Report: Facebook and Google Are Losing Ad Dominance

A new report from eMarketer suggests that the Big 2 will experience dips in market share over the next few years.
According to a new eMarketer forecast, the Big 2, that is the top two companies in terms of digital advertising revenue, Google and Facebook, are expected to lose market share by 2021.

The duopoly enjoyed a combined share of U.S. digital ad spending of 58.5 percent in 2017, but this is anticipated to fall to 56.8 percent over the course of this year, translating into a nearly two percent loss. By 2020, this will drop an additional point and a half to 55.3 percent.

That said, eMarketer analysts anticipate a rebound beginning sometime in 2020. And beyond that, while their dominance will slightly decrease, both platforms are expecting to see significant revenue increases over the next several years.

Image via MediaPost

The declines are not a function of an overall decrease in digital ad spend; conversely, overall spending will hit $107 billion in 2018, reflecting a 19 percent increase Instead, The Wall Street Journal points to rivals like Amazon and Snapchat as the main reason, suggesting that advertisers are increasingly testing platforms outside of the Big 2 in their efforts.

What has not been factored into this estimate is marketers’ growing wariness toward the Big 2 with regards to brand safety and an increasingly alarming public perception that these properties have amassed too much power with little regulation from outside forces. These concerns have already made a financial impact on tech stocks as of late.

Following widespread public outcry in the wake of the Cambridge Analytica scandal, Facebook shares fell 8 percent in a single day. The news has sparked a far-reaching conversation about Facebook’s ability to monetize user data—and do so in a seemingly unfettered fashion.

Users have also taken to Twitter to announce their plans to #deletefacebook. One significant member of the movement has been WhatsApp co-founder Brian Acton. WhatsApp was acquired by Facebook in 2014 for $16 billion.

Google, and more specifically its video behemoth YouTube, are also on shaky terms with leading advertisers. With leading brands threatening to reduce spend on the platform, YouTube has had to revise and bolster its approach to brand safety.

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Why It’s Time To Stop Treating OTT And TV As Different Channels

by Allen Klosowski

My parents have seen a lot of technology come and go during their lifetimes. When they were young, television was in its infancy, limited to black-and-white images on a small, dimly lit screen. Today, they have not one, but two high-definition televisions side by side in their living room: One is a traditional cable television set and the other is a Roku TV.

My parents don’t care that one TV receives programming through a cable box while the other streams video through the Roku app and other smart-TV apps. They like to be in the same room together, and this setup avoids the need for compromise; my dad watches sports silently with closed captioning and my mom keeps up on her favorite shows at the same time.

If you switched on the same show on both TVs, you wouldn’t be able to discern which was which because the image quality and viewing experience are identical.

While this story is unique to my family, it’s representative of the larger reality that the lines between television and over-the-top (OTT) video are becoming blurred. Consumers don’t dwell on how some televisions have internet capabilities and others do not. The only relevant factor is whether they can access their desired content at a satisfactory level of quality. Once that need is met, OTT, traditional TV and everything in between become insignificant distinctions in the minds of most consumers. All in all, it’s just “TV.”

OTT origins

Was OTT video streaming spurred by the first smart TVs in the late ’90s and early 2000s? Or maybe Netflix’s rollout of streaming video in 2007? Whatever beginning point you choose, one pattern holds true: Early users of OTT sought a different experience than traditional television. Audiences wanted greater control over the specific content they consumed, and they wanted to watch it on their own time.

A decade later, however, the definition of OTT video has significantly evolved and broadened to include features and capabilities that weren’t in the picture early on. Consumers who leverage over-the-top video have undergone a parallel transformation, and the user base today looks very different than it did years ago. These factors are evidence of ongoing progress that should continue to shape the way video is packaged, supplied and monetized for years to come.

In the early days, over-the-top video and video-on-demand (VOD) were often one and the same, so it was acceptable to use terms like OTT and VOD synonymously. On the other hand, OTT and linear TV described entirely different experiences. OTT represented a limited selection of video streamed to televisions or computers over the internet, unbound by dayparts or bundles.

Television viewing was subject to network scheduling, but a wide variety of content was available, including live events such as sports and newscasts. Moreover, the experience available in OTT fell short of the premium standard that had been set by traditional television – navigation was clunky, user interfaces were not well-suited to the available devices and buffering was a constant annoyance.

Due to these discrepancies, early OTT was mostly seen as a supplement to regularly scheduled programming. While it was clearly a disruptive innovation that quickly established staying power, it wasn’t regarded as an acceptable alternative to TV.

Today’s OTT

Over the last several years, however, OTT has advanced to the point that it rivals traditional television. Live, broadcast-quality video can be streamed over the internet and viewed in an uncluttered, lean-back environment where viewers are in complete control of what they watch and when.

Many media owners have also upskilled in video streaming, bringing a greater variety of content into the space. Leading broadcasters have developed TV Everywhere applications to make their original content available in OTT environments, and pioneers like DirectTV Now, fuboTV, Hulu and SlingTV have even brought live and linear programming into the mix. Viewers can now enjoy a comparable experience regardless of whether they’re accessing content over-the-top or through traditional channels.

The natural upgrade cycle for video viewing technology has also driven “passive adoption” of OTT. Many consumers buying smart TVs are not necessarily doing so on purpose, but brand-new televisions are often equipped with internet capabilities by default. In these cases, OTT adoption isn’t a conscious choice, but rather a natural evolution and simply a sign of the times.

Cord cutters, cord shavers and cord nevers have all made their content consumption decisions for very different reasons than the early adopters of OTT, and the audience has broadened as a result. Now, the delivery method of choice is less about what the technology represents – innovation, modernity, being ahead of the curve – and more about the experience it can deliver. From a consumer perspective, over-the-top is not a new category but rather the next evolution of how TV can be enjoyed.

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US streamers paying $2.1BN per month on SVOD

According to Deloitte’s 12th edition of the Digital Media Trends Survey, 55% of US households now subscribe to at least one video streaming service, a 450% increase since 2009.

The survey also found, on average, that Americans watch 38 hours per week of video content (39% of which is streamed), nearly the equivalent of a full-time job. With over 200 SVOD options in the US, the average streaming video subscriber is paying for three services.

High-quality original content appears to be driving an increase in streaming with nearly half (48%) of all US consumers streaming television content every day or weekly, up 11% year-over-year.

Conversely, the report found that pay-TV subscriptions declined for the first time in recent years, with 63% of households still subscribing to a traditional pay-TV service, down from 75%. Pay-TV’s decline was seen to be especially pronounced among Generation Z (ages 14-20), Millennials (ages 21-34) and Generation X (ages 35-51).

“Consumers now enjoy unparalleled freedom in selecting media and entertainment options and their expectations are at an all-time high,” said Kevin Westcott, vice chairman and US media and entertainment leader at Deloitte. “The rapid growth of streaming services and high-quality original content has created a significant opportunity to monetize the on-demand environment in 2018.”

How an Hit TV Program Contributes to Amazon’s Profitability

Last week Reuters reported data from internal Amazon documents that for the first time provided insights into viewership of the company’s original TV programs and their contribution to creating new Prime subscriptions. Below I’ve done some additonal math using separately reported information to calculate how profitable at least one of Amazon’s original programs could be.

Last October, Fortune reported research from Consumer Intelligence Research Partners indicating that Amazon Prime subscribers spend an average of $1,300 per year compared to an average of $700 per year that non-Prime subscribers spend. (Note, back in Fall, 2016, Morgan Stanley said that according to its survey, Prime subscribers spend nearly $2,500 per year, vs. $544 for non-subscribers). For the purpose of my calculations, I just used the CIRP estimate of $600 incremental spending per year by subscribers.

The Reuters article notes that the Amazon program “The Man in the High Castle” delivered 1.15 million new Prime subscribers worldwide. So, multiplying this by the incremental annual spend of $600 yields $690 million in incremental revenue from these new subscribers. Amazon’s North American e-commerce operating margin in 2017 was approximately 2.7%, so the operating profit on the incremental revenue would have been around $18.6 million (this is rough, because some of the incremental subscriber spend came from international where it is undoubtedly lower and also where Amazon actually still loses money on an operating basis).

In addition to the annual incremental spending benefit, those 1.15 million new subscribers also spent $99 to belong to Prime, which would be another $114 million in annual revenue. The operating profitability of the membership fee is hard to calculate given all the different benefits and their costs, but assume it’s 50%, so the profit would be around $57 million. In total that would mean “The Man in the High Castle” delivered year one profits of $75.6 million vs. its cost of $72 million, or $3.6 million net profit, a 5% margin. But keep in mind this is only year one; as long as Amazon retains these 1.15 million subscribers, the profitability multiplies. In addition, there are further revenue streams derived from Prime members such as add-on subscriptions to video services through Amazon Channels.

Admittedly, the above math is a little rough, and it should also be noted that Reuters’s own reporting hasn’t been independently verified. Still, Amazon CEO Jeff Bezos has been extremely candid about the benefits of video to Prime. In an interview with Recode in mid-2016 (see 37:32 cue point), Bezos said that “When we win a Golden Globe, it helps us sell more shoes,” adding that both Prime’s free trial conversion and annual renewal rates increase when subscribers watch video. He actually cited “The Man in the High Castle” as an example of programming that works really well, no surprise.

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‘Advertising Is Dead,’ And Other Thoughts From Faith Popcorn

Forecasting the future of marketing and predicting trends is always risky, but Faith Popcorn is pretty good at it. No less a source than The New York Times has called her “The Trend Oracle,” while Fortune named her “The Nostradamus of Marketing.” Popcorn is not only a futurist, but also an author and the founder and CEO of marketing consulting firm Faith Popcorn’s BrainReserve.

What distinguishes her is her practice of “Applied Futurism,” which translates her cultural trend insights into actionable business strategies to help her clients reposition established brands and develop new and innovative business models, products, and services. She has advised national advertisers including American Express, Avon, Bayer, Campbell’s Soup, Citigroup, Pfizer, Johnson & Johnson, Kellogg, KFC, Mars, SC Johnson, Tylenol, and The United States Postal Service.

Popcorn, who is scheduled to speak at the annual Association of National Advertisers’ Brand Activation Conference in Chicago April 16-18, offers her views on upcoming trends and what to look for in the midterm elections in November.

Q. What is the single biggest emerging trend that you see impacting marketers in the near future?

A. Without a doubt, it’s the End of Old-School Masculinity and the Death of Gender. Not only are we at a moment where women and men are moving to a new relationship, we are at a time when men and women are no longer the only game in town; younger generations, millennials and Gen Z, in particular, are increasingly gender-fluid — 20% — and evolving toward one gender. How we market and message is about to be revolutionized.

Q.What kind of impact do you think the #MeToo and #TimesUp movements and the overall gender-equality issue will have on marketers?

A. It’s having a huge impact. Think of the #grabthembythewallet movement that rocked many brands and businesses around the election; the consumer said, “I won’t patronize you if you support brands I don’t believe in.” Now, it’s coming closer to home. The consumer will say, “I won’t patronize you if you don’t elevate the causes I believe in.” Brands need to show that, internally, they are addressing sexual misconduct and gender inequality. They need to visibly support women.

Q. The midterm elections will be held in November of this year. What do you think will happen?

A. As a futurist, I hope people will vote and embrace their role in shaping tomorrow. And in light of this terrible year, may our lawmakers make gun control priority Number One. We all need compassion and healing and hope. I can’t stress this enough: In the marketplace and in the culture, values are the new value.

Q.How can marketers spot key trends and incorporate them in their overall marketing strategy?

A. Look for the signals of tomorrow — step out of your comfort zone, delve into pockets of the culture you usually avoid. We call it TrendTrekking. Then you connect the dots. Go to underground bars and clubs and offbeat cafes; see what people are eating and saying. Go sound-bathing. Try cryotherapy. And ask yourself, what need is this answering, and how can my business address that need?

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Amazon Prime Video By The Numbers

Prime Numbers

Reuters obtained audience numbers for Amazon’s Prime Video subscription service. According to the internals, by early 2017 Amazon Video had drawn more than 5 million people into the Prime loyalty program, and about 26 million people overall were watching content on the platform. Amazon now spends $5 billion per year on original content, as entertainment has proven a powerful on-boarding ramp to Prime membership and a virtuous cycle of consumer spending. Those video numbers also point to why Amazon keeps its most valuable content ad-free behind a subscription paywall, since it isn’t about recouping ad revenue for the studio investments. It’s about the lifetime value of a Prime subscriber compared to a mere logged-in Amazon shopper.

Fickle Friend

Facebook is offering to fund news publishers’ shows for its Watch video hub. But publishers, fed up with Facebook’s tendency to flip-flop on such offers, are proceeding with caution, WSJ reports. Facebook pulled a similar stunt with its Live section, spending $50 million to fund year-long projects for news pubs, and then failing to renew those deals the following season. Still, publishers are willing to take the risk if it means access to Facebook’s huge audience. “I think anytime Facebook is willing to pay, we’re more willing to play,” said a publishing exec. “The problem is that when these pilot programs expire, there is still no clear revenue channel. Then you’re stuck.” More. Related: The chairman of NBC News slammed Facebook, AdAge reports. “You can’t have a relationship with them.”

Asleep At The Wheel

Snapchat’s shares sank almost 5% Thursday after pop singer Rihanna called out the app for running a tasteless ad that asked users to decide whether they wanted to “slap Rihanna” or “punch Chris Brown.” Snapchat removed the ad, which ran inside a mobile game on the platform, and chalked it up to an error by its review team, which is supposed to block any content that violates its policy banning“shocking, sensational or disrespectful” content. “We are so sorry we made the terrible mistake of allowing it through our review process,” Snap said in a statement. “We are investigating how that happened so that we can make sure it never happens again.”

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YouTube TV rockets to top of vMVPD list in 2017

YouTube has been spending big to promote its vMVPD service. According to the latest data from TiVo, the service was used by 9% of consumers in Q4 2017. That would make it more than twice as big as its biggest rival.

YouTube TV ad blitz working

YouTube TV has been on an ad blitz for the last several months. The service was a very visible sponsor of Baseball’s World Series, spent big on other TV ad campaigns, and is doing more of the same this year. It is also advertising extensively to regular YouTube users. According to TiVo’s new Q4 2017 Video Trends Report data, the marketing spending is paying off.

TiVo added YouTube TV to the quarterly survey for the first time in Q4 2017. An amazing 9% say they use the service. The next nearest service, DirectTV Now, has less than half of YouTube TV’s total, and Sling TV has less than a third. We should perhaps treat the YouTube TV number cautiously. It is possible some survey respondents confused YouTube TV with YouTube on TV. That said, even if YouTube TV has just half the number of users as TiVo indicates, it is still the new category leader.

The TiVo numbers suggest the size of the vMVPD market could be much larger than the 4.5 million estimated. Dish Network reports that Sling TV has 2.2 million subscribers. YouTube TV could already have more than 4 million subscribers, and it could also mean the total number of vMVPD subscribers is almost double the previous estimates.

SVOD continues its inexorable advance

TiVo’s data says that SVOD continues to grow in all dimensions. 68% say they use an SVOD service, up more than 4% over the previous year. Netflix continues to dominate, with 55% saying they use the service. 26% use Amazon Prime Video, 17% use Hulu, and 6% use HBO NOW.

Spending on SVOD services increased strongly. The number of people spending more than $15 a month increased from 27% in Q4 2016 to 35% one year later. However, it could be vMVPDs that are driving this number, rather than people subscribing to multiple SVOD services. Only one vMVPD, Sling TV, has a tier below $21 a month. The rest charge $35 or more per month. The increase in the number of people spending over $21 a month was 9%, with 7% paying over $30.

Time spent with the services also increased. 93% of people that subscribe to SVOD services say they use the service every day, 3% higher than two years ago. As well, the number of people that say they use their service for less than 1 hour a month decreased 10%, to 12%. Meanwhile, those using their service for 2 hours a day or more increased dramatically. A third say they watch their SVOD services for more than 3 hours a day, and almost a half watch from 1 to 3 hours per day.

TVOD continues its slow drift downwards

Transactional VOD continues to struggle in the digital era. The number of people saying they had rented or purchased a movie or show online declined slightly over the last year, to 37%. Amazon maintained and slightly extended its lead, with 18% saying they used Amazon’s video store in Q4 2017. Redbox kiosk users fell slightly to 13%. Apple also lost a little ground to Amazon, with only 8% of saying they used iTunes in Q4. Google Play looks as though it may overhaul iTunes this year. It gained slightly more users and is only a little behind iTunes.

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Netflix’s real advantage is that it’s a tech company first

Netflix hasn’t been coy about its plans to take over Hollywood. The company has already said it could spend up to $8 billion on content this year alone. But, for all the awards House of Cards and Icarus rack up, one of the reasons Netflix has tasted success so rapidly is its streaming technology. That’s an area it has been perfecting in-house since 2010, when it became more than a simple mail-order DVD rental shop.

For Netflix, the tech is just as important as the storytelling. Regardless of how many shows or movies Netflix produces, it needs to ensure that its 118 million subscribers can watch them without issue — no matter where they are in the world, which smartphone they own or how fast their internet is. Netflix even recently re-encoded its entire catalog (said to be around 6,000 titles) to produce the best possible picture using the smallest amount of bandwidth, which was made possible by an AI technology it developed called Dynamic Optimizer.

During a tour of its Hollywood and Los Gatos headquarters, Netflix said that a typical episode of a show like Jessica Jones, which is roughly an hour long and is captured in 6K resolution, weighs in at 293GB of raw, unedited footage. That amounts to about 750 Mbps of data, which would basically kill your internet plan if you streamed it before it was compressed. The company says it used to be able to deliver content with “an enjoyable quality” at 750 Kbps, but last year it started using a new encoding framework that shrunk that to a mere 270 Kbps. In the real world, that means that if you have a 4GB data plan, you can watch 26 hours of Netflix per month, up from just 10 hours before. These improvements are especially important for developing regions where Netflix is trying to grow its business — particularly in Africa, Southeast Asia and South America.

Of course, Netflix isn’t the only one trying to develop the best streaming tech possible. BAMTech, the startup created by Major League Baseball’s Advanced Media and now owned by Disney, takes credit for being the first to stream in 60fps and in 4K. And its technology has such a solid reputation that it powers many of the most popular streaming services, including HBO Go, WWE Network and Disney will join that list when it launches its own offering in 2019, which is setting up to be a major challenger to Netflix, with cheaper monthly fees, a library full of popular titles and BAMTech’s engine under the hood.

The quality of streams counts for only so much, however, and Netflix is well aware of this. As such, the company says its other main focus is to provide the filmmakers it works with the necessary tools “to create content at a high level, then distribute that around the world.” Netflix says that most of its original shows and movies are being shot in 6K — though it’s only delivering that picture in 4K right now. Still, not only does this allow it to be ahead of the curve (others, like HBO, stream only in 1080p), but it gives Netflix the ability to future-proof its content.

Netflix has also been a big proponent of high dynamic range, which delivers richer colors and deeper blacks. The company now has more than 300 hours of HDR programming, but it says the challenge is to not make content only look good on high-end TVs. Everything Netflix makes and streams needs to be just as perfect whether you’re watching on an iPhone X, a Galaxy S9 or an older, entry-level smartphone.

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Study: 34% of Gen Zers are Leaving Social Media

Thirty-four percent of Gen Zers, or people born between the mid-1990s and early 2000s, say they’re permanently leaving social media, and 64% say they’re taking a break from the platforms, according to new research from Hill Holliday’s in-house research group Origin cited in Campaign.

The research also shows Gen Z’s paradoxical view of social media: 41% say the platforms make them feel anxious, sad or depressed, but 77% say the platforms offer more benefits than drawbacks. Twenty-two percent say social media makes them feel like they’re missing out, but 71% say the platforms have a positive effect on their relationships. Social media negatively impacts self-esteem, 29% of Gen Zers said, but 61% say it boosts their ego. Seventy-two percent said people their age spend too much time on social media, while 66% say the platforms help them make connections with people.

Some of the main reasons Gen Z members gave for considering leaving social media include the propensity for wasting too much time on the platforms (41%); too much negative content (35%); the fact that they do not use it very often (31%); a lack of interest in the content (26%); privacy concerns (22%); too much pressure to get attention (18%); too much commercialization (18%) and that social media makes them feel badly about themselves (17%).

Gen Zers are widely considered to be more social media-savvy than any other generation, but as the new Origin research highlights, their feelings about social media can seem somewhat contradictory, which suggests that the sluggish interest levels from younger consumers that Facebook has already been experiencing could start spreading to other platforms. To best reach Gen Z, which has a purchasing power of $44 billion, marketers need to refocus their strategies on using social media for good to help Gen Z foster their own identities. Marketers should also invest in using social media to tell compelling brand stories and spread highly personalized, relevant messages.

Mental health and well-being are important to Gen Zers, which is why many report taking breaks or swearing off social media altogether. Members of Gen Z also tend to be distrusting of institutions and expect a lot from brands, rewarding those with strong values and that support the causes they care about. Gen Z has a strong sense of purpose, and 69% think that brands should help them achieve their goals and 30% said they have felt excluded by brands because of their identity, per PSFK research. Brands that position their social media content as educational or collaborative and unobtrusive stand the best chance of engaging Gen Z on social media.

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Analyst: US pay-TV revenues to fall by $27bn

US pay-TV revenues peaked in 2015, at $101.71 billion (€82.51bn), according to the eighth edition of the North America Pay TV Forecasts report from Digital TV Research. A $26.58 billion decline (26 per cent) is forecast between 2015 and 2023 to take the total down to $75.13 billion.

Cable TV revenues peaked in 2010 at $54.11 billion, but they will fall to $36.75 billion by 2023. Cable will lose nearly 12 million subscribers between 2010 and 2023 (although most of the heaviest losses have already taken place).

“Cable TV is not the only platform to suffer,” noted Simon Murray, Principal Analyst at Digital TV Research. “Satellite TV and IPTV are also losing subscribers and revenues. Much of this is due to the operators shifting their subscribers to online platforms. However, growth from vMVPDs is not expected to make up completely for the subscriber and revenue shortfalls from traditional pay-TV.”

IPTV’s fall is mainly as a result of AT&T encouraging its U-Verse subscribers to convert to DirecTV, its other pay-TV asset. This is the reverse of what has happened in most other countries. IPTV revenues spiked in 2015 at $9.60 billion, and they will halve to $4.77 billion in 2023. The number of IPTV subs topped 12 million in 2014, but it will decline to 6.26 million in 2023.

Satellite TV revenues will fall from $39.78 billion in 2017 to $33.61 billion in 2023 – or down by 16 per cent. Satellite TV subscriptions will drop by 4.08 million between end-2017 and 2023; having fallen by nearly 3 million in 2017 alone. DISH is pushing its vMVPD platform Sling TV hard, with DirecTV Now also making an impact.

The number of US traditional pay-TV subscribers will fall from a zenith of 100.34 million in 2012 to 90.35 million by end-2017 and down to 80.33 million in 2023. Pay-TV penetration will fall from 87.6 per cent of TV households in apex year 2013 to 66.7 per cent in 2023.

Although Canada is losing pay-TV subscribers, its problems are not as severe as its Southern neighbour. Pay-TV penetration reached a high point in 2013 at 85.1 per cent. The level will fall to 74.8 per cent by 2023. However, the number of pay-TV subscribers will be 11.17 million by 2023 – about the same as 2017. Pay-TV revenues will fall from a peak of $6.82 billion in 2015 to $6.01 billion by 2023.