In a new report, analyst Todd Juenger of Sanford C. Bernstein, says the big third quarter drop in C3 ratings for ad-supported TV is largely the fault of subscription video on demand players like Netflix and Amazon. And that the erosion is likely to increase.
Checking data from both Nielsen and Rentrak, Juenger believes the decline is real and not just a measurement error.
"We don't believe people stopped watching stuff. We believe they are watching it in different ways. We examine all the evidence at hand and come to a strong conclusion that SVOD is primarily to blame," he says. "It seems SVOD is no longer incremental, it has become cannibalistic (especially in the summer, when linear TV is at its weakest)."
"Viewers like SVOD because it offers programming on demand, without advertising and offers a pleasing interface and helpful recommendations," Juenger says.
"Hence, we don't think those viewers are coming back. The trend is more likely to accelerate than decline," says Juenger, who predicts another 4% decline in linear TV because of increased viewing of Netflix alone.
The viewer drain puts media companies in a bind. They can either stop selling content to Netflix and the rest of the streamers or they can continue to watch ratings and ad revenues drop.
"In the immediate future, we expect exactly the opposite behavior from most content owners. They are more likely to increase the amount of content they license to SVOD, to make up for the lost advertising revenue. Which will only make the problem worse," Juenger says.
Juenger says that Nielsen puts the third-quarter drain at 4% for total day and that Rentrak data shows an even more severe decline of 7%. The drop is bigger in primetime and gets steeper among younger demos.
That will limit ad revenue growth. Juenger says he's previously assumed that TV ad revenue would mirror economic growth as measured by gross domestic product, but now he says TV will lose share of marketing budgets and grow at "GDP minus."