March 24, 2020

The Impact of Coronavirus on Television Viewership

March is always a month of transition. Our seasons change from winter to spring, our clocks adjust from Standard to Daylight Savings Time, and television viewership falls as the number of consumers spend more time outside of the home. The biggest sporting event in March, the NCAA Basketball Tournament, is aptly called “March Madness.”

This year, March Madness has a different meaning for television viewers; the Coronavirus pandemic has forced professional sports leagues and the NCAA to cancel their seasons. With many under stay-at-home requirements, unsurprisingly, they are watching a lot more TV, with as much as a 60% spike in viewing not uncommon during national major crises.

Will this surge in viewership hold and for how long? And will COVID-19 create other unforeseen changes in viewing habits?

Nobody knows how long the Coronavirus pandemic will last. Nor does anybody know the severity of the disease as it spreads across the United States. What we do know is that, as of March 24 at 11 AM PT:

  • The virus has caused the S&P 500 index to fall more than 22.4% since March 1;
  • More than 50,000 Americans are now diagnosed with the disease; and
  • Deaths have topped 613 Americans.

As well, the unemployment rate is expected to climb, with as many as eight million Americans forecast to lose their jobs by the end of April. For the month of April alone, projections of job losses range from 500,000 to as high as five million.

Short- and Mid-Term Projections (April-December 2020)
The combination of more people working from home, the rise in unemployment, school closures, and social distancing, will certainly increase television viewership. Uncertainty about the virus is already driving up live news tune-in; and families, desperate for home-based entertainment outlets, are fueling an up swell of streaming time. According to Nielsen, home confinement during crises can lead to a 60% increase in the amount of content we watch.

While viewing gains have been impressive, they mask a darker reality. Take live sports as an example. With the cancellation of NBA and NHL regular seasons and playoffs, March Madness, the Masters, and other high-profile/high-revenue events, networks are scrambling to replace high-dollar programming with lesser programming comprised mostly of reruns. Keep in mind that TV networks generated more than $2 billion in ad revenues from the live sports that have been cancelled, and reruns will fall far short of replacing this income. Put another way, with live sports out of the picture, TV networks, leagues, teams, pay-TV operators, and others dependent on this lucrative revenue streaming are in for tough times.

Additionally, new streaming services such as HBO Max, Peacock, and Quibi are set to launch at a time of unprecedented economic uncertainty, likely resulting in lower initial demand (though postponing service launches could alter the outcome). Ad-supported networks will also be impacted, as advertisers scale back on budgets in response to the rapid economic slowdown.

Even established streaming companies will be impacted as consumers tighten their home entertainment spending. Moreover, the M&A activity over the past few years has weakened the balance sheets of many streaming services, forcing them to cut back on staff and original programming to remain sound.

Long-Term Projections (April 2021 forward)
As each day passes, it becomes more evident that COVID-19 will have an adverse impact on the global economy. And the longer this impact is sustained, the more certain it is to have enduring consequences. When it comes to TV & video, viewership will grow in the short term, but revenue will not. There will be no winners in this downturn, only survivors and casualties.

The sections below discuss the impact of COVID-19 on specific TV & video companies.

New SVOD Players
While Disney, Amazon Prime Video, and Netflix will survive this economic downturn, new arrivals may not fare so well.

HBO Max is still scheduled to launch in May 2020 with a $14.99 price point. Even with a strong economy, $14.99 is certainly at the high end of SVOD services ($2 higher than Netflix’s standard tier). With a global recession becoming more likely, adding a new streaming service at $14.99 in the short-term may be perceived as excessive—especially for those already subscribing to two or more SVOD services. PREDICTION—If this was priced for the times, things would be different, but at $15/month, significant greenfield demand (i.e., not including those transitioning from linear HBO or HBO Now to HBO Max) is unlikely. We expect (1) service launch will be postponed until economic conditions improve, or (2) pricing will be lowered to address recessionary impacts. If the service does launch on schedule, we expect longer trial periods and heavily discounted promotions.

Peacock – Because Peacock (1) offers both a free and less-expensive ad-based tier, and (2) is owned by Comcast (who will push the service through its cable operations and partnerships with other TV providers), it will likely survive without having to lower prices or delay launch. PREDICTION—Peacock will likely launch on schedule but adjust marketing strategies to focus on its lower tiers. With the Olympics now postponed (likely until next year), NBCU’s short-term fortunes will suffer significantly. Long term, however, the service will survive.

Sports Properties
WarnerMedia (TNT, TBS) – With the absence of live sports (e.g., March Madness) and its second-fiddle status to its flagship streaming service, HBO Max, WarnerMedia’s sports properties will suffer tremendously in the short- and mid-term. PREDICTION—TNT and TBS, in particular, will receive little love from AT&T and suffer significant COVID-19-related viewing declines.

ESPN – Even without live programming, sports viewership appears to have increased. Unfortunately, and for reasons previously stated, ad revenue has not. No network is impacted more by these trends than ESPN. Core winter and spring programming (MLB and the NBA) are suspended and all NCAA sports are canceled. ESPN’s flagship show, SportsCenter, can no longer rely on its lifeblood, live sports highlights. It is forecast that ESPN could lose as much as 80% of its viewership and $625 million in advertising revenues should the NBA season fully cancel. PREDICTION – Just as Disney will survive the COVID-19 pandemic, so will its sports frontrunner, ESPN. Nonetheless, losses in ad revenue will require some belt tightening, including layoffs and cuts in production budgets. If there is a silver lining for those networks heavily dependent on live sports, this could lead to reduced licensing fees from sports leagues—at least in short- and mid-term.

NBC – Losing the NHL is not a death sentence for a diversified sports network like NBC, but with the Olympics now postponed, short-term prospects are not encouraging. PREDICTION—In the short- and mid-term, viewership declines and the loss of ad revenue from live sports will be difficult to counteract with other programming. Longer term, and with the Olympics to air in 2021, NBC will return to health.

CBS – Losing the NCAA college basketball tournament and the Masters is bad enough, but the real question for ViacomCBS is whether the organization will emerge strong enough to keep the NFL. (By the way, the NCAA will lose about $1 billion in licensing fees due to the cancellation of the tournament.) PREDICTION—Short-term losses will be significant. March Madness alone generated nearly $1.5 billion in ad revenue in 2019, a majority of which went to CBS. Longer term, such losses may weaken ViacomCBS’s ability to compete with other networks and tech-media firms like Amazon to wrap up NFL rights in 2022.

Conclusion
When it comes to financial impact of COVID-19, few media companies will emerge unscathed. However, as life gets back to normal, understanding the long-term social impacts of the pandemic are key to business survival. Companies like Disney, Amazon, and Netflix are well prepared to weather the storm. Sports-heavy networks (ESPN, CBS, TNT, TBS, and NBC) will feel devastating short- and mid-term economic impacts, but they will survive. New streaming services such as HBO Max that carry a high price point will need to adjust. As for Peacock, which is now saddled with postponement of the Olympics, it will also need to reconsider its go-to-market plans.

In just a few short weeks, the COVID-19 pandemic has transformed America and Americans. Even if President Trump’s vacuous “miracle cure” appears tomorrow, the economic and societal changes we have undergone (and will undergo) will stay with us for years to come. At the very least, consumers will become more price sensitive, and investors more introspective about valuations.

Recommendation – Stay at home, wash your hands, binge some great TV, stay vigilant, and hope for the best!

A 20-year veteran media executive, Rob Silvershein’s success in today’s competitive media environment is a direct result of his unique experiences spanning traditional, emerging, and startup media platforms. He is an accomplished strategist and spends most of his time advising media companies on how to structure themselves for long term success. He currently lives in Manhattan Beach, CA.

   

A 20-year veteran media executive, Rob Silvershein’s success in today’s competitive media environment is a direct result of his unique experiences spanning traditional, emerging, and startup media platforms. He is an accomplished strategist and spends most of his time advising media companies on how to structure themselves for long term success. He currently lives in Manhattan Beach, CA.

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