In Q2 2023, PARQOR will be focusing on three trends. This essay covers "'The definition of scarcity is continuously evolving away from linear and towards walled gardens.”
To remind you, PARQOR identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the media marketplace. Must-read stories or market developments are not always obvious from press reports or research analysis, and often require a deeper dive. PARQOR’s analysis questions established ideas and common wisdom, reassesses the moving pieces, and reveals the potential in the media marketplace in 2023.
I got an interesting question while discussing my three trends for Q2 2023: “What do you mean by ‘scarcity’?”
The question implies that “scarcity” may be a term more commonly understood within the advertising marketplace than outside of it. It may not be common parlance to simply mention “scarcity” and the audience to immediately assume “Yes, you mean scarcity as the linear distribution model’s historical moat of millions of households aggregated locally, regionally and nationally.”
But, scarcity is a hot topic now after the past month of Upfronts (last week) and Newfronts. Advertiser demand for the scarcity of linear inventory is ebbing as cord-cutting accelerates. With that backdrop, YouTube and Netflix took big swings at redefining the value proposition of scarcity on their terms.
Neither presented scarcity per se, though YouTube and Nielsen reported more than 150 million unique viewers in the U.S. watched YouTube and YouTube TV on televisions for the month of December 2022. That number is different from total TV households in the U.S. because it identifies individual viewers and their devices (e.g., TV in kids room versus TV in living room). It implies superior ad targeting possibilities against Google’s superior ad targeting capabilities, which has been *the* impossible dream for the TV advertising industry, to date.
Rather, both offer very minimalist versions of scarcity.
Key Takeaway
YouTube's and Netflix's sales pitches at Upfronts were, effectively, exclusivity is the new scarcity for advertisers, and the future of Upfronts will be hyper-engagement of target audiences within niche walled gardens.
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Total time reading: 4 minutes
Netflix
As I wrote in January’s “Media Confronts New Gatekeepers to Scarcity”, there is a problem with scarcity as a value proposition to investors and advertisers in 2023: “the technological, operational and financial structures required to create scarcity no longer seem to have an obvious business logic to them. And therefore, it is no longer clear what the role of a gatekeeper is in media outside of Amazon's and YouTube's business models.”
Netflix attacked this problem at its Upfront presentation in a few ways. First, it highlighted how in 2022, Netflix viewing across Nielsen’s Top 10 most watched lists was three times greater than all its competitors combined — and five times greater than our nearest competitor.
Second, Netflix focused on engagement. It shared additional Nielsen data showing its “reach at two or more hours is higher than almost everyone else’s reach at a one-minute threshold.” It also shared data from EDO, a TV outcomes measurement platform used to measure the immediate impact of ads across linear and streaming, which found “Viewers are over four times more likely to engage with an ad on Netflix, compared to other streamers, and over four and a half times more likely than linear TV. “
Third, they shared that there are nearly five million global monthly active users and that number seems to have given pause to many observers (NOTE: monthly active users count all adult profiles used on one account with ads).
Recently released Antenna data estimated Netflix had between 1 and 2 million subscribers to its Basic with Ads tier in the U.S. as of March 2023. On average, more than a quarter of its signups now choose the ads plan in countries where it's available (U.S., Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, and the UK).
That leaves an open question: how big is this audience, actually?
Assuming 2.5 people per household both in the U.S. and worldwide, that is an audience of 250,000 to 500,000 per month. That is not ideal and is not competitive scarcity with cable, as last week’s Nielsen ratings showed, or YouTube’s 150 million monthly active users.
But, it is scarcity in that the advertising opportunity is exclusive and unparalleled: Netflix inventory with user engagement that only the Netflix platform can deliver. That would imply focusing on scale would ignore what may best be described as the “post-linear value proposition” of Netflix’s advertising platform. There is no existing one-to-one comparison of linear scale to Netflix’s walled garden.
YouTube
This point reminds me of something Brian Wieser, Principal of Madison and Wall and former Global President of Business Intelligence for GroupM, observed about YouTube to CrossScreen Media’s Michael Beach in a recent podcast interview: Comparing YouTube to cable networks is difficult since they do not break out their US or USCAN revenue in earnings.
Like Netflix, there is no one-to-one comparison of YouTube's walled garden to cable networks. Scarcity is exclusivity and exclusivity is the new scarcity. At its Upfront YouTube announced new 30-second unskippable ads available to be served to YouTube Select, the top 5% of its most-viewed and most-engaging content on the service. It also shared that over 30 percent of YouTube viewers 18 years and up are not reachable by other ad-supported services distributed through smart TV sets, devices or multichannel bundles.
Another aspect was exclusive access to Generation Z, for whom YouTube has previously shared research that it is “the #1 social platform that has content they can’t get anywhere else”. YouTube is the top destination for Generation Z (age 18-24) sports fans. YouTube CEO Neal Mohan told marketers, “When they turn on the TV, they want everything they love in one place — from their favorite creators, to blockbuster movies, to football. And they can find it all on YouTube.”
The pitch was, effectively, YouTube has an enormous audience and it enables advertisers and marketers to bypass the majority and reach the most valuable demographics and behaviors.
Niche walled gardens
I argued last month that Netflix's and YouTube's futures are “niche”: “Both companies face headwinds that, counterintuitively, make it easier to imagine them five years later as niche services, and unable to fulfill their original visions of global domination.” The gist of that piece was that Netflix and YouTube now find themselves pitching advertisers at upfronts because both are “navigating new business assumptions about what users want in a cord-cutting world where linear may remain a dominant use case.”
I think *that* is what is so notable about the new definition of scarcity they both pitched to advertisers, marketers and media buyers last week: if exclusivity is the new scarcity, then the future of Upfronts is selling hyper-engagement of target audiences within niche walled gardens.
Must-Read Monday AM Articles
* Nielsen released The Gauge for April 2022, where YouTube, excluding YouTube TV, remained the most-used platform, with usage increasing 1.5% to help the platform capture 8.1% of TV usage.
* Last year YouTube launched its own version of Prime Video Channels, and is undercutting Amazon by as much as 10 percentage points on what it will charge to carry streaming services. ($ - paywalled)
* VideoAmp is joining the party in Google’s Ads Data Hub clean room alongside rivals Nielsen and iSpot.tv which will allow it to measure de-duplicated reach and frequency on YouTube, the most watched connected TV player.
* Meet the 19 executives driving Netflix's advertising push. ($ - paywalled)
* New market dynamics emerged at The Cannes Film Festival: “If you were here in Cannes a year or two ago, the narrative was all streaming versus theatrical, that’s all everybody was talking about. But I think the next narrative is streaming and theatrical."
* Linear pay TV operators are stuck in twin "Doom Loops" as cord-cutting trends accelerate.
* Fox Corporation CEO Lachlan Murdoch told the Moffett Nathanson Conference that cable and satellite providers are willing to pay increased fees for Fox programming because the company has made a deliberate decision to keep much of its cable news and premium sports — including its National Football League and Major League Baseball games — off streaming services that aren't also part of the pay TV ecosystem.
* Warner Bros. Discovery CEO David Zaslav sees the problem in streaming clearly — a single umbrella interface for consumers where all services are bundled — but his pitch for competition to come together “in the repackaging and marketing of products" is doomed in execution.
* The CW programming chief Brad Schwartz said at its fall schedule presentation "Our goal is to do what’s best for viewers, for stations and for advertisers. No longer will The CW be built for the benefit of two content studios."
* Indian pay-TV network Disney Star has confirmed that the first 57 matches of the ongoing 2023 Indian Premier League (IPL) season have been viewed by 471.4 million people, setting a new record for any season of the IPL at the same stage.
* New research shows "the premium end of the streaming video sector in India is poised for shake-up".
* David Simon, the creator of The Wire, says he’s on strike to protect new generations of writers and make sure they aren’t exploited by studios. (NOTE: a must-watch video that 9 minutes long)
* Dotdash Meredith, one of the largest internet publishers in the country, will debut a new ad targeting tool called D/Cipher that doesn't rely on internet tracking cookies or first-party data
* MeatEater, the hunting and outdoors brand, has brought on a new CEO and has closed its fourth commerce acquisition. It started as a Netflix show in 2011, and is also evaluating ways to get new concepts on linear TV and streaming platforms.
* The National Football League has struck a one-year deal with NBCUniversal’s Peacock to carry a playoff game exclusively on the streaming service this coming season. ($ - paywalled)
* Verizon will stop offering Disney+ with its 5G plans and instead provide a discounted Disney+ plan you can add to your Verizon service plans.
* Google keeps self-sabotaging its smart home ecosystem
* PubMatic is bypassing Demand Side Platforms by positioning Activate, an end-to-end solution for CTV and online video inventory, as a solution for supply path optimization (SPO), which is the practice of cutting out intermediaries from the supply chain.
* Streaming services have perfected the art of bad design.
* "My Movie is Being Removed from Disney+ OR Why Streaming Sucks"