Cord Cutting – Despite remaining relatively small to date in the U.S., Canadians appear to be cutting the TV cord in larger numbers: 16% of Canada's adult population now watch all their TV from online sources, while an additional 35% use both traditional TV and online video, according to comScore and the Canadian Press. This data is all the more remarkable, given the state of UBB and usage caps for broadband in Canada. According to a survey by GfK broadcast only US homes are on the rise and claim 19% now solely rely on broadcast TV vs. 14% in 2010. this number seems high, but the study notes that 60% of those who canceled their pay TV service cited cost-cutting as the reason. If true, this could be more troubling given the combination inelastic demand for broadband, rising programming cost, and improvements in cheap OTT services.

Greener Pastures - YouTube producers are looking to branch out of YouTube as their exclusivity clauses expire. YouTube is on board with this strategy, as most channels will likely retain a presence on YouTube and other outlets could help drive traffic to YouTube. Adding other outlets (e.g. cable networks, Hulu, etc.) could help broaden demos beyond the 13 to 24 year olds that YouTube is generally known for. TubeMogul estimates that the average YouTube 2Q13 pre-roll CPM (excluding those sold directly) was $7.49 vs. $9.26 a year ago, which is already well below TV and getting cheaper as TV premiums grow.

Mobile Advertising – Advertisers are following the migration of search to mobile, and are putting more dollars to paid search ads on the devices. US mobile search spend doubled YOY in 2Q13 on both smartphones and tablets, while overall search spend was up 7%, according to eMarketer. Tablets saw a larger increase in both spending and delivered impressions, while smartphones grew faster in terms of clicks. As a result, CPC on smartphones decreased 13%, while tablet CPCs were up 13%. Tablets continue to represent the majority of mobile paid search ad spend, driven by the importance of tablet real estate to drive conversion among shoppers. However, search is expected to decline slightly in importance through 2017 (49.0% in 2017 vs. 51.7% in 2013), while the display and other formats will take a larger share of mobile ad spending.

Digital Game Inflation – MSFT (35.67-Neutral; Janney analyst Bill Choi) will soon roll out its update to Xbox Live, which effectively increases the price of games on Xbox Live. The update converts existing MSFT points into local currency and games that you could get for a certain number of points now cost more in real currency. This will probably upset the gamer community, particularly those who have acquired many points and could be another example of MSFT being out of touch with gamers. We note that MSFT still sells digital games at massive premium to the fair market value seen in the used market.

IPTV Subs – According to a report from Infonetics Research, IPTV services continue to gain market share of subs across the globe. Telcos are the driving force as they leverage their own infrastructure. They are particularly successful in emerging markets that lack a more developed traditional pay TV market, but also show impressive growth in developed countries. Dutch provider KPN and Brazilian GVT grew 77% and 62% respectively in 2012. IPTV may slow in the U.S., as VZ has effectively stopped its build-out of a fiber network. We believe the US market is more difficult given the size of its landmass.

Tony Wible joined Janney Montgomery Scott in 2008 and is a Managing Director covering the Media and Entertainment sector after spending the previous 10 years at Citigroup Investment Tony WibleResearch—most recently covering the Broadcasting and Entertainment Services industries.
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