Wall Street Analyst Says Yes AVOD Upsets the Apple Cart of TV

Linear TV may still lead the way, but if analysts’ predictions ring true, it’s very much a for-now thing.

Already this year, we heard Netflix CEO proclaim the death of linear in five to ten years. And former Disney CEO Bob Iger is riding the same wave of belief that linear’s ending is just a stone’s throw away.

That is the prediction we heard when Steven Cahall, Managing Director & Senior Equity Analyst at Wells Fargo, went on stage at Programmatic I/O 2022 and took attendees on an emotional roller coaster ride outlining what’s next for linear TV and AVOD. “The old business is not good,” he said, “and the new business has not proven itself.”

While projecting intricately detailed graphs and charts on the big screen, Cahall presented his 2023 revenue estimate revisions by advertising channel, revealing that most traditional advertising channels aren’t doing so poorly. And linear publishers have yet to worry about the massive ad spend cuts everyone else is experiencing. Advertisers are predominantly slashing their digital budgets.

Cable/Broadcast Networks, Digital Audio, and Programmatic/Ad Tech will all see significant drops in revenue, with AVOD, streaming, and CTV predicted to experience the steepest revenue plunges of 10%-25% in 2023. It’s also significant that agencies like Inter Public  Group and Omnicon haven’t cut spending as much as others reportedly have. 

“What this tells somebody like me is that while there are challenges in this whole media ecosystem and advertising ecosystem, many of these traditional businesses like networks have very resilient models,” Cahall said.

The Accuracy of Viewership 

When it comes to viewership, there is a big difference between subscribers and viewers. Viewers exist on linear and streaming, but viewership is more accurate on linear. Folks aren’t required to log in on linear. In contrast, with AVOD, people share login information left and right, so the subscription model is not an accurate representation of viewer data. 

We live in times where CPM pricing is through the roof, but we are mainly seeing this in linear in the areas of sports, broadcast, and cable. This conundrum is interesting because, despite the volume of television watching going down, CPM prices are still going up. 

While streaming is a better alternative to television, the muscle memory and entrenched way the market works means that the dollars haven’t yet reflected the behavior change. Ultimately, CPMs are still more costly on linear than AVOD because currently, in advertising, you make more money monetizing a viewer on linear than on streaming.

“Subscribers aren’t viewers in the bundle ecosystem in the AVOD world,” Cahall explained. “When you compare bundle subscribers, it’s like comparing users of Microsoft Access. I think we all probably pay for Microsoft Access as part of Microsoft Office, and I bet none of us have ever used it. And unfortunately, that’s what a lot of media networks are today. So they don’t have real subscribers. They have real viewers.”

The Bag Will Follow the Eyeballs

Over the next two years, streaming power players like Netflix, Disney+, and Paramount Plus will need to start cannibalizing real dollars out of linear. While Cahall does not see Netflix receiving instant gratification from its new ad model, which is active in a few weeks, he anticipates the addition to the service to solve ecosystem issues as we get into 2024-2025.

Cahall’s initial closing point was that the bag will always follow the eyeballs. In 2015, Bob Iger at Disney talked about cord-cutting. In 2022 it’s gotten so bad that we have seen about a dozen mergers.

Netflix and Disney+ introducing ads will benefit the ecosystem down the line and maybe even inspire other AVOD platforms to do the same. It may be the end of Disney on TV as we know it. “Disney sees their future as streaming, so they’re not necessarily in a position to protect the rest of the ecosystem like they have been in the past,” Cahall explained.

The fact of the matter is Wall Street is not a fan of linear, and with that being said analysts believe that more sports on streaming can also help speed up the shift away from the idiot box, as my grandmother used to call it. Just like the cookie, linear is also dying out slowly but surely.