American consumers’ TV-watching habits have changed drastically in the past five years. Not only are viewers time shifting their watching (e.g., DVRing), causing shows’ ratings to decline, but they are also subscribing to Netflix and other “over-the-top” (OTT) streaming services that offer more programming than a person could ever watch in a lifetime.
Just how big of a problem is all this for the TV industry?
L.E.K. Consulting conducted proprietary research late last year to answer this question and to determine what the industry needs to do not only to survive but also to grow.
First, the good news. Despite changes in American consumers’ TV-viewing habits, traditional TV is still the form they view most, now accounting for 25 percent of media consumption. OTT video, which consists of paid OTT (e.g., Netflix) and free OTT (e.g., YouTube), accounts for just 13 percent of consumption. The majority of OTT consumption is via subscription video on demand (SVOD), which comprises mainly Netflix and a few other services. Interestingly, non-video Internet usage (e.g., Facebook, Twitter) accounts for 20 percent of consumption, more than 1.5 times video OTT consumption.
Companies have worried about the rising popularity of user-generated content, including by YouTube and Vine personalities, but such content has not been as big a threat as once feared. Americans still prefer professional SVOD content (e.g., Netflix, Hulu, Amazon Prime Video) to user-generated content (e.g., PewDiePie’s YouTube antics or Thomas Sanders’ Vine shenanigans).
Another major category likely contributing to TV’s declining popularity is gaming, which now accounts for almost 10 percent of time spent consuming media. Console gaming and PC gaming make up roughly two-thirds of that share, thanks in large part to Fallout 4 marathon sessions. Mobile gaming accounts for the other third. See below for the details:
Now, the bad news. Traditional TV is king for Americans as a whole, but that is not the case for all age groups. Our research shows that millennials (age 18-35) watch significantly less traditional TV than do older non-millennials. Non-millennials (those over 35) watch almost 2.5 times more traditional TV than millennials do (32 percent vs. 13 percent).
Rather than watch TV, millennials are much more active with OTT services, spending 20 percent of their media consumption on OTT services (vs. just 9 percent for older non-millennials) and 12 percent on video games (vs. 7 percent for older non-millennials; apparently Candy Crush is still quite popular with boomers).
The graphic below shows the shocking differences between the amounts of time these groups spend consuming various media types:
These statistics confirm TV companies’ fear that their large audience today will melt away as millennials account for an ever-increasing share of the population. Furthermore, TV companies worry about the “zombie scenario,” in which millennials “infect” older non-millennials with their new watching habits.
Could “Doomsday” be around the corner? Is a “Zombie Apocalypse” possible?
We can look to the music industry’s transition as a cautionary tale, given that its revenues have dropped precipitously — about 5 percent per year over the past 15 years — since the advent of Napster and other online music-sharing services:
If the TV industry mirrors the music industry, TV companies could be in serious trouble. But TV companies are learning from the music industry’s experience, so they do not have to end up in nearly as bad shape. TV companies are changing the way they operate – not content to simply play defense, they are actively playing offense in order to make more money in the new world of media consumption.
Over the next few weeks, we will dive deeper into the TV ecosystem to better understand what has spurred changes in consumption, how advertisers are reacting to TV’s struggles and how TV companies can prosper. Tune in for more next week — same Bat-time, same Bat-channel.
This is Part 1 in a series on television trends by Dan Schechter, Gil Moran and Michael Kaufman from L.E.K. Consulting’s Media & Entertainment consulting practice.