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Open Ethan Zerbe Honors Thesis 2020 .Pdf THE PENNSYLVANIA STATE UNIVERSITY SCHREYER HONORS COLLEGE DEPARTMENT OF TELECOMMUNICATIONS TRANSITIONING FROM BROADCAST TO ONLINE TELEVISION PLATFORMS ETHAN ZERBE SPRING 2020 A thesis submitted in partial fulfillment of the requirements for a baccalaureate degree in Telecommunications with honors in Telecommunications Reviewed and approved* by the following: Krishna Jayakar Professor of Communications Thesis Supervisor and Honors Adviser Matthew Jackson Associate Professor of Communications, Head of Department of Telecommunications Faculty Reader * Electronic approvals are on file. i ABSTRACT This thesis examines the current state of the television broadcast industry and how companies are adapting their business strategies to align to the recent rise of Streaming Video On Demand (SVOD) services. CBS is currently at the forefront of this trend, with their streaming service CBS All Access having been out for over half a decade. This thesis examines the company’s demographic and financial information, and uses said information to better understand the factors that go into shaping the company’s current trajectory. It concludes by using the case example of CBS to better understand the broadcasting industry and the future for more traditional television companies as a whole. ii TABLE OF CONTENTS LIST OF FIGURES ..................................................................................................... iii LIST OF TABLES ....................................................................................................... iv ACKNOWLEDGEMENTS ......................................................................................... v 1.Introduction ............................................................................................................... 1 2.Literature Review...................................................................................................... 4 3.Methodology and Sources......................................................................................... 7 4.Overview of the CBS Corporation ............................................................................ 10 5.Case Study of CBS All Access ................................................................................. 13 6.SVOD Demographics ............................................................................................... 17 7.Broadcasting Financials ............................................................................................ 20 8.Conclusion ................................................................................................................ 27 BIBLIOGRAPHY ........................................................................................................ 31 iii LIST OF FIGURES Figure 1. CBS All Access Subscribers Over Time (in Millions)……………………14 Figure 2. Number of US Subscribers by Platform in 2019 (in Millions)…………....15 Figure 3. Average Number of SVOD Services Among US Households…………....17 Figure 4. CBS Revenue by Type from 2018 to 2019 (in Billions)………………….20 Figure 5. CBS Net Advertising Revenue/Total Revenue (%)………………………23 iv LIST OF TABLES Table 1. Number of Online Subscribers in the US Over Time (in Millions)………15 Table 2. Total TV Ad Spending in the US (in Billions) Over Time…………..…...21 Table 3. Revenues by Type as a Percentage of Total Revenue Earnings by Year....22 v ACKNOWLEDGEMENTS I would like to thank Krishna Jayakar and Matthew Jackson for their help and guidance with writing this thesis. 1 1. Introduction Recent trends over the last decade have shown a shift in the way audiences are consuming television in the United States. With the rise of the internet in the early 21st century as an integral part of most people’s everyday lives, everyone is turning to online platforms for their primary source of entertainment as opposed to more traditional forms of cable television. This is among one of the reasons for the recent phenomenon called “cord cutting”: the discontinuing of cable subscriptions in favor of other services for entertainment purposes (Strangelove, 2015). In recent years, this trend has increased significantly. In 2015 alone, one in seven Americans identified as “cord cutters,” which is a major portion of potential audiences (Pew, 2015). A result of this shift has been a decline in ratings across television and pay TV networks nationwide as more and more people, especially in the younger demographics, are quitting cable networks for alternative forms of content consumption. Nationally, the largest pay TV providers saw 5 million lost subscribers over the past 5 years, with losses more than tripling in Q2 of 2019 (Hayes, 2019). Over the last 4 years alone, the largest television networks in the United States (NBC, CBS, ABC, and Fox) have all seen a decrease in total viewers by as much as one million (Moraes, 2019). The result of this decline in ratings leaves the broadcast and basic cable networks in a difficult position, given how fundamental advertising is to their overall income. In the United States alone, over 190 billion dollars was spent on advertising in 2016, the largest amount by any country in the world (Guttmann, 2017). The majority of this spending was for traditional media forms such as radio, television, and newspapers. Then in 2019, for the first time 2 digital advertising on platforms like Google and Facebook outspent traditional advertising (Wagner, 2019). This major shift in the system has the potential to collapse many network giants unless changes are made in the way these entertainment industries acquire parts of their general revenue. This thesis attempts to evaluate how the relationship between traditional and online media has affected broadcasters. Broadcasters in this context is referring to television stations that work with local affiliates to air programming from a unified source while primarily relying on ad revenue (Halbrooks, 2019). For these broadcasting networks, there is still uncertainty about what the future may hold with regard to where their main form of income will draw from. CBS considers its advertising department as “strong” (CBS, 2019) and company reports show the amount of money earned from advertising as remaining consistent (VIACBS, 2020), while audience reports show the ratings on traditional television falling, while consumption of online media is rising (Nielsen, 2019). This shows the dichotomy between linear and non-linear forms of entertainment, with traditional television networks serving as a linear experience where the viewer has little control over when they are shown what they desire to watch (BMCC, 2016). Viewers of linear television are bound to the time slots allotted to the programming they wish to see and any attempt to get around these time restrictions require external applications like DVR. This used to be the only way people consumed television programming until online media such as streaming allowed for a non-linear experience where the viewer can choose when to watch for however long they wish. More control has made non-linear an increasingly popular form of media over traditional television that until now had solely relied on a linear experience. 3 With all of this uncertainty regarding the viability of the traditional model for monetary earnings for broadcasting networks, this thesis seeks to help answer the question: will television as we know it today survive this new wave of streaming services that are taking over modern entertainment? CBS and CBS All Access will be used as a single-case study to examine this phenomenon, which will then be extended to better understand the television broadcast industry as a whole. The reason for selecting CBS All Access is that compared to other streaming services being unrolled by competing broadcast networks, All Access has been around for a long time and has plenty of useful data relating to it (for more information see Methodology and Sources). The overall structure of the paper is as follows. First, the basic foundation for the CBS corporation as a whole will be examined to see where the company today currently stands and how its recent merger with Viacom has shaped it, followed by a similar overview of CBS All Access. Then, the next sections cover the findings regarding streaming services in the United States and the financial data available for the CBS corporation. The paper ends with a conclusion regarding the overall findings of the research and tentative predictions regarding the future of television. These findings show a lucrative opportunity for television networks in online streaming. A wave of young audiences are becoming more invested in streaming content, and the way the market is currently positioned there is an opportunity for more services to be released before saturation occurs. This will allow the broadcast networks to utilize both advertising and streaming subscriptions in a multi-platform capacity that can stem the loss of revenue from cable cutting. Despite the recent trajectory of cord cutting, traditional television is not going anywhere anytime soon and growth in streaming will make broadcast networks stronger than ever. 4 2. Literature Review Many news articles and trade journals today tend to focus on companies like Netflix, Hulu, HBO, Amazon Prime Video, and now more recently, Disney+, as the next big things in the way people consume media. Ever since Netflix started producing original content in 2012, websites such as The Guardian and The Star have published articles crediting the company for having “changed
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