Best of the Week: Has subscription streaming peaked, just as connected TV comes through?

The new television advertising battleground is emerging just as Netflix admitted that it's growth has slowed

Jan 21

Welcome to Unmade, written in the freezing UK while you were sleeping. Only nine days before I head back to Australia, so long as I manage to avoid catching you know what.

Happy National Polka Dot Day.

Today’s writing soundtrack: Meat Loaf - Bat Out of Hell. RIP, big guy.

Finally connecting

Back when I started writing about media two decades ago there was an ongoing theme. Whichever magazine or website I wrote for at the time always had the same question: Would this be the year of mobile? As we segued from WAP (not that one) to 3G and eventually to 4G, the year of mobile kept being postponed.

On Mumbrella alone, the year of mobile was called as 2010 by Google; called as 2011 by Fairfax’s Jane Huxley (I wonder if she’d have predicted that a decade on that she would be the dowdy old magazine industry’s most senior executive, at Are Media?); and as overdue in 2018 by Rubicon Project’s Rohan Creasey.

Over the last decade or so, there’s been a new question: Will this be the year of connected TV?

Given the cliche involved, I’m reluctant to call 2022 definitively as that year. But I’m certainly prepared to call it as the year of people predicting the year of connected TV. The challenge for marketers is that they may be lagging behind consumer behaviour. Beyond the biggest brands, I wonder how many have yet fleshed out a strategy.

In recent months, I’ve started to think about TV delivery in a different way. When it comes to (for want of a better phrase) linear television, the moment is fast approaching when consumers will not notice or care whether they are watching via a broadcast television signal or digital stream.

For one thing, time shifting - even of “live” programming has become something to take increasingly for granted.

When the viewer turns on after the show has started, many connected TVs now automatically offer the option of watching the show from the beginning. Those who press the red button to go back to the beginning are no longer consuming the show via the TV signal. At that point, everything is up theoretically for grabs when it comes to the advertising.

Connected TV is becoming an Australian habit | Source: IAB

That will only accelerate as consumers never bother to connect their TV to the aerial in the first place. We may well be in the final decade of every TV viewer in a geographical area seeing the same ad.

That has sufficient implications to make anyone’s head hurt.

What’s the place of the big ad in a non-linear TV world?

Take Pepsi’s epic effort from this week to promote the brand’s sponsorship of the Super Bowl’s half time show. Calling it an ad doesn’t really do it justice - not least because most of its exposure has been as free media.

But what of the next tier of big ads, that do require media dollars to be seen? In a world where TV advertising is booked and served programmatically, the 7pm roadblock might be less of a thing. Or more of a thing.

On the one hand, when everything is addressable, the practicalities of booking campaigns (might) be easier. But the demands of relevancy may push brands to create cheaper ads tailored for every conceivable target demo.

That’s one of the things that intrigues me about the Pepsi approach. This is the brand that became notorious just a few years ago for attempting to churn out more content for less. Now we see it spending multi million dollars on uniting the stars of west coast hip hop.

But what of the publisher side? In this case, who is the ultimate supplier? Is it the TV manufacturer? (Which helps explain Foxtel’s investment in Sky Glass, and maybe Facebook’s interest in Portal.) Or the USB sticks such as the (buggy) Google Chromecast and Amazon Fire Stick. And that’s not to mention the box systems from the likes of Fetch, Apple and Foxtel.

A lot of content consumption over these devices may be via paid subscription services such as Netflix and co, but the hardware manufacturers are incentivised to help ad-based television survive, or even thrive if they stand to get a slice.

Or will the power lie one step back, with the program suppliers, whose apps sit on these devices? In Australia’s case, I’m thinking of the likes of Nine Now, Ten Play, Seven Plus, and SBS On Demand. And soon, Viacom CBS’s Pluto TV.

One of the big opportunities in connected TV for the content owners is that unlike the web, Google and Facebook have not yet captured the advertising delivery chain.

Having seen how the behemoths gobbled up most of the value in online - as Bob Hoffman memorably puts it “I know 97% of my programmatic ad budget is wasted, I just don't know which 97%” - those who own the walled gardens of connected television have an opportunity to keep them at bay. So far, CPMs for connected TV are high, not least because with fewer players there’s less opportunity for fraud.

But the downside for advertising buyers of that is it may not be possible to buy connected TV advertising via a single exchange. The old pain of media agencies manually buying spots and dots might be recreated in a district of walled gardens.

That’s assuming the consumers are still willing to watch ads in this new world. Some will be willing to exchange their attention in order to avoid subscription costs. The question is how many.

Could it be that the growth of the subscription services is peaking?

Netflix’s quarterly financial update yesterday could certainly be viewed that way.

The share price fell by a shocking 25% yesterday after it admitted that growth has slowed.

The key line in the table above is half way down - the net additions to its paying memberships globally. Netflix predicts that it will only grow its subscriber numbers by 2.5m in this quarter, on top of its existing 221.84m paying memberships up to the end of December. That will be growth of just 2.5m on the previous quarter, and 8 per cent year-on-year. From a company whose US$200bn share price relied on a growth story, that’s scary for investors.

Compared with the previous three years, 2021’s net additions looks ugly, and 2022 has started even worse. How long until there’s a downward blip, I wonder.

In the investor call, the Netflix leadership suggested that at least in part, the slowing in growth is because it raced ahead during Covid lockdowns (look at that hump in April, May and June 2020), and now is normalising. Imagine how bad it would have looked without Squid Game and Red Notice.

I wonder too whether the contagion will spread to other streaming players. At least 20% of Nine’s valuation comes from Stan. And the last thing News Corp’s Foxtel Group needs is for sentiment to turn against streaming just as the IPO finish line is approaching.

The next quarter’s Netflix numbers will be an incredibly important signal.

Friday plunge for the Unmade Index

Speaking of the share market, The Unmade Index saw its biggest one day fall since we started tracking the ASX’s media and marketing sector at the beginning of this year.

We began January with The Unmade Index set to 1000 points. It’s now lost nearly 10% of that in the first three weeks of 2022.

The biggest fall came from Pureprofile, although that comes in the context of a jump earlier in this week when it revealed strong quarterly results.

Meanwhile Ooh Media and Seven West Media both fell below $1bn market capitalisations again.

Newsfeed

Gain for Europe

Australian media executive Matthew Gain has received another major promotion at Amazon’s talking book service Audible. Gain has been promoted from head of APAC, Japan and India to the dual roles of head of Europe and managing director of Audible Germany.

Gain came up through the public relations industry in Australia, via Howorth, Pulse, Weber Shandwick and Edelman.

Nine wins Cleo Smith bidding war

Nine has won a network bidding war for a 60 Minutes interview with the parents of kidnapped four year old Cleo Smith, The Australian newspaper has revealed. The newspaper says that the network is paying more than $2m - easily the most ever paid to the subject of a news story in Australia.

The investment marks something of a vote of confidence in 60 Minutes from new chief executive Mike Sneesby whose own reputation will be linked to how the program performs. His predecessor Hugh Marks faced one of the biggest crises of his tenure when 60 Minutes’ bungled attempt to snatch children off the street in Beirut led to the crew being arrested.

Another Google lawsuit

Google’s chief legal tormenter, Texas Attorney General Ken Paxton, has opened up another line of attack, filing a lawsuit in the US claiming the company paid for iHeartMedia radio presenters to endorse its Pixel 4 smartphone, despite them not having had the chance to use it. Paxton is leading the anti-trust case alleging Google colluded with Facebook to control the programmatic advertising market.

Time to let you enjoy your Saturday.

As ever I welcome your comments to letters@unmade.media.

Unmade - media & marketing through an Aussie lens