Who Wins In An Ad-Free Video World? I'd Bet On Amazon

Dave Morgan

Founder & CEO

Originally posted on MediaPost

On average, Americans today watch four and one half hours of television every day, with the better part of an hour of that viewing on ads. This viewing is under pressure from streaming video-on-demand services like Netflix, Hulu, Amazon Prime Video and HBO Now.

While five years ago some may have thought that these streaming services would only grow to be complements to traditional television viewing, akin to updated versions of the premium cable channels like HBO and Showtime or video rental stores like Blockbuster, it’s clear that they now represent a real and existential threat to traditional TV viewing. Probably 15%-20% of all premium video viewed in the U.S. today is provided through a streaming service. While some of this viewing might be incremental to TV viewing, a significant part of it is now replacement viewing.

Yes, streaming services are starting to eat away at multichannel TV. This is most evident with the introduction and consumption of “skinnier” cable TV bundles, and there is no reason to think that this won’t continue. Without question, this will have significant negative consequences for many TV networks, but I wonder if many folks have considered the most serious consequences that this may have for the marketing industry overall.

Probably 15%-20% of all premium video viewed in the U.S. today is provided through a streaming service. While some of this viewing might be incremental to TV viewing, a significant part of it is now replacement viewing.

What if 50% of today’s linear TV viewing shifted over to streaming services over the next three or four years?

A lot would happen. Hundreds of billions of dollars of retail brand sales could be put in jeopardy, while brands’ relationships with retailers would change dramatically. Here’s why:

Loss of ad-supported TV means massive loss of opportunities to reach U.S. consumers. Linear TV programming has 12 to 16 minutes of ads every hour. The streaming subscription services have virtually none. Marketers like McDonald’s, Coca-Cola, Gillette, State Farm and General Motors depend on TV advertising to reach tens of millions of consumers every day with multiple high-impact sight, sound and motion messages at affordable costs. In highly competitive markets, if marketers don’t reach and remind both existing and potential customers of their products and promotions, sales drop, sometimes precipitously.

Limited ability of other media channels to substitute for TV. No other media channel today can come even close to TV when it comes to reaching lot of people fast and cheaply, with impact. Don’t forget, this afternoon “Judge Judy” delivered more audience ad minutes in a 30-minute show than did all of the videos on all of YouTube in all of America all day. Yes, radio, Facebook and Youtube can reach a lot of people. So can digital out-of-home and mobile, but these channels are still nascent and not yet fully ready to step up and replace 50% of TV.

TV ad pricing goes up, probably by a lot. TV ad prices rise when demand increases more than supply. That has been the case for decades. However, if you normalize the dollars to inflation and look back decades, the rise hasn’t been that out of whack. That will change if streaming services displace a big chunk of linear TV ad inventory. A 50% drop in supply and no change in demand would almost certainly mean that prices would double — which might be a conservative estimate, since the bidding would be even more intense, likely leading to even bigger increases.

Big retailers’ leverage over brands would increase substantially. If slotting fees were a problem for brands before, they will get even worse. If brands don’t have TV ads to inform and persuade millions of people to choose their brands before they get to the store, brands will have to pay up even more inside the store to stand out from their competition — whether that means slotting fees, lower prices or package discounts. Whatever it takes, it will be expensive.

It’s hard to say exactly who all of the winners will be in this scenario, but one company certainly stands out as a very likely big winner in a future where one-half of TV viewing shifts quickly to streaming services: Amazon.

Why? First, Amazon is a strong and growing player in providing streaming video services, whether through its Prime Video, as a partner to HBO and Showtime or through its Twitch service. More streaming video means more customers.

Second, the “Everything Store” is by far the largest online retailer in the U.S., and beginning to challenge top incumbents like UPS and FedEx as one of the country’s largest delivery and logistics services. If brands like Gillette can’t communicate to their prospective customers on TV anymore, they will find themselves much more dependent on Amazon to keep them from losing market share to competitors like Dollar Shave Club.

Third, Amazon is a company built on disruption, better prepared to handle change and exploit it at scale than virtually any other company in the world. If the TV ad business turns upside-down overnight, I’d bet on Amazon to find ways to exploit it.

What do you think? Will the premium video business go streaming and ad-free? And, if it does, is Amazon the big winner?