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Analyst Insight - Social Video Has a Ra...ity to Grow CTV Share - Aluma Insights
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Hollywood's weird summer brings blockbusters plus angst. The winner of the strike is likely not to be either combatant, but YouTube or TikTok.

The Enemy of My Enemy is My Friend

Doug Montgomery

Senior Analyst

July 25, 2023

Record summer heat is even hotter in Los Angeles because of the expanding Hollywood strikes. Writers, actors, and now animators are locked in an epic battle against the studios and the Alliance of Motion Picture and Television Producers (AMPTP), for what many believe is the future of Hollywood and its workers.

The Fight

The TV and movie industry has historically produced substantial bounties and powerful opinions about how profits should be divided. Today, sentiments are rigidly binary (us versus them, for us or against us, etc.) due to revenue optimization measures (imperative to reduce costs, including content spend) and the arrival of AI.

For owners, AI is an important labor-saving tool for an industry yearning to generate meaningful profits to investors. For creators, AI is an existential threat to their craft. These disparate visions banished any chance of civility between the two camps.

This battle has little upside for either contender, as the pool of revenue for which they compete continues to shrink. For one, the cable bundle continues on its “dead-man walking” and carriage fees continue to dry up. Second, streaming is unable to make up for legacy losses, at least without increasing subscription fees by orders of magnitude, a strategy being tested as we speak (e.g., Netflix’s decision to remove its least expensive ad-free tier means the entry-level fee is now $15.49, up $5.50 from $9.99 earlier this month.)

The Winners Are Waiting and Watching

Watching from the front-row are YouTube and TikTok.

YouTube was already a major player in connected TV (CTV) when in September 2022 Nielsen’s “The Gauge” revealed YouTube was the most-watched streaming service on TV, topping Netflix in total TV time (8% versus 7.3%). This was the first time Netflix did not occupy the top spot.

By April 2023, with total time spent watching TV down 2.1%, YouTube’s share grew to 8.1% and Netflix’s dropped to 6.9%. By June, more than a month into the writer’s strike, YouTube’s share grew to 8.8%, Netflix’s to 8.2%. This one-two ordering is unlikely to be challenged soon, as the third most-watched SVOD service in all three Nielsen studies was Hulu, comprised less than 4%.

Unlike YouTube, TikTok only recently dipped a toe into the CTV space. In the last two years, however, it has made significant inroads among OEMs, many of which are now bearing fruit. July 2023 Aluma research found that, of the two-thirds of adults that watch free streaming video on TV, 62% watch YouTube and 24% watch TikTok. Yes, TikTok has a long way to go, but has the resources needed and an interesting new opportunity to help grow share.

Amateur creators like Mr. Beast are YouTube’s primary weapon and are not subject to the present strike. Same with TikTok creators. And the longer the strikes continue, the greater their share of TV time will become. As with unscripted reality content, amateur video will fill the gap caused by the strikes. And any share of viewing it gains during this time may be difficult for Hollywood to regain.

Gen Z off doing their own thing

Two years before the present labor strife, in the middle of the pandemic, Deloitte shared data from its most recent study of entertainment use. According to this research, Gen Z (which the firm defines as born between 1997 and 2007, those now 16-26 years old) preferred to spend time playing video games versus watching video. In fact, 26% of Gen Zs said video games were their preferred leisure activity, while 14% favored listening to music (which can be done while playing a video game, ask my Gen Z son), 12% internet surfing, 11% social media, and 10% watching TV shows or movies.

One generation up, millennials (which Deloitte defines as born between 1983 and 1996, those now 27-40 years old) preferred watching TV and movies over video games (18% and 16%). This is a stark difference between the two generations. Perhaps this is because Zoomers are true digital natives while millennials are not. Perhaps it is explained by the well-worn maxim that, as teens and younger adults age, they spend less time playing games and more time watching TV. Deloitte offers a third possibility: perhaps it means that video will become less important to all subsequent generations of adults, which portends yet another challenge for a beleaguered Hollywood.

In this context, fighting over present-day (i.e., 3-year) residuals and AI imagery is very unlikely to change the equation. The two sides are fighting over a pie the size of which will shrink considerably during our times.

The Gravy Train of New Content Has Ended

The 2010s brought tens of millions of consumers into the world of subscription streaming, which offered a buffet of content for a monthly price of less than $10. This ushered in a “Golden Age of Television” for both consumers and producers.

Few in the industry would openly challenge this notion. But John Landgraf did just that. In August 2015, he claimed the industry would reach peak production of scripted TV series in 2016 at around 400. Landgraf was wrong about this peak in 2016 ... and 2017, 2018, 2019, 2020, and 2021. And he was wrong about 2022 when 599 scripted TV series were produced, 7% above the 2021 figure.

The pace of new show productions did not peak until the fall of 2022, due to what some have called as the Great Netflix Correction, which began earlier that year when the company reported its first significant loss of subscribers in more than a decade. Wall Street noticed and the gravy train of “easy money" that long fueled the content boom quickly dried up.

And viewers are left with high expectations and increasingly less new content, more reruns, and higher prices that leave many in the mood to cut back, both on pay-TV and SVOD services. The stage is set for not only free streaming video services to gain share, but YouTube and TikTok, in particular, to advance their positions in CTV viewing.

Too Much Content, Too Few Credit Cards

In the end, the world is awash with entertainment options for consumers. YouTube adds around 720,000 hours of new content each day. We expect its share of total TV viewing to grow further during the strike. TikTok will have 834 million MAUs (month active users) by the end of 2023, and it should 1 billion by 2025. And none of this requires a credit card to view.

Both owners and workers should be mindful of this and figure out who the real enemy is.

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