Recently, I discovered, to my horror, that my wife and I have 10 streaming-video subscriptions—and I might be undercounting. I stopped paying for cable service years ago, and largely avoid watching old-school, ad-supported commercial TV unless I’m binging on cable news. Still, I never know what to watch. So, when I spy something intriguing on a service I’m not already getting—Ooh, look! Killing Eve on AMC+! —I tend to succumb. Cha-ching.
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Turns out that I have plenty of company. Nielsen this month disclosed that U.S. streaming in July passed cable viewership for the first time, with 34.8% of total viewing hours, versus 34.4% for cable, and a paltry 21.6% for broadcast TV. The news spurred media analyst Michael Nathanson, co-founder of research boutique MoffettNathanson, to dive deeper. What he found should alarm the entire TV business, cablers and broadcasters alike.
Among other things, Nathanson discovered that broadcast viewership among 18- to 49-year-olds in July was down 39% from the level a year earlier. That’s shocking, although he concedes that the comparison was tough. July 2021 featured both the first week of the Tokyo Olympics and late-ending NBA and NHL playoff games. Even more disturbing than ice hockey in July, in Nathanson’s view, is that broadcasting’s loss wasn’t cable’s gain. Cable viewing hours that month fell by 18%.
Nathanson warns that cable networks’ ad sales will remain under pressure as viewership shrinks. The cablers and broadcasters also face the imminent arrival of serious new competition for advertising dollars, as
Netflix
(NFLX) plots the debut of an ad-supported subscription tier for early 2023. For years, Anthony Wood, the CEO of
Roku (ROKU)
,
has been saying that all content, including ads, eventually will be streamed. His prophecy now seems inevitable.
Nathanson’s firm has Neutral ratings on most content providers, including Netflix,
Warner Bros. Discovery
(WBD),
Disney
(DIS), and
AMC Networks
(AMCX). And it has Sells on
Paramount Global
(PARA) and Roku. Nathanson’s sole Buy in the group is Fox (FOX), which he says wisely sold its entertainment assets to Disney, and now focuses on sports and news, where viewer interest in ad-supported TV remains. Fox is also the group’s only member without a subscription-based streaming service (no, you can’t count Fox Nation), avoiding a segment in which competition is fierce and differentiation challenging. (Fox and Barron’s parent,
News Corp
(NWSA), share common ownership.)
Nathanson actually thinks the cable bundle can be saved…if it’s stripped to its essence—again, sports and news. He thinks the U.S. audience for pay TV will keep shrinking, from about 80 million households to 60 million over the next four or five years, with the remaining subscribers mainly hard-core sports fans.
But the cable audience could be even smaller if more sports shift to streaming. One wild card is what happens to NFL Sunday Ticket, which lets football fans watch out-of-market Sunday afternoon games. DirecTV has had the rights to Sunday Ticket since 1994, but that deal runs out after the coming season. There’s an intense bidding war to take control of the service, with bidders reportedly including
Apple
(AAPL),
Amazon.com
(AMZN),
Alphabet
(GOOGL), and Disney.
Apple has the deepest pockets. It has been aggressively seeking sports programming to boost Apple TV+. The company already streams Friday night Major League Baseball games, and recently secured rights to Major League Soccer matches.
As Evercore ISI analyst Amit Daryanani points out in a research note, DirecTV pays $1.5 billion a year for Sunday Ticket. He expects the price to jump to at least $2.5 billion for Apple (or whomever wins). The analyst thinks Apple could boost the number of Sunday Ticket subscribers well beyond the current two million, but adds that “there is no real plan for the service to be stand-alone profitable.”
That seems pretty evident. Daryanani notes that if Apple sticks with the current subscription price—$300 for the season—it would need to quadruple the subscriber base to eight million to break even. True, Apple has a structural advantage over DirecTV; you don’t need a satellite dish for Apple TV+. But the average NFL game in 2021 had 17 million viewers, and the number of people who want to watch out-of-town games is likely a lot lower than that; eight million might be a stretch. DirecTV lost money on Sunday Ticket, using it to boost its subscriber base. Apple might take the same approach.
One bold option, Daryanani proposes, would be for Apple to roll Sunday Ticket into Apple TV+, which costs $4.99 a month, for no extra charge. If you assume a four-month season, at that rate Apple would need 125 million incremental subscribers to break even on the NFL package. Tim Cook & Co. can’t possibly count on that; 112 million people watched the 2022 Super Bowl broadcast on NBC. But Apple this year will have net income of about $100 billion; if anyone can afford this kind of loss-leader, it’s the iPhone maker.
The notion of giving away Sunday Ticket has other merits. It would make Apple TV+ a must-have for football fans, who might then stick around to watch shows like Ted Lasso, For All Mankind, and Severance. It would be a gut punch for other streamers. And it might eventually entice more buyers to choose Macs, iPads, AirPods, iPhones, and other Apple gear, and attract more subscribers for other Apple services.
“Sports are one of the last holdouts of the world of scheduled content with market appeal and significant advertising potential,” Daryanani observes. “We think Apple pushing deeper into sports makes a lot of sense in terms of driving subs to TV+, while also differentiating it from its peers in an increasingly crowded market.”
Oh, and one more thing, as Steve Jobs used to say: Apple holds its annual fall product launch event on Sept. 7, presumably to debut the iPhone 14. One day later, the 2022 NFL season starts. Commissioner Roger Goodell has said the league will announce a new Sunday Ticket partner in the fall. Apple’s launch is about a week earlier than it has been in most years, for no obvious reason. I have no idea what will happen, but I suggest tuning in.
Write to Eric J. Savitz at eric.savitz@barrons.com
