Cord-cutting is slowly killing the nation's cable-television business; of that there can be no doubt. Leichtman Research Group estimates that another 1.6 million U.S. customers cut the cord during the second quarter of the year, and eMarketer believes a total of 6.6 million households will cancel cable by the end of 2020. That will leave behind fewer than 75 million paying customers, down from more than 100 million as of 2014. Millions more will say "sayonara" through 2024, and beyond.
Before giving up on cable giants like Comcast (NASDAQ:CMCSA) and owners of cable-TV venues like Walt Disney (NYSE:DIS) and Fox Corporation (NASDAQ:FOX) (NASDAQ:FOXA), though, stop and take a closer look. Some of these players have a hand in the very alternatives that are upending cable, and these alternatives are showing more promise than initially anticipated.
Prompting viewers to take action
Yes, subscription-based services like Netflix are playing a role in bringing cable TV to an end. High-speed internet has democratized the delivery of video entertainment.
With the cost of multiple subscription services weighing on consumers' minds, however, Netflix and rival paid-streaming services like Disney's Hulu may not be the biggest threats to Comcast and Charter Communications (NASDAQ:CHTR) any longer. That honor arguably belongs to the nascent free-to-watch, ad-supported sliver of the streaming market, which is already starting to flex its marketing muscle.
A Harris Poll sponsored by streaming receiver company Roku (NASDAQ:ROKU) offers a glimpse of the potential of ad-supported video-on-demand (AVOD). The recently released results of this poll found that consumers are now watching more streaming video than they are conventional cable TV. Specifically, they're watching 19% more streaming TV than they were a year ago, and 13% less traditional cable.
That wasn't the most fascinating part of the poll's data, though. The Roku/Harris survey further found that a whopping 43% of those consumers say they've paused a program to shop for a product or service being advertised during a stream.
Beccause the very point of advertising is to induce a purchase, this ability to spur immediate action is telling.
Highly targeted marketing
This was always going to be the strength of streaming, as opposed to television commercials shown through conventional cable.
For instance, it's been a reasonably good bet that more men than women watch professional football, and most of those men don't have kids in the house. Beyond that, though, advertisers didn't know a great deal about NFL audience specifics.
Streaming has been, and is, an opportunity to change this.
In the same way your web-browsing footprint helps internet-centric companies like Facebook and Alphabet's Google pinpoint exactly which web ads you're most likely to respond to, your streaming history also says a great deal about who you are. Cross-referencing that with other internet data you create outside of streaming services, ads can be even better targeted. That's largely why Comcast's NBCUniversal stressed the "data-informed" aspect of One Platform when it was unveiled earlier this year.
We've already seen evidence that this data-driven approach is working for AVOD media players too, aside from the Harris Poll completed for Roku. Research outfit MoffettNathanson estimates that the ad-supported streaming video industry's advertising revenue grew 31% to $849 million during the second quarter of the year, led by Roku and Hulu.
While it's a win for the industry, it's also telling that advertisers were willing to commit so much money to a relatively immature ad-supported video market in the midst of an economy-gouging pandemic. As the old adage goes, follow the money.
This anecdotal data is collectively encouraging for shareholders of cable-TV plays that would otherwise be on the wrong end of a paradigm shift. That includes companies like Comcast and Fox, which own Peacock and Tubi, respectively. On the other hand, Charter, parent of cable provider Spectrum, doesn't have its own ad-supported streaming venture...yet.
More with less
Even with multiple AVOD options at their fingertips, providers would need a massive amount of ad-supported TV-watching to offset the prospective loss of conventional cable subscription revenue. But there's more to the story.
Largely lost in the conversation is how much of an average monthly cable bill is passed along to content providers as affiliate fees. It's conceivable that once the power of streaming's highly targeted ads is fully recognized, platforms like Fox's Tubi, Comcast's Peacock, or cable content provider ViacomCBS's (NASDAQ: VIA) (NASDAQ:VIAC) ad-supported Pluto may actually be more profitable -- or at least improve margins -- without the typical cable TV/affiliate relationship. The key is simply to find the right balance of pricing, ad load, content costs, and marketing costs.
Here's the bottom line: The cable business may be on its way out, thanks primarily to ad-supported video on demand, but that's not necessarily bad news for all parties involved.