Morgan Stanley
  • Research
  • Feb 25, 2019

Streaming, Bundles and Ads: 3 Media Debates for 2019

How the surge in streaming video, rising pressure on TV bundles and concern over “peak advertising” are reshaping the media landscape in 2019.

As 2019 begins, the shift to streaming video is only intensifying, bringing dramatic uncertainty for U.S. television and advertising markets. 

The few companies with both global scale and a robust library of unique intellectual property are best positioned to succeed. For others, the path forward is less clear.

This once-in-a-generation shift is fundamentally reshaping media consumption for both consumers and industry.  What’s ahead? Look for potential consolidation among traditional media companies as technology-driven competitors compress short-term returns. Here are three main themes for 2019:

Streaming’s Land Grab

This year, the streaming market is in a “land grab" phase, with many companies investing in their own branded streaming, while others take more targeted approaches—such as embracing their own version of studio production and selling content to the biggest players.

The accelerated consumption of online content in the U.S. and around the world has anointed a few early winners. These include owners of unique intellectual property—i.e., movie/TV characters, franchises, sports, and so on—and those with scale and global customer relationships to leverage. In short: those who have great content and those who know how to distribute it as widely as possible.

While IP rights holders—the content kings—will still benefit overall in the battle for consumer eyeballs, not all content is created equal. Regional markets with unique needs are fundamental to a fragmented global content map. However, the global growth in streaming has raised the pressure on legacy TV networks to forge their own direct streaming relationships with consumers.

The few companies with both global scale and a robust library of unique IP are best positioned to succeed. For others, the path forward is less clear. 

Morgan Stanley Estimates ~170mm Aggregate
OTT Subscriptions in the U.S. at Year-End 2019.

Source: Company Data, Morgan Stanley Research, Alphawise Survey "9th Annual Streaming Survey"

The Further Unraveling of the Bundle

The traditional pay-TV bundle will likely face unprecedented pressure this year, as both traditional and streaming distributors recalibrate their cost-structures and growth strategies.

As an example, last year TV network owners were helped by an increase in cord-cutting services that stream live and on-demand network TV through USB sticks, gaming consoles and the Internet. These services and their improving subscriber trends gave traditional TV networks a growing avenue for distribution revenues. However, the bad news for both cord-cutting services and traditional TV networks is growth of cord cutting has likely peaked and total pay-TV subscriptions (traditional and streaming) are forecast to decline by about 1.2% in 2019.

For the cord-cutting services, some of the earliest entrants in the space have already reported subscriber declines. Others have been raising prices in recent months, suggesting a more balanced approach to revenue growth.

But traditional TV network owners have a second problem: their other distribution avenue—cable and satellite distributors—is exerting more pressure on pricing, which could further reduce distribution revenues. Thanks to an unprecedented number of disruptions over the past two years, many networks have even had their channels pulled from major cable and satellite lineups. That pressure will likely rise as consumers spend time watching content from the biggest players in the over-the-top streaming space.

"Cord Cutting" Trends Could Worsen in 2019

Source: Company Data, Morgan Stanley Research estimates

Post-Peak U.S. Advertising Growth?

We continue to forecast a healthy U.S. ad market for 2019 and have yet to see any sign of slower ad spending in the U.S. Overall, the U.S. ad market is positioned to see paid media growth of 4%-5%.

But that forecast comes with an asterisk. For the first time in years, our economists forecast greater downside macro risk. In addition, we still expect large digital platforms to dominate paid media growth. That means only large digital-ad companies are likely to grow at double digits, while traditional media companies experience flat ad revenue, slight growth—or even declines.

On the TV side, for example, expect relatively flat ad growth, with unfavorable comparisons to 2018's political cycle affecting local stations.

Finally, it’s worth noting that some potential bright spots, in particular ad revenue on streaming and over-the-top video, as well as streaming-audio services. In the streaming-video space, ad revenue has shifted from the user-generated content space to premium platforms since advertisers are looking for more premium video supply, particularly on the living room TV.

For more Morgan Stanley Research on key Tech, Media and Telecommunications themes, ask your Morgan Stanley representative or Financial Advisor. You can also visit the TMT 2019 page. Plus, more Ideas from Morgan Stanley’s thought leaders.