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Broadcast TV faces social media challenge, but also opportunity


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Broadcast TV faces social media challenge, but also opportunity

Opinions expressed in this piece are solely those of the author and do not represent the views of S&P Global Market Intelligence.

Socially challenged TV broadcasters need to go way beyond soliciting likes on Facebook to be in the game, Dallas-based media consultants Chris Kraft and Diana Wilkin of Share Rocket Inc. told attendees at S&P Global's recent "Media School," held Aug. 9-10 in New York.

Social media has been increasingly siphoning audience and ad dollars from traditional broadcast and cable TV providers, but TV incumbents can generate better economics by extending their core platforms for meaningful social engagement.

Ad growth for total TV (representing broadcast and cable ad dollars) grew 3.6% compounded annually from 2011 through 2016, but it is projected to continue to slow, gaining only 1.8% CAGR 2016-2021, according to forecasts by Kagan, a media research unit of S&P Global Market Intelligence. That forecast benefits from expectations of cable TV advertising growing faster than broadcast. TV broadcast ad revenue is projected to decline 1.3% annually 2016 through 2021 while cable TV ad dollars grow 4.8% during the same period. Meanwhile, Kagan projects digital advertising to post a 6.5% CAGR 2016-2021 following an even stronger 15.3% CAGR from 2011 through 2016.

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You can see the two inflection points circled in the graph above when (i) digital eclipsed broadcast TV ad spend in 2013 and (ii) when digital is projected to surpass total TV ad spending (broadcast and cable TV combined) in 2021. Notably, the distance between the respective trend lines looks to be thin starting in 2017, so the inflection point of when digital overtakes total TV ad dollars could happen anytime, including this year.

Included in the U.S. total digital dollars projections above are digital video ad revenues, which could hit $11.9 billion this year, up 18.8% from 2016 according to an Aug. 10 Kagan report ("State of US online video: Ad supported"). By 2021, U.S. digital video ad revenue could rise to $17.1 billion.

YouTube (owned by Alphabet Inc.) is the digital gorilla with an estimated $6.0 billion gross in 2016 ($2.7 billion net of payouts to video rights holders) but Facebook Inc. is surging from an estimated $100 million gross in 2014 to an estimated $684 million gross in 2016.

Share Rocket estimates that one third of all digital video ad dollars are generated by social media, which would imply about $4.0 billion in the U.S. this year. Ad research firm Zenith Media projects all social media ad spending to reach $50 billion globally by 2019, which Share Rocket believes will equate to about $30 billion in the U.S. of which about $8 billion would be local advertising.

All of the above implies very aggressive growth for social media economics, led by Facebook. Share Rocket notes that Facebook is looking to match or exceed the average four hours users spend daily with broadcast TV versus the average 50 minutes users spend daily on Facebook.

Facebook is already a broadcast platform in many ways. About 20% of video on Facebook is live, according to Facebook’s head of video, who predicts the percentage will increase with more emphasis on user generated content. A 2016 survey by Pew Research found that 62% of U.S. adults get news on social media, of which 18% do so often. That is up from about 49% in 2012.

Breaking down usage with more granularity, 56% of U.S. adults tap Facebook for local news, 43% for national news, and 46% for entertainment news, according to a first-quarter 2016 survey by market research firm SmithGeiger, which partners with Share Rocket on market research. The survey also found that 85% used Facebook to get updates on family and friends. Local news is one of the fastest growing and most engaging content forms on Facebook, according to Share Rocket's own research. Facebook users grew about 7.0% overall but 47.6% in the top 10 U.S. TV markets from April 4, 2015, through April 4, 2016, it found.

The rapid growth of social media is perhaps the most daunting challenge for incumbent broadcast and cable TV providers to enhance viewer engagement by extending their platforms with compelling social apps and live feeds. Keeping up is crucial, Share Rocket's consultants advised, a task that is not easy considering social media's meteoric growth.

To reach 50 million U.S. users it took radio 38 years, television 13 years, the internet four years, and Facebook 3.5 years, according to branding strategist and writer G. Kofi Annan.