Morgan Stanley
  • Thoughts on the Market Podcast
  • Nov 8, 2022

Will Streaming Overtake Traditional Cable?

With Ben Swinburne and Brian Nowak

Transcript

Ben Swinburne: Welcome to Thoughts on the Market. I'm Ben Swinburne, Morgan Stanley's U.S. Media Analyst.

Brian Nowak : And I'm Brian Nowak, Morgan Stanley's U.S. Internet Analyst.

Ben Swinburne :On this special episode of the podcast we'll focus on connected TV and the changing television space. It's Tuesday, November 8th, at 10 a.m. in New York.

Ben Swinburne : Consumer behavior in the television space has been changing rapidly over the past decade, and the COVID pandemic further accelerated this trend. While most people still watch traditional linear TV through their cable and satellite subscription, consumers are shifting to streaming at a rapid pace. In fact, most of our listeners probably use some sort of connected TV, or CTV device at home that allows their television to support video content streaming. As our media analyst, I've watched how this has led to widespread "cord cutting", as an increasing number of customers cancel their traditional subscriptions in favor of only using these streaming or video on demand formats. So let's dig into the opportunities and challenges within the connected TV space and particularly interconnected TV advertising. Brian, let's start with some definitions. What is CTV advertising, what's so great about it?

Brian Nowak: CTV advertising is nothing more than adding advertising to all that streaming engagement that you mentioned earlier. You talked about how people are increasingly watching connected television through streaming devices, through their televisions. The idea of showing ads around it is CTV advertising. As far as what's so great about it, for years traditional linear television has largely been driven by branded advertising to reach people. The hope with connected television over time is that not only will connected television enable you to have reach and strong branding capabilities, but also the potential for better targeting, a more direct link between an advertising dollar and an actual transaction from those ads. And the vision of connected television advertising over time is we may be able to have broad based performance advertising across all of the streaming television engagement.

Brian Nowak So with that as a backdrop Ben, who benefits in your view, from connected television? And which companies may be most at risk from this transition?

Ben Swinburne: Well Brian, you talked about both targeting and performance ads, things that are not typically associated with broadcast or linear television advertising. So I have to say the biggest beneficiary of the shift to connected TV from an advertising point of view are marketers. Not only are marketers looking for ways to spend their money with a better return on an advertising spend, but they're facing rapidly declining audiences, meaning it's harder and harder to reach the audiences that they want to reach. Connected TV brings the promise of both greater audience, particularly "cord cutters", but also reaching them more effectively with performance based and targeting tools that don't exist in linear. Speaking of which, when we think about who may be at risk, well we don't think it's a complete zero sum game. And we do think connected TV expands the television ad market over the long term. We think the largest area of market share risk is linear television.

Brian Nowak : So let's dig a little more into your point about linear television Ben. How do you think about the market share between linear television and connected television the next 5 to 10 years? And what role do sports and live sports play into that overall market share?

Ben Swinburne: So we expect connected TV advertising to reach and ultimately surpass linear television by the end of the decade. It could happen faster, particularly we're focused on local markets, which right now connected TV doesn't really reach. And it it could also happen faster if sports moves quickly over from linear into streaming. Right now, live sports really dominates linear television. It is the by far source of the largest audiences, and those audiences are live, and it's really holding up the linear bundle more than any other kind of programing. But we are certainly starting to see sports content leak out into streaming services, which has both the potential to erode those live audiences that advertisers value so much, but also bring them into a streaming environment which would create more opportunities to use targeting and performance based tools.

Ben Swinburne Brian, what are some of the challenges of connected TV advertising relative to linear?

Brian Nowak: In the near term macro. Over the longer term proof that the technology works. As with any new, less proven advertising media, weaker macro backdrops can prove to be challenging. It is more difficult for advertisers to move large amounts of experimental dollars into new media when macro times are weaker. And if we think 2023 will be a more challenging macro backdrop, that could lead to slower overall adoption within the connected TV space. Over the long term, the technology has to be proven to work. We talked earlier about proving performance based advertising better, more directly linking advertising dollars to transactions. That technology has to be proven and built out. When you see an ad and you see an ad for a product directly linking that ad to the person actually buying that product is something that still has to be developed by some of the connected TV leaders. And so we're going to need to have better tools with more targeting, better attribution and scalability of the ad buys to really hit some of our longer term connected TV ad forecasts.

Ben Swinburne: So Brian, you mentioned some of the macro weakness that we're seeing in the marketplace. What is the size of connected TV advertising right now, given that macro backdrop? And what's your near-term and long term outlook for online advertising more broadly and connected TV within that?

Brian Nowak: In the United States the connected TV advertising market is currently about $17 billion. And as we look ahead, we expect the overall industry to grow at sort of a mid-teens rate, reaching $30 billion plus by 2026. And from a market share perspective, we do think that the largest four players across traditional media and big tech are going to drive a majority of that overall growth.

Ben Swinburne: Brian, thanks for taking the time to talk.

Brian Nowak: Great speaking with you, Ben.

Ben Swinburne: As a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcasts app. It helps more people to find the show. 

Increasingly, consumers are moving from traditional cable and satellite subscriptions to connected TV devices, so where do the advertisers go from here? U.S. Media Analyst Ben Swinburne and U.S. Internet Analyst Brian Nowak discuss.

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