People just aren’t watching traditional TV the way they used to, and the television industry is starting to feel the effects.
Analysts at the investment research and management firm Bernstein sent a note to clients on Thursday that said they’re downgrading media companies like Disney and Time Warner, which own TV networks like ESPN and CNN, respectively, because they are “structurally impaired.”
“We believe the U.S. television industry is entering a period of prolonged structural decline, caused by a migration of viewers from ad-supported platforms to non-ad-supported, or less-ad-supported platforms,” Todd Junger, the lead analyst on the report, wrote.
In other words, consumers are moving away from traditional TV and instead watching on-demand services like Netflix, Hulu, Amazon Prime, and even YouTube.
Indeed, services such as these are seeing massive growth, while traditional pay TV providers like Comcast, Dish, and Time Warner Cable are losing subscribers.
Consider this chart from the investment banking firm Pacific Crest Securities, showing the decline in total subscribers to pay TV companies over the last three years compared with the massive growth of Netflix, Amazon, and Hulu:
About 100 million households in the US still pay for TV, but that number isn’t growing.
Pacific Crest Securities estimates that the top eight pay TV providers lost 463,000 subscribers in during the second quarter of this year compared with 141,000 during the same period last year.
Traditional TV networks are feeling this pinch on two fronts, because they make money both from advertising as well as from fees that pay TV providers like Comcast and Time Warner Cable pay the networks to carry their channels.
Advertising is down — there are fewer viewers to reach and more places for companies to advertise than ever.
And to make matters worse, investors are worried that subscribers to pay TV will continue to decline — more people will cut the cord, and new households won’t sign up for cable, as options for watching TV without a cable or satellite subscription improve and proliferate. That means that the fees networks get paid, once a steady stream of revenue for the industry, will decline.
“…we believe TV advertising is undeniably in secular decline [and] affiliate fees are now also being put at increased risk,” Junger writes.
Earlier this month investors punished companies that own TV networks, like Time Warner, Disney, Viacom, Discovery, and CBS over fears that competition from streaming services will continue to take away from the time people spend watching traditional TV.
“We understand, and in fact agree, with the market’s decision to fast-forward to the inevitable
conclusion and start valuing these businesses as if they are declining assets.”
A report in the Wall Street Journal on Monday cited Nielsen data that showed a decline in prime-time ratings for 21 the top 30 most-watched cable networks this summer. Networks like MTV, TNT, Disney Channel, and Bravo saw double digit declines last month compared with July last year.
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