TV networks to lose ad share in next five years due to ‘missing audience’ claims PwC report

Free-to-air TV’s share of the advertising pie is forecast to drop by 7% by 2020 in the face of increased competition from streaming services and other media, according to the annual PwC Australian Entertainment and Media Outlook report.

In all PwC expects the total Australian ad market to grow from $14.861bn in 2015 to $18.680m in 2020, a 4.4% compund growth rate.

The report predicts the sector to have a negative compound growth rate of 1% per year until 2020, taking its share of the ad market from 25.5% in 2015 to 18.5% by 2020, which it says will happen because of declines in TV audiences.

PWC outlook

Source: PwC. Click to enlarge.

Asked about the negative compound annual growth rate the report, editor Megan Brownlow noted that there had been declines in TV audiences following the launch of Netflix and other subscription video on demand (SVOD) services and that a key demographic young people were now “missing”.

“Taken overall, the decline is actually quiet small, but I think the terrifying piece is when you segment you have a situation where there is a section of the audience missing,” said Brownlow.

“The big unknown question – and we can’t answer it and no one can at this stage – is the question of life stage: when those youngsters get tired, because they have full time jobs and mortgages and they want a more curated passive experience, do they choose a premium subscription experience like a Foxtel where it’s curated and done for them?

That’s one hypothesis – that this is a life stage issue – and then the other hypothesis is that you have lost them and they will never come back. I don’t know which one it is.”

PwC’s outlook for the subscription TV sector, which includes both pay-TV operator Foxtel and the various low margin SVOD services Netflix, Stan and Presto is more positive with a compound annual growth rate (CAGR) of 5.8% projected, while advertising spend is tipped to rise by 7.3% over five years.

Source: PwC.

Source: PwC.

The report also predicts that SVOD revenues will make up 20% of the consumer subscription TV market by 2020, with PwC noting that this will rise as the penetration of internet capable TV – currently at 31% – rises.

Brownlow also noted that with the rise of the SVOD services Foxtel had been playing a defensive game and that while it had been reporting subscriber growth the precise scale was difficult to know due to the pay-TV operator’s decision to fold-in low margin SVOD service Presto’s subscribers to its total subscriber base.

“Foxtel has always been good at playing a defensive game,” she said. “Richard Freudenstein’s decision to lower the entry level price at just the right time was smart and we won’t get new numbers until August.

“The last set of numbers demonstrated that subscriptions grew but of course that subs growth includes SVOD services which they won’t unbundle.”

In other media, the major growth driver will be digital PwC projects with newspapers, magazines and radio all projected to contract as internet advertising goes from 39% of the ad market today to 51.4% by 2020.

That major shift will in a market where the Australian entertainment and media market is forecast to grow to $47.4 billion by 2020 with an compound annual growth rate of 4.1%.

Much of that growth is set to come from internet advertising which will continue to have strong growth with likes of video growing 27.8%, display 10%, classified 9.9% and search 9% on an annualised compound growth rate.

Screen Shot 2016-06-03 at 1.12.39 pm

Source: PwC.

Other media such as radio is predicted to see increased competition from the music streaming services, such as Pandora and Spotify, with its share of the ad market falling from 8.4% to 7.2%.

Terrestrial radio revenues are expected to have a growth of just 1.6% but the report notes that streaming revenues are expected to grow by 10%.

“There are a couple of challenges for radio,” said Brownlow. “Measurement is a problem. Streaming radio is becoming increasingly important and as they do deals, like ARN has done with iHeart Radio, media buyers need comfort that this is delivering non-duplicated audiences. They are looking for an additive audience, not just substituting.”

In regards to the threat posed by music streaming she noted: “The budgets are coming from digital they are not coming from radio which is interesting in itself. That is a reflection partly of how media agencies are set up but I definitely think that could change.

“The other challenge for radio is the connected car – Built-in Pandora, built-in Spotify it is coming and some of them are already here and it is big in the US.”

Consumer magazines and newspapers are projected to have a negative compound growth rate of 5.8% and 3.8% respectively.

Brownlow also noted that the newspaper industry’s recent decision to reveal its direct sales numbers had finally given the industry some visibility on the strength of the direct sales.

“They are doing the best they can but it is tough,” she added. “The most interesting thing that has happened in newspapers is the new SMI data -that significantly boosted their reported revenues by some half a billion dollars.

“They have shown this data and it demonstrates that agencies represent less than half of newspaper’s advertising income. We make assumptions where we assume agencies are the majority of their income but that is not true.

“It is partly because of the decline but you also have to give them credit that it is due to the fact they have built up their direct sales much like radio – which has always had good scrappy sales teams.”

Screen Shot 2016-06-03 at 12.57.20 pm

Source: PwC.

The PwC Outlook also shows that the growth projected for out of home advertising remains strong with a 5.3% compound growth rate and that while traditional billboards will go backwards 2%, digital will surge 19%.

“One of the sectors that has been really good at embracing the digital opportunity is outdoor,” said Brownlow. “The growth in outdoor is huge.

“It is absolutely core to their position that outdoor can not be switched off and in fact at a time when the number of channels is exploding and therefore audiences are fragmenting because of population growth their audiences are growing.

“They are doing loads of innovation and also pushing on location based marketing. The fact that retail is the fastest growing subset of outdoor is fascinating because it speaks to reaching the consumer you can’t get to.

“The last six feet – it’s very powerful.”

Brownlow will present the full details of the annual and PwC Australian Entertainment and Media Outlook and how they related to the global numbers on Thursday at the Mumbrella360 conference.



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