A new report from MoffettNathanson flags a series of trends that could lead to trouble for media companies as summer gives way to fall and winter. In fewer words: Vacation’s over.
In Thursday’s “U.S. Media: Post-Summer Positioning” report, that research firm, a subsidiary of SVB Securities, calls out increasing cord cutting, declining advertising revenue and escalating sports-rights fees as causes for concern.
This assessment — prepared by Robert Fishman, Michael Nathanson, Benne Rosner, James Caceres and Luke Landis — begins by arguing that industry types still aren’t taking cord cutting seriously enough.
Noting that Altice and Comcast each saw video subscriptions plunge by 10% in the second quarter while the entire MVPD sector reported a 7% drop in subscriptions, the analysts write that things could very well get worse.
“However, if the deteriorating cord-cutting picture continues, we believe there is growing risk to our future estimates, especially 2023 and beyond, as the Pay TV ecosystem shrinks faster,” they wrote. And that could lead to affiliate fee revenue not only flatlining but dropping.
“While we currently forecast flat cable network affiliate fee revenue growth across our coverage universe in 2023 and 2024, we see downside risk increasing as Pay TV subscribers shift away from the linear bundle,” MoffettNathanson’s report warns. “The risk grows further as additional sports rights are shared with sister streaming platforms.”
The next revenue threat outlined by the report comes in advertising — especially next to any content that doesn’t have to be viewed in real-time.
“We expect to see a bifurcation between the haves (sports and live news) and have nots (general entertainment and younger skewing) networks,” the analysts wrote. But they remain short-term bullish, forecasting Q4 ad revenue growth rising to 4% thanks to sports, new upfronts and political ads.
Next year, however, is another matter. The report suggests that Netflix and Disney+ launching their ad-supported tiers will not do any favors for linear TV outside those live categories: “We expect the majority of these ad dollars will come at the expense of cable networks although remain concerned that some smaller share will shift away from the pure AVOD services.”
And live sports themselves raise long-term problems as rights deals keep getting more expensive. The report notes that Paramount looks particularly exposed, between its share of the Big Ten’s reportedly $7 billion rights agreement as well as its deals with the SEC and the UEFA Champions League, and its NFL package, asking “where will the company find the money to pay these future bills?”
Pending renewals with the NBA and the College Football Playoff will increase these cost pressures, suggesting that MoffettNathanson may ask the same question of other media companies.