Scroll down to the link below to download a free whitepaper from Needham & Company's Laura Martin, analyzing the current state of technology, consumer adoption, and economics in the TV ecosystem.
Following are highlights from the whitepaper.
Device Proliferation (Technology). Consumers are adopting an ever broader range of devices, which are creating "new windows of time" for video consumption, both inside and outside the home. The average US household now has over 7 active devices in use each day, with 6% of households having more than 15 active devices. Globally, devices used per capita are projected to grow by 55% from 2.2 in 2015 to 3.4 by 2020, and faster in the US. Devices monetize at different rates and content consumed also differs by device. Apple is a pure-play mobile platform company that targets the wealthiest 15% of consumers worldwide, yet it trades at a P/E of only 11x.
Viewing Shifts (Consumer Adoption). Video audiences are more global, more mobile, and more selective. Live TV consumption by US adults averaged 4 hours and 31 minutes per day in 1Q16, flat year over year (Nielsen), although demo shifts are key and connected devices add time. For example, viewing by teens of TV content on a TV fell by 6 hours/week while smartphone viewing of identical content rose by 7 hours/week between 2011 and 2015. Mobile is a "must buy" for advertisers to reach young audiences. With 92% of users and 84% of ad revenue from mobile, Facebook is a "must-buy" for mobile advertisers.
Marketplace Trends (Economics). We calculate that OTT adds $4-8B/year, plus the recent TV upfront implies that incumbent content conglomerates will report $1B higher revenue in the next TV season. After a decade competing, YouTube will represent only 4% of total US TV revenue in 2016. Most digital competitors, including YouTube, will lose money in 2016, which elongates the incumbents' ability to experiment with new content and distribution bundles designed to re-engage younger viewers. We are most positive about the market position, leadership, and libraries of CBS and SNI.
Executive Summary(Scroll down to the link below to download the full report)
Summary stats and conclusions from this report include:
•Technology. Mobile data volumes rose by 60% year over year between 1Q15 and 1Q16, driven by smartphone adoption and video consumption, according to Ericsson. Cisco estimates that video will represent 80% of global Internet traffic by 2020.
•Consumer Adoption. Unique aspects of smartphones include: 1) they are always on; 2) they are always with the person who owns them; and 3) they are virtually never shared. Millennials say they are twice as willing to share their toothbrush than their smartphone. Because smartphones can be used out of the home, this creates "new windows of time" for content viewing, although videos viewed on small screens are typically short-form, 1-5 minutes long.
•Economics: Valuation. Companies with potential upside from global revenue streams will be valued 10-50% above companies limited to revenue sources from within a single country's borders, we believe. Additionally, we expect companies that have two revenue streams to command 30% valuation multiple premiums above single-revenue stream business models.
•Economics: OTT. Netflix, Hulu+ and Amazon Prime will represent an extra $4-8B of revenue to the $150B US TV ecosystem in 2016, we estimate.
•Economics: Few Winners. Digital ad markets are "winner-take-most" markets. The 10 largest online companies garnered 75% of total online ad revenue in 4Q15, about flat over the past decade. Online video is similarly concentrated with YouTube at 33% and FB at 10% of total digital video viewing minutes among adults 18 to 49 years old.
•Economics: Platforms. We calculate that content companies earn $0.30 per person for each hour of content viewed on linear TV. This compares to $0.11 per person for each hour of content viewed on Netflix and $0.03 per person per hour for content viewed on YouTube. The most revenue upside should accrue to US content companies that treat small screens as an adjacency to the $0.30/person/hour (dual revenue stream) linear TV platform.
•Economics: Reach. The top 20% of heaviest users of TV represent 52% of total TV minutes viewed. Digital media is much more concentrated, with the heaviest 20% of users (i.e., power users) representing 87% of total minutes of streaming video viewed on a PC and 83% of video minutes viewed on a smartphone. By implication, the high concentration of power users on digital platforms (i.e., narrowness of reach) negatively impacts their advertising attractiveness.
•Economics: Personal. Because smartphones are always with their owner and these devices are personal, this creates options for new types of content that could never exist in the home environment, where more than one person is often watching the TV simultaneously. Personalized content and advertising suggests greater targeting and pricing upside.
•What's Next? Technology supercharges corporate lifecycles. Ubiquitous mobile device adoption by consumers threatens revenue of companies dependent on desktop revenue rather than mobile. Ad blocking endangers many internet sites' revenue growth. In the video marketplace, we believe economics will be driven by engagement length, which in turn will be tied to immersive (i.e., mobile and social) content optimized for each device and consumer use case.
•Unbundling destroys $100B of market capitalization and even more value for consumers as channels below the top 50 disappear, we calculate. (Please see our report entitled "Valuing Consumers' TV Choices.")
Scroll down to the link below to download this free whitepaper.
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