Cord Cutters and Advertising: “Less than Meets the Eye”

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Introduction

“Cord cutting” is a term that has gained prominence in recent years, describing the practice of

cancelling, or downgrading, subscriptions to multichannel video program distributors (MPVDs).

This is often attributed to services like:

• Over-the-top (OTT) providers like Netflix, Hulu and Amazon Prime, as well as apps that run on

devices like Apple TV, Roku and Chromecast (some services are also referred to as subscription

video on demand, or SVOD; for simplicity, we refer to them as OTT throughout this analysis)

• Traditional entertainment networks offering standalone subscription services, such as HBO Now

and CBS All Access (which itself is venturing into original programming)

• Video content created for the web, from aggregators like YouTube to sites and communities

offering their own original video

Although the percentage of homes that subscribe to an MVPD has declined somewhat in recent

years, we’re seeing that digital, or streaming, video tends to be additive to traditional TV services.

Consumers are supplementing their MVPD subscriptions with a mix of free and paid services that

give them even more choice.

Cord Cutters and Advertising: “Less than Meets the Eye”

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This is good news for consumers, who have more freedom to discover and enjoy more content. It’s

also generally good news for advertisers, offering more opportunities to consistently engage those

consumers with more relevant messages. Success in this emerging space requires a careful look at

how audiences are consuming media and creating a balanced strategy based on the facts.

In this report, we examine three key takeaways for advertisers looking to better understand the

emerging video landscape:

• Comcast offers consumer choice and control, and the results show it

• “TV everywhere” choices continue to grow in popularity, while OTT faces some challenges

• Successful advertising isn’t about TV or digital video, it’s about TV and (the right)

digital video

Comcast Offers Consumer Choice and Control, and the Results Show It

In 2016, Comcast grew its video subscriber base by 161,000, to 22,508,000 (Comcast press release,

January 2017). Variety noted that it was the first time a major publicly traded cable provider

reported full-year positive video subscriber growth in a decade (January 26, 2017). What are some

of the reasons for that growth?

• Comcast’s X1 platform: now in approximately 50% of video customer homes, the X1 platform is

leading to better retention and higher customer satisfaction. By the end of this year, penetration

should be over 60% (Comcast earnings call transcript, January 2017). X1 offers features like

a voice-operated remote control, personalized recommendations and a sleek, modern user

interface.

• More ways to watch content: Comcast is using the X1 platform to both add more content beyond

“traditional” TV programmers and to provide an X1 experience to customers with other devices

in their homes. Comcast recently integrated Netflix within its X1 platform, empowering customers

to watch Netflix content using the same set-top box—and the same voice-controlled remote—

they’re already using (Comcast press release, November 2016). Later this year, the company

plans a similar integration of YouTube on the X1 platform (Comcast press release, February

2017) and has announced plans to integrate Sling TV, an app offering hundreds of multicultural

programs and channels (Comcast press release, November 2016).

What’s more, Comcast is currently beta testing an app for Roku devices that provides a full X1

experience in customer homes. Initially, customers can use their Roku in place of an additional

X1 box—for example, in a bedroom or home office, though it’s expected that eventually a Roku

device could become the primary set-top box (The Verge, January 31, 2017).

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“TV Everywhere” Choices Continue to Grow in Popularity and Use, while OTT Faces Some Challenges

Let’s begin by defining TV everywhere. The IAB offers this succinct explanation:

TiVo’s Video Trends Report for the third quarter of 2016 found that TV everywhere apps from

cable operators are growing in adoption, awareness and usage. Comcast recently enhanced its

app, XFINITY Stream (formerly XFINITY TV), offering more than 200 live channels as well as

XFINITY On Demand and remote DVR access, all on the go, with a full X1-like experience (Comcast

press release, February 2017).

Similarly, many television programmers offer their own apps, not to mention their websites, with

the ability to watch clips and full episodes of series, typically by entering their MPVD subscriber

information.

At the same time, there are some signs of slow consumer uptake or slowing growth when it comes

to OTT services. Consider:

• Sling TV, launched in January 2015, is estimated to have approximately one million subscribers

(Variety, November 16, 2016)

• Sony’s PlayStation Vue is estimated to have about 120,000 subscribers (Time, June 26, 2016)

• HBO Now, launched in second quarter 2015, has approximately two million subscribers

(Mediapost, February 9, 2017)

• Showtime’s streaming service, launched in second quarter 2015, has an estimated one million

subscribers (New York Post, December 4, 2016)

• CBS All Access launched in October 2014, is estimated to have 1.5 million subscribers (Variety,

February 13, 2017)

• AT&T’s DirecTV Now launched in November 2016 and, according to an SEC filing, had 200,000

subscribers approximately two months later (Wall Street Journal, January 22, 2017)

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An online business model in which television broadcasters, particularly cable

networks, allow their customers to access live and/or on-demand video content

from their networks through Internet-based services. The fee for such access is

covered as part of their subscription to the service, via an MVPD. The viewers use

credentials from their MVPD for authentication and access to the content.

“”

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• Netflix has seen slowing U.S. growth, and now has 47.9 million U.S. customers (eMarketer,

January 18, 2017)

• Hulu has approximately 12 million customers, and also has reported slowing growth (The Verge,

May 4, 2016)

• Google’s YouTube announced it would be launching a live OTT service in the near future. (Variety,

February 28, 2017)

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In addition, Park Associates reports 19% of OTT subscribers have cancelled a service in the past

year (February 1, 2017). Hulu has a high customer defection rate of 50% (Forbes, August 4, 2016).

Something else that’s important to note: the first J.D. Power Streaming Video Satisfaction Study,

released in August 2016, found that overall consumer satisfaction was greatest among customers

subscribing to both an MVPD service and an OTT service. The study found satisfaction was lowest

with “cord cutters,” with those consumers having more issues than traditional TV subscribers (such

as inconsistent Wi-Fi connections, content restrictions and some major channels missing from

services). Moreover, because of gaps in content, subscribers may find the need to use a number of

streaming video providers. This both increases the cost for video content and creates the need for

multiple monthly bills, instead of one (MPVD) charge.

Successful Advertising isn’t About TV or Digital Video, it’s About TV and (the Right) Digital Video

Advertisers have many choices when deciding where to invest marketing dollars. There have

been several notable studies reporting that the optimal media combination to build a brand’s

ROI continues to include television. The largest and (to date) most inclusive study (measuring

5,000 campaigns) on advertisers’ return on investment (ROI) came from the Advertising Research

Foundation (ARF). The group’s 2016 report, “How Advertising Works,” found that when advertisers

drop traditional media for digital it resulted in a drop in sales (Adweek, February 15, 2017).

Recommendations from the ARF report included:

• Investing in a number of platforms instead of shifting dollars from platform to platform

• Adding traditional media to digital media to boost ROI

• Using traditional and new media, not just mobile, to reach millennials

Similarly, a cross-channel advertising attribution study from Accenture (commissioned by ABC)

released in May 2016, found that multiplatform TV advertising significantly enhances the impact of

digital advertising (search, display and short-form video).

Some prominent advertisers have begun to re-think their digital-centric advertising strategy. Coca-

Cola, Procter & Gamble and Mars have stated reach is still important and television remains the best

medium for ROI (Warc, December 14, 2016). Rather than digital first, we are seeing a move towards

a balanced allocation that more closely resembles how audiences consume video. Consider this

analysis of how much time people spend watching video across various devices per month:

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WATCHING TV

Teens 12-17

Adults 18-24

Adults 25-34

Adults 18+

71:06

73:11

98:28

149:40

13:58

25:04

26:19

17:47

N/A

6:12

4:32

3:49

84%

74%

79%

88%

TV’S SHARE OF VIDEO VIEWINGWATCHING VIDEO ON A COMPUTER WATCHING VIDEO ON A SMARTPHONE

Source: Video Advertising Bureau “State of Digital Video, Multi-screen Insights—3Q 2016,” February 2017

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Some other factors to consider:

• Reach & time spent: With so many streaming services, online video is not a uniform reach vehicle

for advertisers. Also, a group of heavy users tends to account for a high percentage of streaming;

according to Nielsen’s third quarter 2016 Total Audience Report, 7% of in-home video streamers

on a PC account for nearly 90% of total streaming minutes.

• Measurement: Television audience measurement has been consistently measured for decades

by a third party, Nielsen. With the use of return-path-data and product integration, television

measurement is now providing advertisers with more granular and qualitative data for more

targeted ad buys.

• Viewability: The measurement of an online video view varies widely by publisher. Facebook

defines a view after three seconds. By comparison, Google’s YouTube counts a view after thirty

seconds while Snapchat counts a video view even if the user watches for just a millisecond. This

makes evaluating video websites difficult for advertisers (New York Times, September 23, 2016).

• Audio: As adoption of mobile viewing grows in popularity, viewers often have the audio off,

lessening the impact of an ad message. According to the New York Times (September 25, 2016),

Facebook says more than 500 million people watch videos on it every day and viewers have the

sound on 50% of the time.

• Content: Programming content on some streaming services may not be suitable for all marketers.

For example, a headline from an article in Recode (November 10, 2016), said “Next year’s Star

Trek reboot may have naked aliens and swearing, CBS digital chief says.” With so much digital

content available, it can be difficult for advertisers to keep track of whether the content is

suitable for their brand.

That makes selecting the optimal digital video advertising platforms essential. Solutions like

Comcast Spotlight’s Premium Digital TV and Premium Digital Video deliver valuable local

audiences aligned with local television advertising.

Premium Digital TV is a TV everywhere advertising solution, with impressions across Comcast’s

multiple options for consuming content (like its Stream app and websites) with local viewing of

content on many programmer websites and apps and XFINITY On Demand—making advertising

in on demand programs viewed through Comcast customers’ set-top boxes available for local

advertising for the first time.

Premium Digital Video is Comcast Spotlight’s platform for advertising to local audiences watching

original video created specifically for the web. Brand safety and viewability are ensured through an

exclusive 14-point quality checklist; advertising appears only in professional-caliber video from by

carefully screened publishers.

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Both platforms offer proof-of-performance reporting that shows how consumers are engaging

with video advertising, including the length of time ads are viewed.

Conclusion

Some of the more prominent OTT providers (like Netflix, Amazon Prime and Hulu) are more of

an enhancement than a replacement for cable television. This is becoming truer as they focus on

producing their own original programs. For example, Business Insider noted that the number of

titles available on Netflix, has been cut nearly in half, from 11,000 in 2012 to 5,300 in 2016 (October

2, 2016). Amazon and Hulu have been also been aggressive in producing original shows.

At the same time, TV everywhere viewing, typically included with an MVPD subscription is gaining

traction the process becomes easier and the available content more robust. It’s proving to be

an extension of how consumers are watching their favorite shows, with more flexibility for an

increasingly mobile world.

From an advertising perspective, Comcast Spotlight is able to provide marketers with the broad

reach of television and the targeting capabilities of digital video advertising.

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www.ComcastSpotlight.com