive amounts of money in content, and international expansion can be a bumpy growth venue. This means that performance is hard to predict on a quarter-to-quarter basis, and the stock tends to be particularly volatile. On the other hand, investors would be hard pressed to find a stronger play than Netflix to capitalize on the streaming revolution.
Amazon is another interesting candidate to keep in mind, as the company has a remarkably smart business model in this area. Amazon produces tons of cash from its online retail operations, and it allocates big sums of money to streaming content. Prime members tend to buy more products than non-Prime members from Amazon, so the company monetizes video streaming by increasing sales and fostering customer loyalty in its online retail segment.
Alphabet has a tremendously valuable asset in YouTube. According to Google CEO Sundar Pichai, in mobile alone, YouTube reaches more 18- to 34-year-olds and 18- to 49-year-olds than any other TV network, broadcast or cable. YouTube is expanding into live streaming, and it's now the first major platform to offer live content in 360 degrees, which could create intriguing opportunities for monetization going forward. Alphabet is one of the most powerful tech companies in the world, and the company has both the financial and strategic resources to make of YouTube a leading beneficiary from the new paradigm in video consumption.
Netflix, Amazon, and Alphabet are just three notable examples to consider. There will be plenty of opportunities to profit from the death of traditional TV, not only by betting on the clear winners from the emerging trend, but also perhaps by investing in the traditional TV operators which are strong enough to transform their business and successfully adapt to the new paradigm. The key point is that the TV business is going through profound changes, and investors would be wise to position their portfolios accordingly.