TV execs are worried about Netflix spoiling the TV ad model. They should be. The company has already taken billions of ad dollars off the table. YouTube TV added networks and boosted the price. Were these good moves?
Chapter 1: Netflix viewing takes $6B in ad revenue off the table (1:30)
John Martin, CEO of Turner, is one of many TV executives voicing concern that ad-free viewing on SVOD could destroy the TV ad model. I walk through my analysis which shows the destruction is underway. The 56 million Netflix subscribers are already spending at least 1-and-a-quarter hours a day with the service. If they had spent the same watching regular TV, they would have watched 2 billion ads per day.
Using primetime CPMs of $18 and non-primetime of $5 suggests the TV industry missed out on $6 billion in revenue last year. Hulu charges $4 a month to opt out of ads. Using that number as the value of ad-supported viewing, the missed ad viewing by Netflix users cost TV $3 billion in 2017.
Will says as it becomes more difficult to reach people the TV ad costs will go up. He also wonders where the trend to ad-free viewing will end. I’m not sure Turner’s pursuit of addressability will result in a TV experience that is competitive with ad-free viewing.
Chapter 2: YouTube TV winning the war for consumer, industry acceptance? (13:40)
YouTube TV announced this week that it had added the Turner channels, including Adult Swim, Turner Classic Movies, Cartoon Network, and CNN. The service will also add NBA TV and MLB Network to the base package. The service will also cost $5 more a month, or $40, for new subscribers starting on March 13th. Existing subs will keep the $35 price, at least for now.
One of the big advantages of YouTube TV is that the service is in 80 markets with all the major broadcasters. Other vMVPDs have not gone after local Fox, ABC, NBC, and CBS stations as aggressively. Since the big four broadcasters still command a lot of viewing this could be an important advantage.
I restate that even with a $5 increase, YouTube TV is still only marginally profitable and is more likely still just breaking even. Will thinks the vMVPD service is part of YouTube’s broader strategy of attracting TV ad dollars. I agree and add that I think YouTube has a much better overall strategy to win some of the $72 billion TV advertising spend than Facebook.