There are now multiple “Doom Loops” eroding the value of traditional US TV. Billions of subscription and ad dollars flow out of the industry each quarter, compounding the problem.
Doom loops accelerate the decline of traditional TV
MoffettNathanson captured two dynamics that have combined to accelerate the decline in the traditional pay TV industry. Colorfully dubbed the twin “Doom Loops,” they show how cord-cutting simultaneously:
- Drives TV programmers to disinvest in traditional TV and invest more in their streaming services, which fuels cord cutting
- Forces fewer subscribers to shoulder the burden of sports licenses, which leads to increased subscription fees and more cord-cutting.
However, more Doom Loops are at work dragging the traditional TV market down. For example, cord-cutters’ flight to Internet TV boosts ad and subscription revenue, which allows SVODs and FASTs to invest in more and better content, which drives more cord-cutting.
We do not need to look far to find evidence of the impact of these Doom Loops on cable, satellite, and telco TV.
Traditional pay TV losses impact sports
MoffettNathanson says cable, satellite, and telco TV operators lost 2.3 million video subscribers in the first quarter of 2023. Penetration of US homes has fallen to about 45%. Worse still, vMVPDs have been capturing fewer and fewer of the disaffected traditional pay TV customers. The conversion rate of cord-cutters to vMVPD subscribers is now at its lowest level ever, 25.7%. In other words, 1.7 million households walked away from the big TV channel bundle and sports channels like ESPN that are a part of it.
The impact of cord-cutting is having a dramatic effect on sports channels. With the loss of 1.7 million subscribed homes, ESPN alone lost $15-$20 million monthly in license fees in Q1. Over the last year, the channel has lost over 5 million subscribers and nearly $1 billion in license fees. Little wonder ESPN is cutting staff, and head of the cable sports network Jimmy Pitaro is contemplating a future that is exclusively streaming:
“We’re going to get to a point where we take our entire network, our flagship programming, and make it available direct to consumer.”
Cord-cutting hits TV ad revenue
For the longest time, cord-cutting seemed to leave the amount brands spent on traditional TV ads untouched. The flight to SVOD, which at the time was predominantly ad-free, meant that opportunities to reach audiences were diminishing, making TV ads more valuable. However, that dynamic has changed. All top SVODs now have ad-supported tiers, and nearly three-quarters of North American viewers say they are watching FASTs services.
Many viewers are now accessible via Internet TV services, and TV ad budgets are finally beginning to shift online. eMarketer says that traditional TV ad spending generated $66.64 billion in the US in 2022. However, by 2027, the market will decline by 15% to finish at $56.8 billion. All the $9+ billion decline and more will flow to connected TV advertising. CTV ad spending will increase by almost 100% (or $20 billion) between 2022 and 2027 to reach $41 billion.
Billions of dollars departing the big TV channel bundle
Money is the fuel driving the collapse of the traditional pay TV ecosystem. And billions of dollars a year are leaving it and flowing through the connected TV ecosystem instead. That dynamic means cable channels are less able to compete with streaming TV services for sports rights, hard-pressed to spend money on original TV series, and struggling to deliver the audiences that brands crave. With each passing quarter, the problem is getting worse.
