Covid-19, secular decline team to see drop in US video spending
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| 15 June 2020
A research posting from leading analyst MoffettNathanson is calculating US consumer spending on video to fall by $3 billion over the next five years to $138 billion in 2024, falling from a base of $141 billion in 2019.
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The analyst attributes this fall largely to an initial drop in 2020 due to Covid-19 and it expects we expect video spend to stabilise with an increase in OTT spending from subscription streaming and vMVPD services offsetting noted and seemingly long-standing declines in traditional video, that is linear TV, pay-TV, theatrical box office and home video.

Overall, the decline flies in the face of the traditional trajectory of US consumer spending on video content which has been in growth mode for the past 30 years, as technological innovation enabled operators to take more and more money out of US households. Indeed, the analyst noted that as analogue cable gave way to digital cable, VHS to DVDs, DVDs to SVOD, and linear MVPDs to vMVPDs, consumers have paid more and more for video content.

While it rejects some of the doomsday scenarios predicted for the industry by some, MoffettNathanson forecasts video spend to flatten longer term after a 5% dip in 2020 due to the Covid-19 pandemic. In aggregate, it anticipate a slight 0.4% CAGR decline in video spending over the next five years compared with the 2% CAGR increase from 2014-2019 as declines in linear and traditional consumption are offset by growth in SVOD and vMVPDs.

Yet while it regards flat long-term growth in video spending as not ‘that worrying’, the analyst believes that the overall industry is in the process of a mix-shift to a period of lower margins.

Going forward, MoffettNathanson says that management teams will have to remain committed to their current direct-to-consumer (DTC) strategies as legacy video data points turn weaker. While it does not expect even SVOD juggernaut Netflix to have long-term margins or ROICs that rival the glory days of multi-channel networks, MoffettNathanson predicts that the emerging next wave of video services will have to increase content and marketing spending to reduce churn and grow subscribers, dampening overall margins.

It also points out that the ongoing weakness in advertising and legacy cord-cutting will also force continued reductions in expenses and most legacy content spend with the notable exception of live sports. The challenge, the study concluded, was balancing the need to invest in DTC against the likely accelerating weakness in core profits. MoffettNathanson said it remained sceptical that investors would be rewarded, at this time, by funding this transition.