What these households have in common is that they are not contributing subscriber (or “retrans”) revenue to broadcast networks and station affiliates.Some do contribute to ratings and therefore broadcast advertising revenues, but they are not paying subscriber fees. Over the past 15 years, these fees have become a major, if not dominant, source of revenue for both stations and networks.
Based on our research, including analysis of census home data, there were more than 31 million U.S. households in the subscriber fee gap at the end of 2017, up nearly 20% from 2015. Over the next five years, this number is projected to increase to over 40 million households.This means that networks and station groups are getting cable-bundle subscriber fees from only 75-77% of all homes today, down from 87% only a decade ago. In another four to five years, this could shrink to 60-65%.
So what are these 25% growing to 35% of US homes doing instead? Many are joining the growing number of homes receiving local broadcast TV via antennas, more than 20 million homes now. The third segment are homes that do not have home access to ‘live linear’ broadcast TV at all. And it is worth noting that all three segments, cable-bundle, antenna-TV and no-live-linear homes, may watch TV programs via internet video-on-demand services like Netflix or Hulu or network apps like HBO Now and CBS All Access.
The subscriber fee gap is a significant issue for broadcast networks and station groups. What was once close to 10 million homes not contributing fees to broadcast stations is now 30 million homes headed to 40+ million homes; a growing subscriber fee gap.
Why is there not more attention paid to this group? It’s not the dominant segment and the gap is masked by fee increases. As the network and station group earnings reports continually show, the cable-bundle subscriber total is down but broadcast revenues have mostly been up due to price increases to their V/MVPD distributors who are both passing on the fee increases to customers and suffering from shrinking margins. This good news for broadcasters is likely not sustainable in the shrinking cable-bundle market.
So what can networks and stations do to compensate for this lost revenue?
First, networks and station groups can take advantage of the increased use of antennas and local broadcast TV viewing, which is not only growing as a percentage of households but is also attracting younger new households at a much higher rate than 10 years ago. Second, networks and station groups must take advantage of social media platforms like Facebook, Snapchat and Twitter and try new ways to distribute and monetize both live and VOD programs. And third, networks and station groups should create both free ad-supported and subscription based direct-to-consumer apps.
Some people worry that new forms of distribution might conflict and potentially cannibalize higher revenue services but the data from the past two years does not support this worry. It is clearly a new era of consumer choice with TV programming more abundant than ever before. Perhaps trying to control distribution too much is the riskier tactic, particularly for live linear investments. It may be better to get to consumers anyway possible rather than let them get accustomed to living without live linear TV.
About Jim Long
Jim has 25+ years of experience building, funding and advising disruptive technologies in the media industry; notably, coining/inventing video streaming in the 90s and leading the team responsible for getting the five major recording labels to band together and embrace digital song downloads rather than be obliterated by sites like Napster in early 2000s.
As CEO of Didja, he launched BTV, which is already having a transformative effect on previously underserved audiences, which include bilingual homes and a rapidly growing number of cord-free homes across the U.S.
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