Near the midway point of 2019, here are some of the top trends, threats and topics to watch for in the TMT space, according to analysts from Kagan, a unit of S&P Global Market Intelligence.
Leading trends influencing the TMT sector:
- 5G – The world is gearing up for 5G, which should begin in earnest in 2020. The rollout of 5G in the U.S. could have a major impact on digital video consumption. Future 5G speeds and capacity will enable novel business models related to the Internet of Things, such as in the realms of driverless cars and the digital home, while also posing new competition to incumbent broadband providers.
- Changing consumption patterns for video – Deep subscriber losses hit U.S. cable and DBS operators in the first quarter of 2019, and virtual multichannel providers such as Sling TV and DIRECTV NOW experienced slowing growth. Mobile video viewing continues to grow and a new slate of over-the-top video services such as Disney+ and Apple TV+ are soon to launch. Consumers are attracted to the flexibility of streaming services and high-profile programming such as HBO’s “Game of Thrones.”
As shown below, we expect traditional multichannel services to continue to experience subscriber declines over time.
- Shifting attitudes toward social media services – The desire of platforms such as Facebook and Twitter to be seen as agnostic social-media offerings is increasingly at risk. Ubiquitous use is colliding with heightened concerns over the impact on elections and other facets of everyday life. The tech platform versus public utility debate will likely intensify, with the potential of more stringent regulation growing. Calls to break up Facebook are growing louder.
Some of the leading risks to the TMT sector:
- Cord cutting, cord shaving and the growth of direct-to-consumer platforms – The changing consumer patterns for video consumption described above directly impact the business models of multichannel operators, TV networks, TV stations and others. Increasing viewer fragmentation also threatens content production: Content spend cannot continue to grow at the current rate, as it is not sustainable. Economic models for many existing players will have to evolve or come under increasing strain.
- Economic downturn and ad revenues – Traditional media players are vulnerable to ad revenues weakening due to competition or the economy. Firms such as Google, Facebook and Amazon are well positioned to further dominate digital ad spending and plow resources back into fast-growing sectors such as cloud computing, payments and e-commerce that exert more of a hold on consumers. On the bright side: Another gangbuster period is expected for political ad revenues in the run-up to the 2020 Presidential election.
- User privacy – Privacy as a regulatory matter is becoming an increasing concern in the U.S., which has lagged the EU and other regions in clearly spelling out and regulating consumer digital privacy rights and how personal information is stored and used. This trend can affect the growing list of media players seeking to tap into advanced advertising and audience analytics.
Other key industry topics:
- Potential for transformative large-scale M&A – The market expects an absorption period after the closing of the Disney/FOX and AT&T/Time Warner deals, but the challenging economics of fragmentation and the opportunity to offer more services to the media consumer could spark unexpected M&A by deep-pocketed digital media companies. Cable and wireless players could combine or partner in unexpected ways.
- The rise of ad-supported VOD – The topic of ad-based VOD models vs. subscription-based has been at the forefront of industry discussions for the past several years. While video ads have grown at a quick rate, they still haven’t had the same impact as the subscription model. Ads in the SVOD world could play a more important role going forward if viewers tire of paying for multiple subscription services.
- Is 5G over-hyped? 3G took years before it was really effective, and 4G followed the same pattern. Not all wireless players have the right kind of spectrum, and the significant backhaul required could also slow deployment.
- Where will the NFL and other major sports programming end up and when? The carriage of leading sports content influences the economics of the media ecosystem, although must-watch series are increasingly driving user engagement.
- Potential larger impact of Apple and Amazon – These two major players are slowly bringing their full weight to bear in video competition. Apple TV+ will launch later this year; Amazon already has a dominant place in video with Amazon Channels (where many SVOD players get more than half of their OTT subs) but its influence will likely increase.
- The impact of SVOD churn – Consumers are learning to binge-watch an SVOD service to consume a new show, and then switch. When big series end, premium nets see high cancellation rates that can destabilize the system.
- Netflix access – When will Netflix crack down on password sharing? The technology is increasingly available for Netflix to focus more attention to free access.
- Back to the Future – As SVOD use rises, more consumers are turning to digital antennas and over-the-air TV for content such as live sports.