During the last quarter, the team at Wall Street financial house MoffettNathanson examined the ongoing shift in advertising from traditional linear television to ad-supported streaming. As viewers — and live sports — have migrated to streaming, advertising dollars have followed. But what about affiliate fees?
Senior Analyst Robert Fishman tackles that question.
“Long the backbone of the linear TV ecosystem, cable network affiliate fee revenues have been bleeding for years,” he writes in an investor report. “The key question for media companies and investors now is whether direct-to-consumer subscription fees can replace those lost affiliate dollars — and, in doing so, reignite non-advertising revenue growth — or whether we are already beyond the peak.”
Altogether, MoffettNathanson expects combined industry affiliate and subscription fee revenues to post “stable growth” of 3% compound average growth rate (CAGR) from 2023 through 2028, with Netflix leading the charge.
Minus Netflix, the industry will still grow in the low-single digits, with direct-to-consumer activity more than offsetting annual declines in linear TV affiliate fees, Fishman predicts.
“Even if the total affiliate and subscription revenue pie is still set to eke out modest growth over the next several years thanks to the continued ramp in DTC, what’s clear is the profitability profiles of these revenue streams are fundamentally different,” Fishman concludes. “Ultimately, the streaming services with the greatest global scale should command an increasing share of the larger profit pool, while the remaining companies with subscale DTC services are left to seek alternative futures (read: industry consolidation).”
What’s the trend for viewing? “Engagement trends paint a clear picture: linear viewership continues to fall, while streaming viewership (excluding YouTube) is growing at approximately replacement levels,” Fishman says.
As such, MoffettNathanson in the third quarter expects advertising revenues to continue declining across the linear ecosystem while streaming advertising revenue should post “robust growth” — led by Netflix and Disney+. MoffettNathanson also expects affiliate fee revenues to decline “significantly.”
However, Fishman cautions, these results “are confounded” by the absence of Olympics-related revenue for NBCUniversal.
