WHY THIS MATTERS: Kids are streaming and gaming, cutting into ratings and revenue for children’s programmers, which are fighting back with more digital content.
When SpongeBob SquarePants first appeared on Nickelodeon in 1999, kids didn’t have YouTube to watch. They couldn’t stream Hulu or check out pictures on Instagram. There was no Snapchat. Forget Fortnite.
But this is 2018 and there’s trouble in Bikini Bottom for cable networks that depend on kids tuning in.
Like Wile E. Coyote trying to catch the Road Runner, Nickelodeon, Cartoon Network and Disney Channel are trying to embrace technology to recapture their pint-sized meal tickets, but at this point there’s not much light at the end of the tunnel that’s painted on the side of the mountain.
Ratings are plunging. For the week of Oct. 22, kids cable networks were down 28% from the same week a year ago. (They fell 28% again the week of Oct. 29.)
“We’ve officially hit the one-year anniversary of the group declining 20% or worse in every week,” Sanford C. Bernstein media analyst Todd Juenger said in a research note. “Putting this in a broader context, kids’ networks have declined by over 60% in aggregate viewing over the past seven years.”
That translates into lower advertising revenue and lighter cash flows for the big children’s programmers.
Somehow, affiliate fees and ad rates for kids’ networks have risen over the past six years, Juenger noted, but he doesn’t expect that to continue much longer. “We struggle to see how fully distributed, ad-supported linear kids’ networks will even exist in 5-10 years. Maybe as part of an optional package, but not forced on every subscriber,” he said.
Revenues on the Downslide
Kagan said it expects Viacom’s ad revenues for Nickelodeon and Nick at Nite (which share a channel) to finish 2018 at $857.9 million, down 14% from last year. Nick’s ad revenues were $1.146 billion in 2015. Similarly, ad revenues at WarnerMedia’s Cartoon Network/Adult Swim are projected to be down 14%, to $530.7 million.
The revenue declines are cutting into cash flow. Nick/Nick at Nite’s cash flow is expected to drop 16%, to $695.3 million; Cartoon Network/Adult Swim is projected to fall 17%, to $365 milion; and, at The Walt Disney Co., Disney Channel is slipping 3% to $996.76 million from $1.024 billion, according to Kagan.
Viacom recently installed Paramount Pictures executive Brian Robbins as president of Nickelodeon. Robbins’ task is “evolving the brand for a new generation of young audiences, including further bolstering its content pipeline through a mix of new and legacy franchises and accelerating its push into next-generation platforms and feature film,” according to Viacom. Nickelodeon accounts for 30% of Viacom’s revenue.
The cable networks argue that kids are still watching a lot of TV. They’re just doing a lot of other stuff, too.
“At the end of the day, TV is still the place where they’re spending the most amount of time,” Ron Geraci, executive VP, research and planning for Nickelodeon Group, said. “But we know that there are other platforms and other avenues in which they are spending their time.”
Said Cartoon Network executive VP and chief marketing officer Michael Ouwleen: “It’s indisputable that kids still love cartoons. They come at it through a bunch of different devices and a bunch of different ways. They have so many options, so many more than any other generation ever, ever, has.”
Last year, Nielsen looked at the younger viewers who comprise Generation Z (consumers age 13 to 17) and found that they spend less time with TV than their older counterparts. Their live and time-shifted TV viewing fell to 2 hours and 18 minutes in the first quarter of 2017 from 2 hours and 34 minutes in the first quarter of 2016.
This year, Nielsen found that kids age 2 to 11 spent one hour and 10 minutes on TV-connected devices. During the first quarter, Nielsen found that of the total amount of time kids 2 to 11 spend using TV, 15% was spent with streaming content.
Measuring young viewers isn’t child’s play, and kids’ cable networks complain they don’t have good numbers for how many viewers are watching their content away from the TV set, especially on iPhones and iPads.
“We as an industry have not found a solution to measuring kids and mobile devices, and the last time I checked, they do a lot of that,” Disney Channels Worldwide senior VP, consumer insights and programming strategy Jane Gould said. “There’s a huge gap, and we do a lot of filling on our end, but it is through more traditional techniques which help us understand what the gap might be, but in no way comes close to filling that measurement gap.”
Best as Gould can tell, kids age 6 to 11 are watching five hours and 27 minutes per week of Disney Channel TV content, a number that has held fairly steady for 10 years. That illustrates kids aren’t rejecting Mickey Mouse, animation and other forms of traditional programming for children, she said.
“If you go back even just 10 years, they didn’t have as many choices and now that they do, they’re making room for all these different kinds of content,” she said. “I have not seen them reject a particular format as a result. It’s just that they are watching more things more often.”
Cord-Cutting, but Still Watching
Back in the old days, family content was one reason to subscribe to cable, giving parents a hand watching the kids. But these days, cable is seen as expensive and families are cutting the cord and finding things to watch via broadband.
One thing they’re watching is YouTube, which is odd because YouTube notes that, according to its terms of service, its users are supposed to be 13 and older. That would be news to my 12-year-old daughter, a devoted YouTube viewer for several years.
The YouTube Kids App for kids younger than 13 was created in 2015. It’s available in 43 million countries and claims more than 14 million weekly active viewers and more than 70 billion video views since its launch.
A Pew Research survey in November found that 81% of parents turn to YouTube for kids’ content. But the survey also found problems with programming available on the platform: 64% of respondents said what they found there was false or untrue and 60% said some videos depicted “dangerous or troubling” behavior.
“Protecting kids and families has always been a top priority for us,” a YouTube spokesman said in response to the study. “Because YouTube is not for children, we’ve invested significantly in the creation of the YouTube Kids app to offer an alternative specifically designed for children, as the Pew report mentions. We’re always looking to improve to give families more information about how to stay safe online and to make our products safer.”
Before uploaded content becomes available on YouTube Kids, it must pass muster via review by machine learning systems and algorithms, YouTube said. When a video in the app is flagged as a potential problem, people specially trained for YouTube Kids are available to step in and review it on a 24-hour basis.
YouTube also said it offers controls so parents can pick the videos their kids see and limit the amount of time they can spend watching the app. Parents can also pay a premium for an ad-free version.
Competitors Stream In
Other streaming sources are gearing up to offer more competition for kids cable networks.
Netflix, which has borrowed billions of dollars to create original programming, in November announced a slate of animated feature films and original series for kids and families.
Netflix, which is stingy with its data, claims nearly 60% of its subscribers stream kids and family content each month.
“I think we all know about a game called Fortnite,” Disney’s Gould added. “This summer, the impact of Fortnite was real and loud, and it will be interesting.”
Disney itself next year will launch its own streaming service, Disney+, featuring family and kids’ content.
So what are cable networks supposed to do? By and large, they espouse a philosophy that they must take their brands and content wherever this new generation of kids are going.
They are making digital videos, putting content on social networks and creating games. So far, though, they haven’t replaced the traditional pay TV dollars that have been melting away.
The networks aren’t seeing much in noncable TV revenues, Kagan senior analyst Derek Baine said. Streaming has not been growing kids networks’ commercial ratings, and after the three-day window, there is some revenue, but it is generally less than 5% of linear, he said.
“I think the monetization models are hopefully going to present themselves,” Nickelodeon’s Geraci said. “Certainly in the SVOD space, there are platforms out there that are making money and, we feel like that’s a place where we can live and potentially grow revenue.
“In our consumer products world, our location-based experiences with [live event] SlimeFest and our tourism and some of the other things that we’re doing, there’s opportunity certainly to get at kids outside of the different platforms that we offer,” he added.
To be sure, lots of kids are still watching cable.
“On television, at least on Cartoon Network, you still have a loyal base of 4 to 5 million [viewers] coming in every week and watching close to three hours of programming,” Cartoon senior VP, programming Vishnu Athreya said.
“What’s interesting is their day is not 24 hours,” he said. “Their day is closer to 29 or 30 hours, where there is a lot of multitasking. So while watching something, they’re playing something or they’re sharing something. It’s almost like they’ve extended their day beyond regular consumable television hours.”
Cartoon said it’s starting to get traction with its digital efforts.
“We’re seeing digital engagement really spike,” Ouweleen said. “It’s always been growing, but this year it’s really been spiking.”
Cartoon Network app usage is up 87%, and SVOD views of its content are up 61%. Mobile game usage has grown by 23%.
Cartoon has begun doing programming stunts and premiering episodes and seasons of its series on its on-demand platforms.
“The real growth we’re seeing is connected devices,” Ouweleen said. “Kids are using Roku the way kids 10 years ago used cable, where they’re turning it on and leaving them on. So, minutes consumed on connected devices has grown for Cartoon Network 350% year over year. That’s a big number.”
Making a Short-Form Play
Nickelodeon is banking on its Viacom Digital Studios to create short-form videos that can attract kids on digital and social platforms and on its Entertainment Lab, which dabbles in new technologies like virtual reality.
Nick kids’ star JoJo Siwa is being featured in a show made for YouTube called The JoJo and BoBo Show Show. It has also created The Loud House 360, an original video where viewers can explore the Loud family household from all angles, Geraci said.
Nickelodeon has also launched 65 mobile games that have collectively generated more than 100 million downloads.
Some of the more popular games involve well-known Nick franchises such as Teenage Mutant Ninja Turtles, SpongeBob SquarePants and Paw Patrol. Another Nick show, Game Shakers, is about kids who start a game company; one of their games is called SkyRail. Nick was pleasantly surprised when it launched SkyRail as a real game and it generated a tremendous number of downloads, according to Geraci.
Disney has been running a daily quiz program on its linear channel and on its app that encourages interactivity. “We continue to iterate that model,” Disney’s Gould said.
But while today’s kids crave what’s new, there remains a spot for they’ve always liked.
Even while marking his 90th birthday, Mickey Mouse still gives children a sense of excitement, joy and safety, Gould said.
“With this generation of kids, there is this desire to connect with what’s new,” Gould said. “But there’s an equal part of them that wants that comfort food and the repeatability of characters and stories, and you see them sharing these with their families and their friends. They say, ‘Let’s watch Frozen again, because it makes me feel good.’ ”