Online advertising predicted to top TV by 2017
For years, TV executives and industry analysts had scoffed at predictions of doom. But now, with declining ratings and ad revenue, they are in greater agreement that the Web is slowly but surely eating traditional TV.
In new research, longtime media analyst Michael Nathanson of Moffett Nathanson Research wrote to investment clients that the growth of online ads are definitely coming at the expense of traditional TV and other media. He forecasts that ad spending on TV will decrease by about 3 percent each year through 2020.
After several conversations with ad executives, Nathanson said he predicts that by 2017, online advertising, led by Google and Facebook, will surpass spending on TV ads. There is an increasing belief among advertisers that selling their messages on TV is a blunt instrument compared with the precision of targeted online ads.
Over the next five years, online advertising will increase each year by around 12 percent, Nathanson predicts, with most ads placed with online video and on social networks. He expects total U.S. digital advertising to rise to $100.6 billion in 2020, from $49.5 billion in 2014.
"It is clear that TV is losing and will continue to lose share to digital media," he wrote in a research note Tuesday.
That assumption is based largely on declining viewership. In August, cable TV ratings were down 9 percent. That was particularly concerning amid increased"cord cutting" of cable TV service. In the second quarter, 566,000 cable and satellite subscribers canceled their service.
Ratings for viewers 18 to 49 are expected to drop by 5.5 percent to 6.5 percent each year for the next five years. The greatest declines in traditional TV viewers are among 18-to-24-year-olds, a cellphone-centric group. These young consumers probably have never subscribed to a cable TV package - some call them "cord Nevers" - and have increased their viewing of digital media by 170 percent between 2009 and 2014 but decreased their viewing of traditional TV by 21 percent in those five years, Nathanson wrote.
Older adults, too, are sharply increasing their consumption of digital media even as they continue to watch traditional TV. Consumers 50 years old and older are the most avid viewers of traditional TV, and they are simply adding more hours to their week with digital consumption.
"Not only is digital claiming the youngest cohorts, it is also claiming a disproportionate share of the most affluent and educated consumers as well, which leaves nondigital media for the poorer and older segments of the population," Nathanson wrote.
But the death of traditional TV won't come quickly. In all, Nathanson said he expects online media to make up 56 percent of all media consumption by 2020, up from 44 percent in 2014. Traditional TV will make up 30 percent of all media consumption by 2020, compared with 37 percent today.
Sports will be TV's best defense. CBS, ESPN, Fox and Time Warner have signed long-term contracts with the NFL, NBA and NCAA.
The most vulnerable will be the "long tail" cable networks, those middling networks that don't get high ratings but were added to big cable bundles as experiments and to fill niche interests.
Earlier this week, Verizon informed customers it had dropped the fishing and hunting Sportsman Channel from its lineup for FiOS TV customers, citing modest interest and a need to reduce its high costs for programming. In March, it dropped the Weather Channel for similar reasons.