In a new report titled Pouring Recessionary Gasoline On a Secular Fire, S&P Global outlines trends that will increase the pressure on an already challenged media industry.
The trends are impacting both traditional TV and streaming, and revenue from advertising as well as distribution.
“Margins and cash flow for global media companies, more than their leverage, will remain depressed as streaming struggles to achieve profitability and linear TV weakens,” is the bottom line, as far as S&P is concerned.
The impact of the recession depends on how long it lasts and what a recovery looks like, S&P says in its report.
“Recession increases vulnerability of linear TV with higher cord-cutting, declining audience ratings, and weakened advertising,” S&P said. ”Overall advertising showing signs of weakening, with limited visibility heading into 2023. Upfront remains resilient because advertisers need TV’s reach, but scatter weakened over the second half of 2022.”
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S&P forecasts that total TV ad revenue will fall 8.2% in 2023, with network TV down 5.7% and cable down 3.5%. Local TV, including political advertising, is expected to drop 18.9% in a non-election year. By contrast, digital advertising is expected to grow by 9%.
“Is 2023 the year when both affiliate fees and advertising declines finally hurt financial metrics?” the S&P report asked. The credit ratings agency’s forecast calls for cord-cutting to hit 9.7% in 2023, up from 9% in 2022. Including virtual multichannel video programming distributors (MVPDs), cord-cutting is seen as reducing the number of pay TV subscribers by 6.5% in 2023, compared with 6% in 2022.
“Can legacy linear television continue to hold on? TV has thus far performed better than expected,” S&P said. “While cord-cutting has reaccelerated and audience ratings continue to free-fall, advertisers have remained committed to advertising on linear TV. But for how long?”
The move to streaming isn’t helping the media business yet.
"Streaming is not as profitable as linear TV," the S&P report said. "Not every direct-to-consumer (DTC) service will succeed — what will companies do to survive if their service underperforms?"
Interesting statistic: On average, consumers subscribe to four to five streaming video services. Subscribing to the ad-free tier for all nine SVOD services (including Amazon Prime Video) would cost $104 per month.
“General-entertainment SVOD services can only achieve profitability and free cash flow with economies of scale (global reach and scaled content),” S&P said, noting that only Netflix, The Walt Disney Co. and Warner Bros. Discovery have scale in owned content and global reach.
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“Growth in new content spending should stabilize in 2023 as companies embrace DTC profitability,” S&P said.
Content remains king, the report also says, as spending on programming is not declining.
The report notes that there is still healthy demand from streamers for original programming to drive new subscriber growth and for library content to retain subscribers, but warns that selling to streamers weakens studio metrics.
“Standalone studio financial results no longer reflect true economics of the business,” S&P said. ■
