MediaTalk | Season 4 | Ep. 24 - Connected TV Money Moves: Fox’s Roku Bet and AVOD’s Growing Share of Ad Spend

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Mike Reynolds: Hi, I’m Mike Reynolds, a senior reporter covering the media industry with the S&P Global Market Intelligence tech, media, and telecom news team. Welcome to “MediaTalk,” a podcast hosted by S&P Global, where the news and research staff explore issues in the ever-evolving media landscape. Today, we’re on a conference watch. The recent Kagan Media & Telecom Summit was in Manhattan, and Stream TV is coming up in Denver. We’re going to speak to a pair of gentlemen who were at and will attend both.

Kagan Head of Research Justin Nielson, who covers broadcast among many other things, and Principal Analyst Seth Shafer, who leads Kagan streaming coverage and is integrally involved in the company’s consumer insights and data service. Justin, how are you doing?

Justin Nielson: I’m doing well. Thanks, Mike, for having me.

Reynolds: Seth, good to see you in New York. Are you ready for Colorado?

Seth Shafer: I think I have to be, so yep, sure.

Reynolds: Okay. All right. Justin, we just held the Kagan Media and Telecom Summit in New York on June 9th. How did we do?

Nielson: I thought we did really well. It’s definitely conference season, and there was a lot of activity in the city with the Knicks in the finals and then the World Cup about to start this last weekend.

So we went over a lot of different topics during the Summit. We had some keynote speakers, leading off with Adam Monaco from Disney Advertising, talking about the 2027 Super Bowl, talking about what’s happening with their sports properties and sports rights, with their focus in on the finals. We had some of the media and telecom operators and executives in attendance. Some people that cover the industry from a Wall Street perspective. So it was a great diversity of voices.

So I think there was a lot of topics that we can actually dive into as we prepare for the Stream TV show, because a lot of them align very closely,

Reynolds: Absolutely. Seth, at the Kagan Summit, you were on stage with Visible Alpha’s Melissa Otto. Before we get to the streaming, which is perhaps the real reason linear TV has declined, there were some interesting stats about the traditional pay TV universe at the Summit. Some of the data projections suggest that YouTube TV will surpass Charter and Comcast as the leading linear distributor by year-end. Do you think that’s going to be the case?

Shafer: Put me right on the spot there, Mike.

Reynolds: Sorry. Sorry...

Shafer: I think, yeah, our panel is interesting because some of the data was sort of Kagan data that we do in-house, projection that we model. And then for the Visible Alpha side, we were showing off that product, which is aggregation of third-party estimates from other firms. Speaking bluntly, I’m a little more conservative than the consensus was there. So I think YouTube TV will pass Comcast and be the No. 2 pay TV provider by the end of this year. I don’t think they will pass Charter by the end of this year. When we looked out to 2030, I think in that timeframe, yeah, YouTube TV will be the largest US pay TV provider by 2030. But I don’t think they catch Charter by year-end.

Reynolds: Yeah, and if all the government entities approve, they’re going to add the Cox Communications subs as well, so you know, that’s a bit of a boost.

Shafer: For sure, and YouTube TV is a tricky one. Historically, they don’t disclose subs; they just do point in time around big milestones. So they say, “Hey, we’ve reached 8 million.” And each time that happened there was a scramble we all put our smart guy caps on and try to come up with these numbers. But until the company gives us hard metrics on where they are, I think some of the estimates now may be getting ahead of themselves with having YouTube TV at a higher base than they may be at.

Reynolds: One of the other interesting stats that was discussed is Charter is going to keep its video subs monthly revenue at about $90, while Comcast may be losing subs, but they’re going to be at $130. Charter has gone with the linear hybrid approach, which, I think, they’re the only real main distributor that has gone that way so far.

Shafer: Yeah. When you see the path that Comcast and Charter are on, Charter seems to feel like it’s better for them overall. And also to keep in mind that we’re talking about the video kind of slice here, but that for both those companies it’s really a triple play kind of customer that they’re chasing — Right, yeah... as far as subs, that have video, broadband and mobile through them. Charter’s angle has been to try to shore up that video subscriber base, and to do that they’re throwing in, I think it’s around a dozen SVOD services now that some Charter pay TV customers get for free. So that’s great for churn, that’s great for engagement, that’s good for the consumer that’s subscribing to the pay TV service through Charter, but there’s a cost with that as well, so they’re having to pass money over to those SVOD services when a household takes that. So that’s why the ARPU is lower. Comcast seems to be the other end of it of letting the number be what the number is, but to keep those margins high, so they’ve got higher margins on the video side and not trying to chase people and incentivize them and accept lower margins to keep them around. So who’s to say, how that wins in the end. And then it’s also, like I said, a more complicated equation because you’re also looking at that ARPU across your double play and your triple play customers — Right... as well. And so there’s a lot of factors that go into that.

Reynolds: Before we get to Stream TV per se, there’s been a couple of big announcements. Justin, what do we make of the government having okayed Paramount SkyDance’s acquisition of Warner Bros. Discovery?

Nielson: Yes. The DOJ did approve the deal over the past week. However, there is rumor and it hasn’t been filed yet with the California’s AG. is looking to block the deal on antitrust provisions in terms of the merging of the two studios. So it’s not unlike what we have witnessed in terms of the Nexstar Tegna deal, where it gets approval from the regulatory agencies on a national level, but then the state AGs come in and try to block the merger.

Reynolds: Okay. And then I guess in the bigger news or the fresher news is Fox is buying Roku, and Fox has always been, in my view, sitting on the sidelines more than any of the traditional programmers in terms of getting in the streaming game. They never played Paramount+ or Peacock or HBO Max or Disney+. They did a couple of services, around Fox News and Fox Weather. They didn’t get into the streaming game per se until last August when Fox One got launched, and that involves all their sports, their news, and their entertainment fare. But this is a major step, Seth. What are your initial thoughts here?

Shafer: No, yeah, it was interesting. I think for me, not surprising the news or the price tag or any of that, but Fox was a little bit of a surprise. I think people had assumed that Comcast was always rumored to be a potential acquirer. At times, Amazon and Netflix were floated around as names. And Fox just hasn’t been very acquisitive in its new incarnation. So they did buy Tubi, but that was a relatively small deal compared to this one as far as the size. I think you’re right in that Fox, some people would say smartly, stayed in their lane. And instead of building a rival SVOD service and playing that game and absorbing huge programming costs to fill it up with content and add onto their content, they just continued to quietly license to other services and cash checks that way. It is interesting. I think though, really, it’s an advertising play, not really an SVOD play. So I think it, it’s tricky with Roku. We think about the devices, but Roku’s been an advertising company for a long time if you look at the actual revenue split. So for this last quarter, it was about 50% of the revenue came from ad revenue, 38% came from subscription revenue. That’s when they offer a third-party subscription to a service and they keep a cut of that revenue when a Roku household signs up through them. So only 12%, 13% of their revenue is from hardware. So if you look at them as an advertising company, I don’t think it’s necessarily that surprising that Fox would see that as an attractive way of growing and expanding their ad business.

Reynolds: Interesting. Interesting. Justin, do you agree? Again, this is a largely an ad play

Nielson: I would agree with that. It also is a retention play in terms of the NFL, right? So the NFL has stated that it’s looking to potentially renegotiate their broadcast rights for the Super Bowl and other rights. And you look at it from a perspective of the other broadcasters that have streaming as a, as, basically a hybrid broadcast streaming type of platform and Fox really doesn’t have that. So you look at it from a perspective of where the advertising market is moving to connected TV — the portal that Roku has — and just the scale that they have in terms of the number of users that have Roku devices. So I think it makes a lot of sense for Fox.

Reynolds: All right. Let’s get to Stream TV the way the industry’s been going, and we just talked about two more examples of such. Denver’s become a big travel destination in June. Justin, your thoughts on Stream TV and why are you guys going out?

Nielson: Yeah. And fortunately, we had our Kagan Summit the prior week... to Stream TV show. So we didn’t have a conflict this year, but yeah, it’ll be great. We’re actually going to be an exhibitor at the event. Seth is going to be presenting in one of the sessions on some of our consumer insights in our sports survey. So yeah, it’ll be great exposure for Kagan as well as have a lot of those networking opportunities with other partners at the event.

Reynolds: All right. Seth, have you been out to this event before?

Shafer: Yeah, I’ve been to that show frequently. Last year, like Justin mentioned, we had a direct overlap with the Summit, so I had to skip last year. But the business model for live events has been a bit challenged in the US recently; there were, in the past, multiple different streaming shows, and they’ve consolidated and been rolled into NAB and other big events. So Stream TV is the last show standing as far as a really big one every year. I think it’s interesting to kind of look at the agenda to see what are the trends sweeping through, what’s the shiny object, that year, whether it’s durable or not. Recently FAST, free ad-supported TV was the shiny object. That’s faded a bit this year, so scanning the agenda, there’s more kind of advertising, monetizing, CTV, things like that. More panels about kind of new formats, vertical video, about kind of content-driven partnerships with content creators, things like that. More sports, seems to be kind of being rotated in. I think, generally, it makes sense that it just mirrors things we’ve already been talking about where the industry’s going, and as it matures, what that looks like.

Reynolds: All right. So Justin mentioned Seth’s going to be talking through a bit of our sports report. What are you going to be bringing to bear on the stage?

Shafer: Yeah, so my presentation kind of leads off with some of the data that we have built up at Kagan around global sports rights as far as valuing that market, breaking that out by region. Surprise or no surprise, kind of tilts heavily towards the US. And then that same kind of data breaks that out on an annual basis by, who’s licensing, getting those sports rights. And again, no huge surprise that tilts heavily towards the Disney, Comcast Paramounts o- of the world that have invested heavily which is still an investment for linear broadcast. We get excited about streaming and write article after article about this migration of sports to streaming, but in the US it’s still a linear TV world where it comes to the majority of live sports broadcasts. So that’s kind of the stage setter, and then the last half of my presentation is really going into survey data for if you accept that, that it’s shifting to streaming, and streaming may be, where we watch all of our sports 10 years from now; it digs into what does this exactly look like as far as audiences at the streaming services, how avid are they into sports, what sports are they watching, age, demographics. Really trying to give a breakdown of where we are point in time with audiences for live sports on the streaming side.

Reynolds: I gotcha. I gotcha. And Justin, as Seth just mentioned, linear still rules to a large extent, and streaming is picking up more and more, but this is coming at cable’s expense in terms of some of the higher profile national sports rights?

Nielson: It, it has. And you’ve seen that, in terms of some of the recent sports rights deals with the NBA and other properties. You also see, some of the fringe sports coming back to linear. So it was interesting hearing from Celia from Versant at the Kagan Summit, talking about some of these new properties that were coming back to linear or back to cable. But you do have kind of the erosion of the regional sports networks with Main Street Sports basically folding. You’re going to have a lot of these local teams that are going to be looking for new distribution agreements in the new season. So yeah, it’ll be an interesting time in terms of not only from those national rights deals, but also on the local level.

Reynolds: Yeah, I anticipate that in the weeks and months ahead, Justin and Seth, we’re going to get a lot of information about... I think after Main Street Sports ended its live telecast with the first round of the NHL playoffs, I think there’s still five NHL teams that were involved with them this past season. In terms of the NBA, I think it was 12 teams, one of which... the Miami Heat has settled in with Warren Buffett’s only broadcast station. So it’s really going to be interesting to see. And again, I really expect that we’re going to be doing a lot of stories in the next few weeks. Justin?

Nielson: Yes. Yeah, keeping the team busy with all of those pieces. Yes.

Reynolds: I guess the NFL, which is obviously the top entertainment play in the US, has come under some fire again because more of their games are going to streaming. The DOJ, the FCC commissioner have all pointed at this, and then there was a hearing last week. And not going to get too deep into it, but there could be some legislation coming out of this. That seemed to be the narrative. Justin, any sense for what we’re talking about here?

Nielson: It’s been bubbling over since I attended the NAB Show in April in terms of the talk of potential looking at the legislation that’s currently on the books with the sport broadcasting rights. And, looking at access in terms of viewers being able to access this programming. Really from the standpoint of it’s become more and more expensive to attend a live event. Look at the tickets for the NBA finals or the World Cup. It, it has been an exclusive for, the well off or the super-rich to attend some of these live events. So having that access for the average fan, on broadcast or cable TV streaming has risen in terms of its influence, in terms of these rights deals and, does that need to be addressed in terms of the ability for people to access it in an affordable way? So I really won’t put, in terms of the merits one way or the other, but it is a big topic of discussion that will be voiced at some of these hearings that were coming up in DC.

Reynolds: Seth, what do you think? Again, you mentioned earlier maybe 10 years from now it’s sports are all or mostly streaming. Do you feel that’s inevitable?

Shafer: I think the current situation is interesting. It’s a little bit of an emotional discussion, in my mind, and it hearkens back to a time that I don’t remember existing, where I could watch all of these games easily for free. And now they’re becoming exclusive and I have to subscribe to this service or that service. So I think it’s an interesting debate in that if you look at the actual number of games, using the NFL as an example, how many NFL games are now exclusive to a streaming platform that requires subscription? There’s not a huge increase. I’m trying to avoid saying it’s political posturing because it could be significant, and it’s a weird issue that is bipartisan. We have so few of those, and we seem to have people on both sides that want to return us to this ideal world in which, consumers can easily watch their sports, especially the NFL, for free easily. And again, you can tell by the humor in my voice, I’m not sure as a sports fan that was ever the case. But, there is precedent. Like in European markets especially, there’s a lot more regulation in place about these deals and about sports basically being a public benefit. If a streamer has it, it has to be on a free streaming service. It can’t be locked behind a pay wall. So there is precedent for it, and it would not completely shock me if something like that happened. From a practical point of view, would we then just see Netflix or Peacock that has added on some exclusive NFL games, are those then just free events that are broadcast? A sort of a marketing upsell and things like that. It wouldn’t be the end of the world if that happened, but I think it’s still early days seeing where that goes. Yeah.

Reynolds: All right, let’s go to advertising. AVOD, ad-supported video-on-demand continued growth here. Netflix, after vowing never, is in the game. Been there for a few years. Amazon Prime got into the game as well, and they join Disney+ and Hulu, and now the enhanced ESPN app. Paramount+, HBO Max — those might be together soon enough. And, Peacock as is mentioned. So in terms of this, guys, a lot of action. Seth, what’s been the advertising outlays for these kind of outlets these days?

Shafer: We get wrapped up about, oh, Netflix generated over a billion dollars in ad revenue last year. They’re promised more than double that this year. There’s strong growth on the streaming platforms on the ad side. I think, in our latest SVOD estimates for just the SVOD services over 10 billion in ad revenue collectively. So it’s growing into a large revenue stream. It’s still a minority though for the SVOD services, so for the industry overall, it’s around 15% of revenue. Subscription revenue is still the game there. Services like that, it’s not volatile. They can model that out and project it and, run all sorts of formulas. Advertising is more volatile. We’re starting to see some cyclicality of it, like we see in the broader ad market, where even number of years with political+- some sporting events is going to start spilling over into streaming, where you get that same impact on the streaming side. The big takeaway though is that increasingly these services are bumping in now to the Metas and the Alphabets and the Amazons of the world, so this battle for ad dollars as these services grow, really they’re fighting against kind of the consumer trend to spend tons of time on services like YouTube and TikTok and things like that. So that’s the real story I think there, is that this battle is much bigger than Netflix versus Disney versus Peacock.

Reynolds: Okay. All that being said, Justin, your thoughts in terms of, again, monthly video bills, they continue to grow. Again, it was very nice in the day perhaps to turn on Netflix and to no ads, but it seems that more and more people or the new signups are all going, or many are going to the AVOD services. Do you believe that’s going to continue?

Nielson: I think it will. In, in terms of some of these carriage disputes they have mainly trended to be on, the traditional multi-channel and broadcaster disputes. But it has been, some of the streamers with YouTube TV and Disney, the most recent. So they’re... I think there are going to be more of those types of situations where you’re going to see some of these carriage disputes impact subscribers in terms of programming. And then AVOD is definitely the way for some of these streamers to, to generate revenue, where they see that these, these consumer bills are getting to a point where they’re dropping off services, they’re dropping off, programming. It’s just become more costly to, to be a sports fan and then also be a general entertainment fan. So yeah, I think, there was a point where people were just adding subscriptions just because it were inexpensive or they had programming that they really enjoyed. I think we’re getting to the point where we may have peak subscription in terms of the number of services, and that’s where you see... And there was comments made at this, the Kagan Summit, this rebundling movement where, everything went a la carte, and then maybe it comes back into a package where of an old pay TV service. Yeah.

Reynolds: All right. Getting to the end here, fellas. Can’t talk advertising without saying upfront, it’s the season. Upfront, if you don’t know, content providers look to sell linear and digital schedules to media agencies and their clients ahead of the TV season. In this case, the 2026–27 season. Recent years there’s been a lot more activity on the AVOD side. At the end of this year’s upfront, there will be a significant increase in AVOD spending outlays. Justin?

Nielson: I believe so. That, that has been the trend. You’re also coming into a lot of tent pole events this year with the Winter Olympics and the World Cup, and then, you’ve got the midterm election cycle. So I, I think there’s going to be a lot of displacement of ads because... of that big influence of political in the second half of the year and that’s going to go to AVOD. Yeah.

Reynolds: And Seth, in six weeks or so when everybody declares that their upfront negotiations are done, do you think we’ll be riding it was a major increase for these services? Or just an increase?

Shafer: I think as these services grow their base, it becomes harder to see... major, you know, 50%-plus increases. So I think as they mature, I think it’ll be a solid increase, but I would not... I’m not going to say major.

Reynolds: Okay. Fair enough. That concludes this episode of “MediaTalk.”

I want to thank Justin and Seth for sharing their thoughts about the Kagan Media and Telecom Summit, and now the Stream TV show. And not to mention Warner Brothers Discovery and Paramount SkyDance and roku and Fox. Amazing guys. Thank you, fellas.

Nielson: Thank you, Mike.

Shafer: Thank you.

Reynolds: All right. And this is Mike Reynolds, just want to thank all of you for listening.

We’ll catch up soon on the next installment of “MediaTalk.”