TV ad spending decreased for the first time since 2009, and that decline is expected to continue over the next five years, according to estimates from eMarketer.
As more consumers cut the cord and ratings continue to fall for even the most promising live events -- like NFL games -- ad dollars are starting to jump from television to digital. Digital ad spending is expected to climb another 19% this year, according to eMarketer's estimate.
Advertising represents a significant portion of revenue for major media companies like Walt Disney (NYSE:DIS), Twenty-First Century Fox (NASDAQ:FOXA), Time Warner(NYSE:TWX.DL), CBS (NYSE:CBS), and Viacom (NASDAQ:VIA). Constrained by cord-cutting and decreasing ad spend, media companies are looking for new avenues of growth over the next few years. One promising solution is the direct-to-consumer model.
It makes sense for Stankey to want to compete with Netflix, but HBO is simply not the best platform to use to do so. HBO cares about nothing more than its reputation for quality: It will make Veep, but it would never make Fuller House. That obsession has turned it into one of the most valuable brands in the media world. HBO is worth much more than the $4 billion that Disney paid for Lucasfilm, plus the $4 billion Disney paid for Marvel, plus the $7.4 billion Disney paid for Pixar: The New Yorker estimated it was worth more than $30 billion in 2015, and it has surely increased in value since then.The best move for AT&T is, then, is to take a page out of the Disney playbook and leverage the HBO brand by playing to its strengths without trying to turn it into something it isn’t. If Stankey wants to reach the kind of people who watch Adam Sandler films on Netflix, he should find a vehicle whose entire value proposition isn’t built on quality. WarnerMedia’s TV portfolio is actually quite broad when you consider TNT, TBS, CNN, TruTV, TCM, Cartoon Network, Adult Swim, 50 percent of The CW, DC Entertainment, and more. HBO’s pitch to viewers — and to the creative community — is while competitors may have quantity, it offers quality. That ethos is reflected in everything from its hallmark Sunday-night lineup to the attention the network pays to its A-list creators.
Whatever funding Stankey is willing to commit, it can’t compete with Netflix: Unlike HBO, it doesn’t have to concern itself with posting a profit.“HBO is a profitable company,” FX Networks CEO John Landgraf said earlier this year. “It has a very substantial programming budget, but it’s still within the realm of rationality. Netflix is a business that loses money. They spend $2 billion a year more than they take in. And so to me they’re actually dumping content onto the market at below cost in order to take market share and so that does bother me.” According to the New York Times, Plepler admitted that Stankey convinced him that they need more content to be better. And given the fiercely competitive state of TV, there’s some truth to that.