Not settled with amassing huge audiences of tens of millions of online users, digital media companies are now trying their hand at TV.
From NBCUniversal pumping $200 million into BuzzFeed in August to help it break into movies and TV, Vice launching the international cable TV channel Viceland in February, to Mashable completely pivoting its business to focus on video and TV after receiving a $15 million funding round led by Turner Broadcasting, the newest giants in media are now trying to compete in one of the oldest broadcast mediums.
They already did compete with TV, of course, for eyeballs. In their pitches, digital media companies have done a good job in convincing many advertisers and investors that people, particularly young people, are migrating away from TV — preferring instead snackable, unscheduled content that they can consume for free on their mobiles.
BuzzFeed was noted in 2014 for touting that its reach was larger than huge TV networks like Fox like CNN, Fox News, and Comedy Central. This is still the point YouTube makes to advertisers about the size of its audience compared to TV.
So why are the digital whizzkids suddenly so bullish on the box?
TV is still where the money is
While linear (TV watched as it is scheduled) TV ratings have broadly declined, TV ad spend continues to grow. Carat, a media buying agency, predicts global TV ad spend will increase 3.1% this year and 2.9% in 2017. Marketers still spend more on TV than any other medium. And even though “digital” ad spend is predicted by eMarketer to overtake TV ad spend next year — much of the money spent on “digital” is associated with content from TV networks (especially on their video-on-demand players.)
Part of the reason that traditional TV revenue has continued to grow is that as ratings fell, TV networks — particularly those in the US — began stuffing more and more ads into every hour of broadcast. But part of the reason is that ad buyers are most comfortable with buying TV.
In a note entitled “TV is the new online,” Liberum Capital head of European media research, Ian Whittaker, said that the recent moves from BuzzFeed and Vice towards TV “shows even the newly-launched online platforms that have been part of every single future of media conference in the last two years actually [have started] looking at more traditional media and more specifically TV, which is the media channel with the highest ROI [return on investment.]”
Speaking to Business Insider, Whittaker said: “Online is now coming under more scrutiny, with ad fraud [where ads are served to bots rather than humans] and ad blocking, advertisers have started to question the efficiency of online advertising.”
Whittaker added that online measurement systems are still behind those of TV — while online companies proudly boast their reach, it doesn’t always tell the full picture and advertisers are becoming more wise to it.
He pointed toward Yahoo’s first live-streaming of an NFL game last year as an example. After broadcast, Yahoo claimed there were 33.6 million online streams of the Buffalo Bills vs. Jacksonville Jaguars game. However, as Dan Primack at Fortune pointed out, when you gave applied the same scrutiny to Yahoo’s audience stats that is given to TV ratings, that number only represented 15.2 million unique viewers and a total of 460 million total minutes of football.
Primack wrote: “Were you to put this in television terms, that would imply viewership just south of 2.4 million — a far cry from typical broadcast television viewership for an NFL game.”
Online media companies spend a lot of their own money on TV
Lindsey Clay, the CEO of UK TV marketing body Thinkbox, told Business Insider: “So many times people in companies operating in this [online] space seem to speak with a forked tongue. On the one hand they can’t wait to talk about the death of TV, but on the other hand they are behaving in completely the opposite way, by investing incredibly heavily in TV — not just by expanding their business via the platform of TV, but also investing in TV advertising.”
Netflix CEO Reed Hastings is the “prime example of this,” according to Clay.
“He’s constantly saying how binge watching is the future, people are never going to stick to the schedule, and TV’s dead, but they invest huge amounts in TV advertising for their own service,” she said.
Thinkbox research, based on data from Nielsen, found that online businesses invested more than £500 million ($711 million) on TV advertising in the UK in 2015, up 14% on the prior year. Netflix, Google, and Facebook spend more than 60% of their marketing budgets on TV advertising, the research found.
Online is becoming a lot more like TV
Meanwhile, the online world is starting to look a lot like television.
Live video is one of the biggest new digital trends, accelerated by the launches of Periscope, now owned by Twitter, and, most recently, Facebook Live Video.
One company launching itself straight into the heart of the trend is Cheddar, a kind of CNBC-for-millennials, founded by former BuzzFeed president and Daily Mail US CEO Jon Steinberg. From the start of this week, Cheddar has been airing 30-minute live episodes of its business news show through Facebook Live.
Steinberg told Business Insider he founded Cheddar on this insight: That there was a need for ambient, background content to watch for young people who aren’t keen on being tied to a cable subscription but might pay for over-the-top services like Netflix, Amazon Prime Video, or Sling TV.
Nearly a fifth of younger people in the US don’t subscribe to cable and are happy to rely on internet streaming, according to Nielsen research published by The New York Times. However, Nielsen also noted that the trend may only last until they have children of their own. About 80% of millennials with their own homes and who have children subscribe to cable, according to Nielsen.
We spoke to Steinberg after Cheddar’s third day of broadcast. Its live video that day had been viewed by 42,000 people, although just 6,059 of those watched it for 10-seconds or more.
Steinberg said Facebook Live had been a “remarkably pleasant” experience so far, but the biggest challenge to overcome is how long it takes between Cheddar sending out the notification to its followers it is broadcasting live and viewers actually clicking in to view the video.
Unlike TV, which people often leave on for hours at a time on one channel, Cheddar’s viewers don’t tend to just be sitting around all day on its Facebook page, ready for its next show. Many more do go on to watch the archived video, however.
As Cheddar’s brand and audience grows, would Steinberg consider a move into traditional TV?
“It’s funny, it’s a bit like asking someone would they consider running for president and they don’t want to say no,” Steinberg joked.
“To be honest with you, if I got offered a great deal from Amazon Prime, or TV, I’d rather have Amazon Prime because that’s the future. But if there was a TV deal that was lucrative, that wouldn’t distract me from my core focus, and I didn’t have to do much — just give them the feed and sit back — I’d probably do that too.”
Will Vice, BuzzFeed, Mashable et al. succeed?
Of the three companies, only Vice’s TV effort has launched. Early ratings, obtained from Rentrak by International Business Times, showed average daily viewership of Viceland in its first three weeks was 77% lower than the channel it replaced, H2, over the last three weeks of its existence.
But it’s a bit unfair to attempt to judge its merits this early on.
Vice CEO Shane Smith proudly told The Hollywood Reporter back in March: “12 months from now we’ll be on the cover of Time magazine as the guys who brought millennials back to TV.”
Whittaker says that these online brands do enter TV with an advantage over many new channels — they come with a brand people already know and understand. However, TV audiences are stubborn, he said, adding that around 60% of the viewing on UK pay-TV provider Sky — which offers hundreds of channels — is on the main five free (if you discount the UK’s compulsory annual £145.50 TV Licence) terrestrial stations.
“They run the risk of becoming one of the niche channels on TV. Is that sustainable?” Whittaker said.
There’s also the challenge of producing enough TV-quality content to fill the schedule to compete with the channels that have been doing this for decades and invested billions in their content.
Clay said: “It’s difficult and it’s not just a question of churning out listicles; they’re going to have to work a lot harder than that because people are used to a phenomenally high-quality content environment in TV. If the TV version of those brands doesn’t look as good and isn’t as entertaining, or insightful, or information-rich as other TV channels then people will vote with their feet. So it’s going to be tough for them, but I’m sure a few of them will succeed.”
Steinberg believes, despite the challenges, there’s immediate revenue to gain in the short-term by entering the TV market:
“I think that while audiences on television have declined, the rate advertisers are willing to pay has gone up and that’s because advertisers are incredibly comfortable buying TV,” Steinberg said. “That doesn’t make me think that TV is the future, it just makes me think that there’s some revenue left in TV now just like there’s revenue left in the dial-up internet business.”
And if it all goes wrong?
There’s still a lot of money to be made from internet advertising.
Google and Facebook, the two biggest advertising-funded internet companies, generated $67 billion and $17.1 billion respectively in ad revenue last year.
PwC forecasts total global internet advertising spend will grow from $135.4 billion in 2014 to $239.9 billion in 2019, a compound annual growth rate (CAGR) over the period of 12.1%. Video is the fastest growing internet advertising segment, with a predicted CAGR of 19.5% from 2014 to $15.4 billion in 2019.
As BTIG analyst Rich Greenfield commented about Viceland’s launch to The Hollywood Reporter: “If it doesn’t work, so be it; every piece of programming can be repurposed online.”