Subscriber fees outstripped ad revenue 5:1 in 2018: report

Internet advertising continued to soar in 2018 to an estimated $7.7 billion—up from $6.8 billion over the previous year, however subscriber fees outstripped ad revenue by a ratio of 5:1, according to the latest Canadian Media Concentration Research Project (CMCRP).

Dwayne Winseck

Helmed by Professor Dwayne Winseck, at the School of Journalism and Communication, Carleton University, the first installment in this year’s series of reports looking at the state of the network media economy, finds that U.S.-based internet giants are consolidating their dominance of digital advertising markets in Canada and becoming increasingly dominant across the ad landscape as a whole.

According to CMCRP data, Google and Facebook had a lock on over three-quarters (77.2%) of the $7.7 billion online advertising market in 2018 and more than two-fifths (42%) of the $14.2 billion in advertising spending across all media. However, the report found that subscriber fees from “pay-per media” including online gaming, music subscriptions, and pay and specialty TV, soared from $1.4 billion in 2014 to nearly $4 billion in revenue last year.

Including internet advertising, those sectors amounted to an $11.7 billion share of the network media economy in 2018, or 14% of all revenue—double its share of the pie in 2014.

“There’s an over emphasis on advertising-supported media in general in much of the discussion about the state of the media in Canada,” Winseck told Broadcast Dialogue. “It’s true that when we look at media that rely primarily on advertising for their commercial viability – broadcast, newspapers and magazines – they are struggling, but the problem with focusing on that is that it’s kind of the tail wagging the dog scenario because as we show in the report, basically subscriber fees and direct payment outpaces ad revenue by a 5:1 ratio.”

“The report’s real takeaway is that much more of the media sector is not in crisis when you look at investment in TV and film production and online music services, gaming and app stores,” Winseck added.

Ad spending declines

Winseck says ad-supported media has been plagued by overall ad spending declines in relation to gross domestic income, which on a per capita basis has fallen between five and 10% over the last 10 years. The report says TV ad spending fell to $82.80 per capita last year after peaking at $112 in 2011.

He says as a result of the long-term, downward pressure on ad revenue, broadcast TV, radio, newspapers and magazines have collectively lost $4.4 billion in revenue. By the report’s count, eight broadcast television stations have gone dark, numerous daily newspapers have been shuttered or pared back publishing schedules, and roughly 2,800 or 20% of the country’s full-time journalists have lost their jobs over the last five years (from 13,000 in 2013 to 10,200 last year).

The report also suggests that with big Canadian telcos like Rogers and Bell owning the country’s major commercial TV services, questions need to be asked about why conditions for broadcast TV are particularly dire here compared to other countries.

Digital giants Google, Amazon, Facebook, Apple and Microsoft earned a collective total of $7.7 billion in revenue last year. Add in Netflix and their combined market share adds up to about 9% of all revenue. By comparison, the “big 5” (Bell, Rogers, Telus, Shaw and Quebecor) accounted for nearly three-quarters of all revenue across the network media economy.

Winseck says with broadcast television operating at a negative return on investment (ROI) for the last five years (-7.4 last year), he suspects it’s difficult for BDUs, reporting alongside wireless operations boasting ROI of 20 to 40%, to justify investing in local programming.

“Cord-cutting” effect exaggerated

Among the report’s other findings are that the effects of cable “cord-cutting” on broadcast television are real, but exaggerated. Total subscribers fell from 11.5 million in 2012 to 10.8 million last year. Accounting for population growth, 76% of all households still subscribed to a cable television service last year, down from an all-time high of 85.6% in 2011. Telus, Bell and SaskTel had 2.8 million IPTV subscribers between them at the end of 2018, accounting for just over a quarter of all cable TV subscribers and revenues.

The report says while many try to equate Netflix and other online streaming
services with broadcast television, the correct reference point is video-on-demand services,
“which have traditionally been treated with a much lighter regulatory hand than their
linear counterparts.”

Winseck believes the Liberal government’s plan to implement a 3% tax on the digital giants, is a step in the right direction.

“It’s a small down payment on where things should go,” said Winseck, who would like to see some of that new federal revenue specifically earmarked for journalism and public interest-oriented media production.

 


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