As if able companies like Comcast (CMCSA -0.25%) and Charter (CHTR -1.63%) didn't already have enough to worry about, with the cord-cutting movement that's chipping away at their business, now there's another threat that appears to be here to stay.

Some of the very studios and production outfits supplying cable with video entertainment content are now direct competitors. They're not just competing for consumers' attention, though. They're also competing for advertising dollars that have historically accounted for a huge part of cable TV's business.

What's more, these film and television studios appear to be winning the war on this front as well.

Stressed-out businessperson sitting at desk, with laptop.

Image source: Getty Images.

What Bob Bakish said

Speaking at an Evercore ISI investor conference earlier this week, ViacomCBS (PARA -4.91%) (PARA.A -2.56%) CEO Bob Bakish held nothing back about the eventual potential of the company's Paramount+ streaming service, now that it's offered in a lower-priced, advertisement-subsidized tier. He plainly explained that "as we look at this product and the dynamics of the ad market, we actually believe analytically that the $4.99 version can actually generate higher ARPU [average revenue per user] over time than our $9.99 product."

Translation: The ad revenue stemming from the insertion of the occasional television commercial for consumers paying only $4.99 per month for access to Paramount+ could eventually generate per-viewer revenue in excess of $5 per month. That amount paired with the $4.99 per month already being collected in the form of subscription fees would drive more than $10 worth of monthly revenue per subscription.

Were Bakish the only studio executive to make such a claim, it might be dismissible as a pipe dream.

He's not the only one, though. Less than a month ago at a similar investor conference, Discovery (DISCA) (DISCK) CEO David Zaslav highlighted the fact that the ad-supported version of the Discovery+ streaming service drives about 30% to 40% more monthly revenue per user than the ad-free subscription version priced at $6.99 per month does.

The kicker is that, even at the lower-ARPU figure of $6.99, Discovery is still raking in about twice as much per subscriber as it does from its linear (conventional) cable television operation.

Given these disclosures, it's not a stretch to suggest that AT&T's (T 0.58%) WarnerMedia will find a similar dynamic once its lower-cost, ad-supported tier of HBO Max finds its footing following this month's debut.

A sea change for streaming services?

On the surface, it's not terribly remarkable. Ad-supported video on-demand (or AVOD) platforms are supposed to generate revenue. That's happening.

However, it's incredibly noteworthy in the sense that advertisers don't have unlimited budgets, and streaming platforms offer more bang for the buck than traditional cable television advertising does. To this end, IAB's 2021 advertising market analysis indicates that 21% of advertisers' cable TV ad budgets are being reduced to free up more funding for streaming television venues like the aforementioned Paramount+ and HBO Max.

Longer-term, market research outfit Warc estimates the global AVOD market will double in size to $54 billion by 2025, with the United States' AVOD market projected to triple in size at $24.2 billion of that worldwide tally.

The U.S. market is the one most important to ViacomCBS, as most of its 36 million streaming subscribers reside within this market.

The timing of this nascent industry's growth spurt couldn't be any worse for cable companies, either. Already pressured by a cord-cutting movement that's whittled down the United States' cable-subscribing households from 100.5 million as of 2014 to only around 74.0 million now -- according to data from eMarketer -- cable TV advertising spending growth has been slowing to a crawl.

It is expected to bounce back from last year's COVID-crimped lull, but beginning in 2023, eMarketer believes cable TV's ad business will start a downtrend that's not prompted by a pandemic, in step with a U.S. cable market that's projected to shrink to 60.3 million households by 2025.

Cable television's advertising sales, of course, are largely contingent on the size of its audiences.

Bottom line

Video content creators like Bakish and Zaslav are just now starting to see the full potential of their budding streaming businesses. As they learn more about the art and craft of selling their streaming services and their ad slots to consumers and advertisers (respectively), they'll further realize they really don't need cable companies to serve as middlemen for a minimal payoff. Investors should look for redirection of television ad budgets to accelerate in the foreseeable future.

At stake, of course, are billions of advertising dollars that have traditionally belonged to cable providers that are quickly learning they don't have as much to offer advertisers as streaming platforms do.