Can broadcasters survive the streaming battle?

However, the way in which we consume television had been changing dramatically before the pandemic struck – with more and more people turning to online streaming services. And, arguably, Covid-19 has only accelerated that shift.

Indeed, while broadcast did enjoy a revival during ‘stay at home’ orders, Ofcom's latest 'Media Nations' report notes that viewing numbers waned as those restrictions lifted – albeit still sitting 11 per cent higher year on year at the end of June. Conversely, subscription-video-on-demand (SVoD) platforms and other non-broadcaster content “retained much of [their] lockdown uplift” – with viewing still up by nearly three-quarters in the last week of June.

Uphill battle

ITV’s (ITV) recent half-year numbers outlined the uphill battle faced by traditional broadcasters. Chief executive Carolyn McCall described the first six months of this year as one of the most challenging times in the history of the company. Hardly surprising, given that its main two sources of revenue – production and advertising – have been decimated by the fallout of the virus. Adjusted operating profits in the period nosedived by almost half to £165m on a margin of just 14 per cent.

True, audience numbers were up. ITV's Good Morning Britain, This Morning and Loose Women programmes achieved their strongest metrics in years. Moreover, linear television was not the only segment that saw audiences tuning in more; online viewing was up by over a tenth. And that’s before mentioning the group’s own streaming joint-venture with the BBC – ‘Britbox’.

But ITV's digital offering, as well as those of peers such as the BBC, Channel 4 and STV (STV), face stiff competition from streaming giant Netflix (US:NFLX). Not to mention Walt Disney’s (US:DIS) new, and highly popular, Disney+ platform. Both have seen a surge in subscriber numbers during lockdown. And they are just two of an expanding community of SVoD competitors vying for viewers' attention. The question thus remains: can broadcasters survive the streaming battle?

Is the advertising model sustainable?

Unlike the streamers, ITV cannot sustain itself on subscription volumes. More than two-fifths of its sales derive from advertising, targeting viewers between programmes. And it is not the only broadcaster to have suffered from a hit to this revenue stream during the crisis. Across the pond, media behemoths Comcast (US:CMCSA) and ViacomCBS (US:VIAC) have struggled, too – albeit not to the same extent. Comcast’s revenues dropped by 12 per cent in the second quarter, as it lost 477,000 cable-TV customers compared with 224,000 a year earlier. The group posted a 29 per cent year-on-year drop in advertising revenues in the second quarter. ViacomCBS logged a revenue decline of more than a tenth. 

The trouble is that businesses relying on ad sales are ultimately reliant on companies’ discretionary spending budgets. And marketing tends to be one of the first activities to be cut, or chucked, when management teams are trying to push down costs amid economic downturns.

That said, it may not all be doom and gloom on the ad front. Some believe that the dominant players among the conventional broadcasters will be able to weather the worst of a recession. “When you come out of a downturn, what tends to happen with an advertiser’s money is that it sticks with the market leader,” notes Ian Whittaker, an independent media analyst.

Delayed events and sports matches

Many streaming services are advertising-free: one point scored against the likes of ITV. But in a further sign of their relative resilience to the current crisis, the streamers have also been largely unaffected by delays and cancellations to live events and sports matches. True, Amazon’s (US:AMZN) Prime Video service signed a deal before the Covid-19 outbreak to broadcast Premier League football in the UK until 2021/22. But Amazon is... Well... Amazon. Prime Video arguably constitutes one cog within a vast, subscription-based machine – designed to attract and lock in loyal customers via a diverse range of services.

Streaming services are also less affected than normal broadcasters by disruption to production schedules. Most benefit from enormous libraries of content, which they can drip-feed to their viewers when actors and directors are forced to stay at home. For broadcasters, new content is rather more critical – encouraging viewers to tune in at a specific time each week, with accompanying ad slots.

Even so, streamers may also suffer the negative effects of stop-and-start filming in the long run. Pact, an independent production trade body, estimates that social distancing measures will add between 10 and 30 per cent to production budgets. And, for now, it is unclear how long a content lag could last. ITV's Britbox has commissioned four original dramas which it hopes to launch in 2021 and 2022, but this will depend on when filming can resume. Even Netflix has said that it expects a delay until at least the first half of 2021 – although its huge archive of media means that its audience will still be able to find something to watch that they have not seen before. 

Do broadcasters have any bright spots?

To their credit, US broadcasters have attempted to jump on the streaming bandwagon. Indeed, ViacomCBS has its own streaming platform, and by the end of June it had reached 16.2m subscribers across its services, adding almost 3m customers in the second quarter alone. Comcast’s NBCUniversal business has also launched Peacock, which counts 10m subscribers already. AT&T (US:ATT) launched HBO Max in May, with more than 4m activations. “We are leaning into streaming,” chief executive Brian Roberts told analysts during a recent earnings call. 

But UK broadcasters have not ‘leaned in’ quite as much as their US counterparts. ITV revealed within its latest numbers that the aforementioned Britbox service had achieved good growth in subscriptions. But it shied away from giving exact figures, giving rise to questions about how much progress has truly been made.

Even so, research house Enders Analysis found that usage of UK broadcasters’ general online services did increase during lockdown. BBC’s ‘iPlayer’ platform, Channel 5’s ‘All4’ service and  Channel 5’s ‘My5’ offering all had their biggest-ever days, weeks and/or months. And while the online components of broadcasters remain relatively small compared with their linear TV services (around a tenth of BBC viewing  pertains to iPlayer), that proportion is growing. 

What about the challenges facing streaming companies?

The streamers are not without their own obstacles. For one thing, a worsening economic outlook could dampen people’s willingness to pay monthly fees for multiple platforms. In the UK, consumer spending contracted by a considerable 14.5 per cent in June, compared with the same period last year, according to new data from Barclays. 

Companies here are starting to be weaned off the furlough scheme. And new data from the Office for National Statistics (ONS) shows that the number of employed people in the UK dropped by a huge 220,000 between April and June. We have also just entered the first technical recession since the financial crisis. It's possible that these factors could knock demand for newer market entrants such as Disney+ – although, at the same time, such an environment could help to sustain Netflix’s leading market position. Still, Disney+ costs just £5.99 per month, and Netflix is similarly priced; viewers may be more inclined to cut their monthly Sky or other cable subscription instead.

To that point, beyond recessionary pressures on consumer finances, streaming companies face serious competition – particularly in the US. In an increasingly saturated market, there is an argument that companies may be running out of room to grow. Netflix recently posted bumper net subscriber additions – but co-chief executive Reid Hastings flagged that the “strong first-half performance likely pulled forward some demand from the second half of the year”.  A slowdown looks imminent.