As TV ratings slump, will content providers eventually find OTT makes more financial sense?
A new report from the Diffusion Group predicts that OTT ad revenues will quadruple to $40 billion in the next five years, while traditional TV advertising will hold steady at around $85 billion. Ad spending continues to shift from television to the web, and many are beginning to wonder if profitability will eventually follow. Currently TV is a pretty sweet deal for content providers who are used to being able to command a king’s ransom from cable providers, who in turn don’t sweat the cost which is passed on in its entirety to customers. But decades of that practice have given birth to the cord-cutting trend. Fed up with high prices, many cable subscribers are opting to drop pay-TV rather than continue to contend with ever-rising prices.
Now in 2015, that trend shows no sign of slowing down, and the future is looking grim for the cable companies who have depended on that increasingly vulnerable business model. The price of pay-TV is closing in on a tipping point for large numbers of consumers, which will in turn be a tipping point for the entire business. With fewer and fewer video subscribers, the cable companies won’t be the cash machines for channels and content providers that they once were.
Content providers could find refuge in the same place as frustrated cable customers: the internet. While TV ratings are down across the board, online viewership is exploding, and with it, online ad spending. Additional revenue-making opportunities that don’t exist with cable also make web-delivered TV increasingly attractive to content owners and TV networks. If there’s more money to be made online than on cable, you can bet that’s where channels will begin to go, once they get over their current fears of upsetting the pay-TV apple cart, as some networks like HBO and CBS already have. The evidence is strong that that time is now. When Sony’s “The Interview” was rejected by theaters following terrorist threats from North Korean hackers, the film premiered online instead, via streaming services, where it put up impressive numbers and made Sony a nice chunk of change in the process. If other content creators discover that they can replicate that success, they’ll suddenly find themselves much less attached to the pay-TV providers.