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The State of Media and Entertainment 2018
Viewers opened their wallets to skinny bundles and SVOD services last year, and there's more where that came from.

"Sleep is my greatest enemy.”

Those five words, tweeted from the Netflix U.S. account in April, summed up the whole of the streaming video media and entertainment world in 2017. Viewers had more fantastic content to watch, more platforms to watch it on, and more devices to watch it with than ever before. If the rise of streaming video has shown anything, it’s that all viewers want is everything they can get. Now they can get it, and they’re watching more video than ever. But something had to give, and that something was sleep. Viewers are chronically under-rested and red-eyed, but they’re all caught up on Game of Thrones

Having already spread throughout the world, Netflix didn’t command headlines like it had in previous years. CEO Reed Hastings and his crew have created the first global network and continue to churn out streaming hit after hit (Stranger Things season 2 and Marvel’s The Defenders, among many others, kept subscribers entertained last year), and so Alexander wept, for there were no more worlds to conquer.

Netflix may not have commanded headlines in 2017 as it did in previous years, but it still churned out hit series and special programming, setting the gold standard for SVOD services.

Instead, the battle last year was between online and pay TV, where quarterly markers showed cable and satellite's audiences slowly eroding. Headlines went to new skinny bundle offerings, which provided a less expensive, more versatile, and more limited alternative. DirecTV Now, fresh off its November 2016 launch, got off to a rocky start with customers reporting massive buffering and delay issues in January. YouTube TV spread to new markets in the last half of the year, choosing to adopt a slower market-by-market rollout. Cloud DVRs became a must-have for skinny bundles in 2017, although different platforms had different limitations. Sling TV, for example, offers 50 hours of cloud DVR storage for $5 extra per month, where saved recordings never expire. YouTube TV offers an unlimited cloud DVR, but recordings expire after 9 months. Subscribers are still deciding what channels and amenities are essential, so there’s plenty of room for new players and feature sets.

TV Everywhere (TVE) seemed like such a nonstarter for so many years, it was surprising to see it roar to life in 2017. TVE is a system where pay TV customers can access broadcaster content on-demand through apps or websites by signing in with their account IDs. It turns out all TVE needed to give it a little life was a way for broadcasters to make money from it. Once the major measurement services figured out how to count streaming views—so that online views counted the same as traditional views for ratings and advertising—broadcast and cable channels were suddenly motivated to put more of their content online. Signing in (called “authentication”) became easier this year thanks to single sign-on solutions. Adobe, for example, debuted its single sign-on solution in June 2016, and reported strong TVE growth at the end of 2017. With catch-up programming just a few taps away on their Roku or Apple TV, and signing in often not the hassle it once was, viewers were all too happy to add more apps to their living room viewing.

Even though streaming services provided more than enough original programming to keep viewers entertained, content came from several other directions in 2017. Some well-established companies decided that they really wanted to be Hollywood studios. Apple, for example, released original shows like Planet of the Apps and Carpool Karaoke, then announced it August that it will invest $1 billion in original programs. Facebook, well into its free-spending video transformation, created an app for living room viewing, debuted its Watch tab, and streamed shows created by partner companies. The social network paid selected partners to create those first original series, but said that was a one-time offer and creators would need to subsidize their own content after that.

Apple will invest $1 billion in programming, but it entered the original content competition modestly in 2017 with shows like Planet of the Apps and Carpool Karaoke.

People in their teens and 20s are such a desirable market that several online services are targeted at them, some low-cost and some free. But for Go90 and Fullscreen, the path wasn’t easy in 2017. If anyone thought the teen video market was getting crowded, they weren’t surprised that Go90 needed a complete overhaul in January. The Verizon-owned service fired 155 employees and tried a new content strategy to keep young viewers tuned in. Competitor Fullscreen didn’t get off that easy: Fullscreen Media shuttered its subscription video on demand (SVOD) service in November, letting 25 employees go. Even though it had a deal in place with DIRECTV to bundle service with DirecTV Now, it still couldn’t grow an audience.

Viewers were willing to open their wallets in 2017 and create their own custom streaming solutions. The promise of SVOD services was that people could save money by cutting the cable cord and signing up for the few targeted plans that offer what they enjoy. But it didn’t feel like anyone was saving money in 2017. At the end of the year, Brett Sappington, senior director of research for Parks Associates, reported that 69 percent of U.S. households with broadband subscribed to at least one over-the-top (OTT) service, and the number of homes with three or more services was increasing. Netflix, Amazon Video, and Hulu were the most popular options, according to Parks. Meanwhile, the measurement specialists at Nielsen reported that 12 percent of total viewing time is going to streaming services, and 48 percent of that chunk is spent with Netflix. Speaking at an Advertising Research Foundation conference in October, Nielsen senior vice president of product leadership Brian Fuhrer agreed about the top three services, noting that Netflix is in 59 percent of U.S. homes with an SVOD subscription, Amazon is in 31 percent, and Hulu in 13 percent.

“The more options you can give consumers with a better experience, the happier they’ll be,” Fuhrer said. “Streaming is definitely no longer an edge case.”

Fuhrer saw interesting gender differences in what we’re watching: 62 percent of Hulu viewers are female, he said, while 55 percent of YouTube viewers are male. Hulu’s recent success with The Handmaid’s Tale may have temporarily inflated its numbers with women, so it’s not certain this will hold up over time. Fuhrer noted that over a quarter of all streaming is done by people under 18, while nearly half of YouTube streaming is by those under 18.

Mobile viewing continued to rise in 2017, but it was still less than living room viewing, which became more connected than ever. Or course, plenty of people managed to enjoy both at once. A late-year report from eMarketer said that 70.3 percent of U.S. adults watch TV while surfing the net.

“With the average U.S. adult spending more than 2 hours a day on their smartphone, as well as the popularity of VOD and over-the-top services like HBO Go and Netflix being viewed via connected TV, multitasking between two or more devices continues to increase,” said eMarketer senior forecasting analyst Oscar Orozco.

More choices, more money, more time: Can it all last? Can this balloon continue to inflate in 2018? For that answer, let’s turn to some experts.

What to Expect in 2018

The big questions in media and entertainment these days are how many virtual multichannel video programming distributors (vMVPDs) can the market handle, and how low will subscribers dip for the pay TV companies? As the year ended, IDC research director Greg Ireland was thinking about the transition from linear to digital that we’re now undertaking, and if this will look like a critical time—an essential pivot point—when people in years to come will look back at the eroding linear television market.

Interviewed at the end of 2017, Ireland had the Q3 numbers for traditional multichannel video programming distributors (MVPDs) in front of him, and they didn’t look good. While Q3 usually shows a rebound for pay TV after a weak Q2, this year the numbers continued to slump. Meanwhile, vMVPDs are on the rise, with DirecTV Now reporting more than 1 million subscribers. Pay TV is still a much larger market, but signs indicate we’ve reached a tipping point, and that pay TV will continue to decline and digital to rise for many years before we finally see them plateau.

“What I wonder is whether this really is the year where the integrity or the viability of linear is really starting to show its cracks and whether we’ll look back and see this transition from traditional to virtual MVPDs as just a piece of a bigger picture of eroding linear television,” Ireland says.

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