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- [00:00]
Fergus O'Carroll
Welcome to OnStrategy Showcase. I'm Fergus O'Carroll in Chicago. I hope you guys had a good holiday. This is actually supposed to be airing between Christmas and New Year's, so assuming that actually happened, I hope you had a good holiday. And I know we've still got to look ahead to New Year's Eve, which is coming up in a few days. We are thrilled to be heading into 2025. We've got a bunch of new things we're going to announce in early January. We're going to be experimenting with some new formats to sort of mix in with the. That I'm super pumped about. And they're kind of inspired by some of the things we tried in 24 and that worked really well and that we're going to be taking them and rolling them out a little bit wider. So look for that to happen. We've also got a brand new sponsor kit for those of you who are interested in being a sponsor of the show. We'll be dropping that new sponsor kit in early January. Also here is a clip from today's episode.
- [00:57]
Michael Beach
There are over a million video advertisers in the US that are buying advertising on Facebook and Instagram. You know, there are a couple thousand national TV advertisers. And so there are, there are a huge pool of people that are not buying inventory. And so, you know, we see a world where at the impression level, a direct consumer brand or a local advertiser or a smaller national brand is bidding on an impression against Procter and Gamble or Ford or whoever it is, and the more targeted and measurable it is that it can be sold, that group will pay a higher cpm. And so, and we see that, we see this heavily in US Politics, right, which we think is a canary in the coal mine. But even in other local verticals, once they understand who their target audience is and what it costs to reach them on all their platforms, they're willing to pay a lot more than they they were before they started. And so, you know, it's just, if you talk to the Madison Avenue types, they think this is total heresy because it's the inverse of how their business is built today. But we use Facebook as a proxy. Like, the reason the boycotts against Facebook a couple years ago had no impact on their business is because the largest brands aren't the majority of their business.
- [02:09]
Fergus O'Carroll
That's Michael Beach. He is the CEO of Cross Screen Media. He's also the author of a book which you'll hear about, a wonderful book we're gonna be talking about the top stories in Media in 2024. Michael has been on the show in the past, big fan of his and I could sit and listen to him talk, as I say in the episode, for hours. I find the whole territory of media to be media. I'm talking about media in terms of streaming media, linear media, et cetera. The whole dynamic that's happening in media to be really fascinating. So here's a conversation with Michael Beach. There are a handful of people I think that most of us could just sit and listen to for hours. And Michael beach is one of those folks. For me, I just re listened, Michael, to the episode we did back in February of this year and I could listen to that two and three times. You're a fountain of great insight and observations in this whole world of streaming and media. So it's brilliant to have you back on Michael Beach. Welcome back.
- [03:22]
Michael Beach
Thank you. You're very kind.
- [03:24]
Fergus O'Carroll
So just for those of you who don't know where this all started, for me, there is a brilliant newsletter called State of the Screens. State of the Screens. And if you haven't had a chance to look at that, you've got to subscribe to it. You can go to stateofthescreens.com stateofthescreens.com and you can subscribe there. It's just this wonderful periodic newsletter that comes out very succinct, takes a particular topic and pulls it apart with simple language and data and insight that is done, I think, better than most anybody else. If you're a fan of Axios, you're going to love the same sort of approach that Michael takes with State of the Screens newsletter. He also has a book that came out this year called Screen Wars. So is that available on Amazon or is it just through your own site, Michael?
- [04:18]
Michael Beach
Yeah, available to all publishers, both through Kindle and hardback and paper paperback.
- [04:25]
Fergus O'Carroll
Brilliant. And so we are back on. I reached out to Michael a couple of weeks ago to see if we could do sort of a recap. Not a recap, but kind of a summary of the things that mattered the most in 2024 in the world of media and content in terms of premium content and content of this type. So he agreed to come on. We have identified five different story topics that we want to go through today. So we're going to do that one by one and just listen to what comes out of this and make a lot of copious notes. As I said during the last show, just grab a cup of coffee, sit back and relax and take a ton of notes. So let's start off, Michael, with the first thing that mattered the most in 2024. It is the 2024 election and the fact that you say that it exposed the challenge of reaching consumers in today's fragmented media environment. Tell us about this and what made it particularly a challenge in 2024.
- [05:29]
Michael Beach
Yeah, there's a couple of things I think that marketers can learn from politics, especially when you have a presidential election. The first is that these campaigns raise so much money, I think roughly almost a billion dollars each when you count outside groups and campaigns at the presidential level, about 60% that goes into media. So you're looking at a couple billion dollars of TV advertising went into the election. And then you get down to you're only talking about seven states. Essentially what that means is that political campaigns are spending way more money per target than any other industry would spend and then they're still running into issues reaching people. And so if a political campaign with a billion dollars targeting seven states can't reach a certain segment of the population, that means no brand essentially can. And you started to see that in the post election research where, you know, they're talking about, you know, how the money was allocated. But you can really look at it and figure out that even a older voter, someone likely to vote in election, they are still, you know, you're getting down to where reach is below, you know, right at 50% or below for linear TV. But streaming is not yet reaching all of those people. But you just have a much more complicated media planning process than you had, you know, even four years ago.
- [06:49]
Fergus O'Carroll
Do you think of that as being, is it about effectively reaching them or reaching them, period? Is part of it the fact that we've become jaded or is it the fact that we just can't effectively reach people? We're jaded by the media message. It's not communicating in a way that will lead to a positive outcome.
- [07:08]
Michael Beach
I think first there's just a segment you can't reach at all. And that probably doesn't surprise anybody, but we think probably 9 to 13% of targeted voters in those seven states weren't reached by streaming TV or linear TV. So that's the first thing that there's just there are people that are gone from that ecosystem. So you need to think about your other marketing channels. The New York Times did a great breakdown on this. You know, Shane Goldmacher in the last week kind of went through how they, they kind of tackled this issue. But the second thing is that your, the way we've traditionally planned media where we would fund the, the largest reach vehicles first. You know, mainly being linear TV and programming linear TV with the most reach. The reach on that has dramatically declined. And so with a predominantly sports and news based buy, we were seeing campaigns at that national level below 50% or right at 50% of the target audience reach with linear TV. And so then in order to fill that gap, you've got to buy a lot of other things and a lot of streaming. And so what we are seeing now is what we call the streaming first buyer, where they were coming in and buying streaming first because they're getting about the same amount of reach from streaming as they're getting from linear tv but a much more cost effective way to do it. Now the frequency is still dominated on tv. That's one of the things that people get tripped up on. And we have a framework we call the streaming decade in four steps which walks through how each of these things are. Time is going from linear to streaming and then ad dollars are going from linear to streaming and then reach and then, you know, total impressions. So linear TV is still 80% plus of the TV ad impressions. But that's just because a small segment of the linear TV audience is consuming so much linear TV and that streaming now is equal in terms of reach. And we think in the next 12 months it'll surpass linear TV. And so we saw that in this election where they were spending so much money and getting about the same amount of money, the same amount of reach from streaming that they were getting from linear, but spending 2, you know, 2x what they were spending on, you know, 2/3 of budget for TV was going to linear still. And so they were just, they were buying a lot of frequency there, which is important. But you know, you got to reach the person at least one time to have an impact.
- [09:29]
Fergus O'Carroll
It's, it seems to me like I look at now, I don't have the numbers off the top of my head, but the billion that was, that was, that was spent by the Harris campaign. What I remember hearing is that the Trump campaign had a much lower level of spend. But I bring it up because it seems as if there wasn't even a necessity for this sort of a major buys because so many people had their minds made up. The issue of reach was a factor. And the fact as you say that if you were in anywhere else but the seven swing states, it felt like it was already a lock in terms of where people were going to vote. So do you think from a media perspective that there was a case for making this sort of linear TV buy to the extent that it was. Or could those dollars that were invested, the billions, could they have been invested in different ways, in your opinion? Because you're reaching, you're just trying to reach independent voters, which is still a very large percentage of the total voter base, but still it just makes it even less efficient.
- [10:38]
Michael Beach
Well, yeah, politics, there's two ways to create votes. You can move someone into your column, which that's your persuasion, which is what we see on television, and then there's turnout or get out the vote where you take somebody that maybe they only have a 50% likelihood to vote, and you get them to turn into a 65% likelihood to vote. And so every thousand voters, you net unit somebody there. And so there's always a debate about whether we're allocating the right mix there. And it swings, you know, to where at some point you'll max out persuasion and you'll realize you left a lot of votes on the table with turnout, or you spent so much money on turnout and then you're leaving votes on the table persuasion. So we're kind of, we're probably this area where big picture that we're going to see a shift from dollars from persuasion to turn out in the next couple years is one kind of prediction we're making. But to answer your other question, if, especially this New York Times piece where they walk through how the Trump campaign essentially in this, their, their kind of affiliated super PACs had about 6 million voters that they felt were actually movable. And so they trained, they had, you know, say $600 million and the Harris game had a billion dollars. They trained their money on that 6 million voters, whereas the Harris campaign trained their money on a much larger pool of voters. And so in reality, the right people probably got less frequency from Harris versus Trump is kind of what the, if you kind of read between the lines there. And so that could have had an impact the other way to where they were just spreading their, their, their mess, their dollars out across voters. It essentially didn't matter. They weren't persuadable either way. And that's a big thing you've seen, you know, every, every eight or so years, there's kind of a revolution in modeling and targeting everything. You saw it with kind of the Bush Cheney campaign in 2004, and then the Obama campaign did a similar thing in 2008 and 2012. And you've probably seen that here to where that might have played a difference to where the, the Trump team Media dollars actually had a better impact than the Harris team because they were training it on the right people.
- [12:49]
Fergus O'Carroll
And then what about the factor of earned media versus paid in terms of its ability to reach? It seems that it was, that it was earned media, if you played it right, is actually having a greater level of penetration and assumed authenticity over. Over paid. Is that how you see it or would you think of it differently?
- [13:11]
Michael Beach
I think there's a certain element of that, but I think people are trying to wrap their head around the same reach problems that we are having with advertising is happening with actual news programming. And so fewer people that ever are watching all the cable news networks, the broadcast news networks. And so you can get earned media there, but your audience is shrinking every year there. And so then you see, well, you know, President Trump went on Joe Rogan's podcast and he won the election. Therefore this must have created some kind of benefit. And I don't think people know how to quantify that yet. To where clearly we're in a world where there are new earned media opportunities that an ad on one of those programs may have not had any impact, but being on there did. Yeah, and. But we, I don't think we know how to quantify that yet.
- [14:02]
Fergus O'Carroll
Yeah, it's, it's really interesting. So what do you think brands can learn from the, from the, the cycle of the presidential election and the challenges?
- [14:11]
Michael Beach
Well, I think, you know, taking reach for granted is obviously commonly known, but I think that how acute the problem is is probably not known and that you're not, you're probably having a more difficult time reaching your, your actual target than you realize. And then also just understanding that who your real target is, like who is actually, obviously you got people that have bought your product before, but the next level of audience isn't everybody else. It. There is a certain thing of if you have a million customers and you're looking at the 300 plus million Americans, there's probably 20 million people, that your next million customers are in that bucket and that you want to train as much of your media dollars on that 20 million people as opposed to running an ad to the, you know, three, the 299 million people who aren't currently your customer. And that's something that has been known in politics for a long time. But when we go into a brand, they are still, well, everybody could be our customer. And that's true. But how likely are they to be your customer? Right. And if you can refocus a lot of your dollars on, you don't need to get it to where it's, you know, sniper tight. But even just narrowing it down into, you know, a block of one or, you know, 5 or 10 million people would probably do really well at the national level. And we don't see a lot. And so we do a lot of local. And an example is if you look at a, you know, a quick service restaurant, most of their customers live within, you know, five miles of the restaurant in one direction, but they might be running ads across the whole market. And so you kind of get down to it where they're like, well, everybody could be our customer and maybe someday we'll open a restaurant. And all those things are true. But when are you trying to have an impact with your ad dollars? I think just being very intentional about that, you may still make the same decision, but thinking it through like a political campaign, I think would pay a huge dividend.
- [16:05]
Fergus O'Carroll
Yeah. I've always been fascinated through the last two presidential cycles about what we can learn as strategists and marketers from the way the campaigns have been structured and the reactions and the outcomes that have come out of these campaigns. Because either the behaviors or the messages or the tone of the campaigns were extraordinarily disruptive and offensive to so many people, but it resonated with an awful lot of people. And I think that we sort of always felt that a candidate must possess certain characteristics, both their personality, both their resume, both their values and their integrity. And we felt that that was a baseline. But that is not the case, as proven out by what's happened, or at least it's not the way everybody has interpreted it. And I think there's an awful lot, strategically, that brands can learn from a lot of these assumptions that when you break through them, you can actually realize that you don't necessarily have to behave in the way that you think you have to behave. You can actually express different aspects of your personality or different aspects of your brand and shake things up and be successful. Has any of that surprised you because you've been involved in political strategy? I don't know from a candidate perspective, but certainly from a media perspective, I understand. Has that surprised you that the sort of expectations of candidacy has shifted so dramatically, yet the outcomes haven't been negative, they've been positive?
- [17:53]
Michael Beach
Well, yeah, and I think there's obviously a mix of factors there. I mean, there is a, you know, level of authenticity. I think that people, you know, when you're. You can get away with a lot of things that you may have, you know, by a textbook would have Been a, you know, a game over moment if you're, if the audience believes that you're authentic. And so, you know, brands are probably in that world where, and you see this a lot with direct to consumer brands where they, they kind of almost feel like political campaigns. And the fact that they are extremely authentic. Now whether you can scale that when you get bigger is a question. And then we also, you know, there are the one thing, I think that you have a lot of larger brands that are, could become in the crosshairs of political issues. And I think that, you know, they may not, the lesson for them may not be, hey, you need to go out and act like this to promote your brand, but you need to understand how destructive these tactics would be to your brand if they were used against you and prepare for that. Right. And I think that's where you're seeing the world of public affairs and brand reputation really morph around looking like an inverse of a campaign. Because you just see these activist groups now spring up so fast and have such an impact because they've borrowed tactics from political campaigns and are turning it on, you know, really slow moving kind of traditional brands and institutions. And so we, you know, anytime I talk to anybody who's in a leadership position with this company, I'm like, you almost need to think like a political campaign just on about defense.
- [19:26]
Fergus O'Carroll
Interesting. Yep. I think it's, I think there's so much to be learned. I haven't, I haven't seen, I can't recall at the top of my mind anyway, books that have been written so far about this. But there's a brilliant, I think there's a brilliant opportunity to be able to learn so much from these campaigns in recent years and how we might be able to apply them in marketing circles. Okay. Our number two is linear tv. Football with a side of news. Football with a side of news. Tell us about this one.
- [19:57]
Michael Beach
Yeah, you look at every year they rank the top 100 shows. And last year 93% of the top 100 rated shows on linear TV or sports. The other seven, I believe are all news or maybe an award show. Yeah. And that number is going to probably grow again this year. Obviously can't go much higher because it will get close to 100%. But you're really the, the idea that the linear TV bundle has become pretty much just those two things. Sports being the dominant piece, news being next, and overall the, the ratings for all these are dropping. They may be dropping slower than cord cuttings happening or something else, which is a win for the media company that owns sports or news. But nonetheless they are dropping even the live sports. Football games like the NFL is probably holding. You know, it's, it's holding its own for sure. The NBA, Major League Baseball, the others, they'll have times when they'll pop up and you'll read the trades and they'll make sure to promote that. But if you look at a five or ten year trend, it's going down. The audience is declining. There are blips where they go up, but most of the time it's declining. And I think it's also, we're probably watching more live sports than ever. There's just so much on TV now. Right. Versus 10 years ago. And so I think that you could make the argument that necessarily obviously scripted shows on linear TV legitimately declined and that audience went to streaming sports. I think the audience has probably just gotten spread out across, you know, Major League Soccer is big now. And you know, all these other sports news is interesting because it's such an older audience that it doesn't appear that younger people are adopting cable news or broadcast news at all like they are. When they start to move into news consumption, they are going right to streaming and podcasts and YouTube and never even really hitting that group. So every year the average age of a linear TV news audience is going up, which I think is then leading to a long term ratings decline.
- [22:04]
Fergus O'Carroll
I mean, it's in the 60s right now, isn't it? Yeah.
- [22:07]
Michael Beach
And it's getting, every year it's getting older.
- [22:09]
Fergus O'Carroll
So what is it that's led to this over time? Is it the fact that there's a distrust of the news or that there's a sense that the news is served up in a more digestible way, either in the blend of comedy or coming from different voices that it's served up differently? So is it the product or is it the way that it's presented and marketed?
- [22:34]
Michael Beach
I think it's a little bit everything. I mean you've got obviously your. For cable news, you're limited by the number of people that subscribe to the bundle. So as people cancel the bundle, they just, they don't have the opportunity to even watch CNN or Fox News or msnbc. So that's, that's one limiting factor for cable news. And another, and one I definitely want to study deeper is just, I think especially for younger people, our attention, we're just becoming rewired by mobile phones and social media to where that they just don't want to sit down and watch a 30 minute news show. Right? They are. They're consuming it totally differently. And I was reading, I've kind of been doing research for a story on this for State of the Screens and I was going through a thing about how college students can't finish books anymore.
- [23:18]
Fergus O'Carroll
Yeah.
- [23:18]
Michael Beach
And they were interviewing these Ivy League professors who, you know, most elite students in the country and they can't get them to finish a 200 page book. And so there's something there about how our, you know, obviously the pay TV bundle's a constraint, but also just our attention spans are being rewired to where younger people just aren't learning really how to sit down and consume a long form product like that.
- [23:40]
Fergus O'Carroll
We'll be right back.
- [23:42]
James Herman
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- [24:32]
Fergus O'Carroll
I'd like to share a report I recently read from Tracksuit and TikTok. The report proves what marketers have known for decades that performance and brand marketing achieve better business outcomes together. The report is titled the Awareness Advantage and it backs up a long held theory that having a stronger brand helps your performance marketing perform. Specifically, high brand awareness advertisers drive 2.86 times more lower funnel conversions than lower awareness advertisers. What's more, if your brand is known by 4 out of 10 consumers, your performance marketing is 43% more effective. It's yet more evidence from Tracksuit to support the value of brand building and is a great resource for marketers trying to nail that tricky balance between performance and brand to get the most out of their advertising activity. You can download the Tracksuit and TikTok report. It's titled Awareness Advantage and you can download it for yourself@gotracksuit.com AwarenessAdvantage that's gotracksuit.com AwarenessAdvantage and if you need a way to measure your brand health, such as your awareness, then Tracksuit is a beautiful, affordable and always on tool that tracks these fundamental metrics over time so you can prove the impact of marketing to business stakeholders. Now back to the show number three is Netflix is the alpha dog for convergent television. Tell us first of all, what's the definition here of convergent tv?
- [26:18]
Michael Beach
Yeah, so we look at this convergent tv, which is kind of the period we're in now, which is linear and streaming TV kind of coexisting. Obviously we're shifting from a world of 100% linear TV to a world of 100% streaming, which we think will arrive at in roughly the next decade. And so today we call it conversion tv. Eventually it will just be called streaming tv or we'll go back to just calling it tv. And I think the key thing is that the way we look at this is like it's a game of musical chairs. And there were so many spots in the linear TV world. The, the Comcast, NBC Universal of the world had a seat and you know, the Disney, ESPN had a seat and the Warner Brothers had a seat. And now you've got more players. You probably have roughly the same number of seats when the music stops. We believe that, you know, YouTube and Netflix probably both are already sitting in two of the seats. And so that means that you're going to see consolidation of traditional partners because, you know, a couple years ago it was questionable whether YouTube could create a business out of, out of YouTube and whether Netflix could survive because they were losing so much money and using so much debt. And now obviously YouTube appears to be here for the long term. You know, their biggest threat is obviously government theoretically breaking them up. But you know, there are people that believe that spinning them out of Google would actually make it even more of a, a prominent player in the TV ecosystem than it is today. And then in the case of Netflix, you now have a scaled global media company with 300 million subscribers, which we have never seen who generates the most profit from streaming of any company. And so they're here for, they're not going anywhere. And now they're getting into sports live events. They have gotten so strong in the last two years since they kind of hit their bottom. And now they are, I mean, clearly to us, the alpha dog. Like they've got a smaller audience than YouTube, they have less time spent than YouTube, but they definitely generate more profit than YouTube does today. And so they just, they build a tremendous business.
- [28:22]
Fergus O'Carroll
And of course the distinctions that you made between Netflix and YouTube in our last conversation was the fact that they're almost reverse models where there's a massive amount of investment in original content that takes place on Netflix. Whereas in YouTube, it's a shared revenue model, but all of the content, or the vast majority of the content is already there. So there isn't that production, massive production volume and dollar budgets in order to prepare and create that sort of a content. Does that change? Because I know that there's some original content being produced now and shows being presented on YouTube. Do you see that that changes, that the balance changes over time?
- [29:06]
Michael Beach
Yeah, there's a kind of a deeper way to look at it is that YouTube doesn't frontload content. They don't guarantee content payments to people. And so they've got, you know, millions of creators creating videos. And a lot of it's not good, but a small percentage of it is. Is really good. And that small percentage now is actually a large amount of programming because there's so much such a high volume of content getting created. So they don't have any risk up front with that. They pay out on a rev share. Usually about 55% of the ad revenue goes to the creator, 45% to YouTube. So that's a good model. So they basically have a profitable thing from $1 on their content, and they have huge infrastructure costs and other things with the actual kind of technical side of the business. But just in terms of how they deal with content revenue, they've got a pretty good thing. Netflix, on the other hand, spends a lot of money on content. I think $17 billion a year was the last number that we saw from them. And so they have a tremendous amount of risk because if people don't watch it and don't subscribe, they're still paying out the same amount of money, no matter what. What then being a skilled global provider has shown is that their content costs are fixed, but they've got, you know, they have 300 million people and say peacock is 30 million. Right. It's roughly numbers. And, you know, Peacock's a little bit larger than now, but Netflix could spend 10 times as much money on a show and make the same or more profit than Peacock. That's not what happens. Netflix maybe spends twice as much money or three times as much money on content, but has ten times the audience and they make more per month for all their people. So they are actually more profitable. Like they can spend $17 billion and make more profit than another company could spend $17 billion and lose $10 billion. But they've now hit this scale to where they're probably making more money, more profit from that content than YouTube, even though YouTube doesn't have the risk on the front end. And they're the only company that's in that seat right now. No one else has gotten to that scale to where they can do that. That's why everyone celebrates Disney eking out a little bit of a profit, which is definitely a positive sign. But Netflix is just so far beyond that right now.
- [31:22]
Fergus O'Carroll
I think one of the points you brought up in the last conversation, which I thought was really insightful, was the fact that cable, and I think you were referring to cable versus Netflix, that cable has more ad supported subscribers than Netflix. Therefore it actually is a much larger ad market. So there's an awful lot of revenue that comes out of that that Netflix can't touch. Because I think at that time it was like 3% of Netflix's subscribers were ad supported. Has that mix changed this year? Have the economics shifted at all?
- [32:00]
Michael Beach
That example, it was Peacock. So Peacock has, you know, I think 36 million subscribers and they have a really high, I think majority of the subscribers are ad supported. Therefore they, they actually have more ad supported subscribers than Netflix. And so they have a bigger ad business today than Netflix does. Netflix has a much larger subscription business than Peacock. But when we are, we think the future is ad supported. And so a company like Peacock actually has a bigger business, you know, Hulu has a bigger ad business than, than Netflix. The really interesting thing that's happened probably right around the time we talked last was, you know, Amazon turning on ads by default for all their, their Prime Video subscribers. And so now they have a massive ad business from that, that didn't exist, you know, 12 or 18 months ago.
- [32:48]
Fergus O'Carroll
Yeah, that's been incredible to me that I'm, that I, not only am I subscribing to prime and not only am I buying a show, but I'm also getting ads included.
- [32:57]
Michael Beach
Everybody on prime video is by default is ad supported. And then you have a, I think, I believe it's $3 a month you can pay to go ad free.
- [33:07]
Fergus O'Carroll
Yeah, yeah, a lot of changes happening there. One of the other things that we talked about the last time was the dynamic with hardware companies. And just after our conversation the last time it was announced that Walmart was going to buy Vizio and I believe that closed. Can you tell us about that relationship and what the value is for Walmart to buy Vizio, a manufacturer of hardware?
- [33:34]
Michael Beach
Yeah. So, you know, really the, you know over the last, you know, 20 years, the distribution partner, you know, who owned the last mile to your house of cable. In this case, the, you know, the cable TV company was a gatekeeper. And so they could, you know, they got, you know, if you want to be a TV network running on, you know, Comcast or, you know, Spectrum, you had to give them two minutes, an hour of ad time that they could resell. And, you know, it was a really good position to be in. And now the smart TV operating system, or what we call tvos, is kind of starting to fill that role now. And so you've got your, your base player in the US Is Roku, and then next is, you know, roughly Samsung and Vizio, and then you got Amazon and Google and Apple TV and then, you know, a couple other players. And so Walmart buys Vizio. And the question is, are they, what's the main benefit that they see in this business? Is it the fact that they've got, at the time they had 18 million households in the US that were on their operating system? Is it. They want to do something bigger with retail media, which obviously a huge business now for, for Walmart. You know, Vizio's got a data business they sell to companies like ours that, you know, is, is a, is a big business now, but a really interesting play of, of, you know, and Amazon obviously sees a path of, well, we can run Thursday Night Football and then, you know, we run Black Friday ads during a football game to using customer data. And a lot of people see the same thing. Well, Walmart's going to do the same thing with, with the Vizio operating system and customers, but a big deal. And then right after that, you saw Trade Desk announced that they were going to launch their own line of smart TVs or smart TV devices, which is kind of out of left field but also very interesting.
- [35:28]
Fergus O'Carroll
And what would be their motivation to do that? Just to serve up a performance marketing sort of outlet?
- [35:38]
Michael Beach
Well, on the surface they say that their goal is to clean up the ecosystem. And I don't believe that's true. I mean, that's probably a goal, but this is a pretty big bet. And it's, you know, price first. It's important to look at why this is difficult. In order to get your operating system to be successful, the first thing you've got to do is get TV manufacturers to use it.
- [36:06]
Fergus O'Carroll
Right?
- [36:07]
Michael Beach
And so if you're a TCL or, you know, somebody like that that hasn't built their own operating system, you pitch them on the benefits of using your Operating system. Hey, it's, you know, consumers are going to like it and we're going to give you a share of the ad time or whatever the, the, the pitch is. But you're also pitching us Roku and you're pitching us Amazon and, you know, other companies that want to do this as well. So that's your first step. You got to get on the TV to even get off the ground. And then you've got to get consumers to buy your tv. And this is where I get. Gets fuzzy for me because nobody outside of the ad world has ever heard of Trade Desk. And so why would they buy a tv? You know, if you're sitting at Best Buy and you're buying a $300 TV, why would you buy that over Roku or Amazon or, you know, another company? And so that's probably where I personally see this breaking down.
- [36:55]
Fergus O'Carroll
So do you feel that Trade Desk would be baked into somebody else's hardware, like a Samsung or an lg? It wouldn't. Maybe not those brands, but would it be a Trade Desk branded television? Or it would just be a baked in OS for Trade Desk?
- [37:11]
Michael Beach
Yeah, I think their first partner is Sonos. And it's going to be a streaming device, like a sound bar streaming device. And people have done this a couple different ways. That's a really good question. Comcast launched their own TV a few years ago, which appears to have flopped as well, which is kind of predictable. And I think they were branding that as like the Xfinity, you know, Sumo tv, which are two of their brands. And then, you know, Roku will go in with a company and, you know, you'll see TCL branded on the tv, but it's got a. With the Roku operating system. So there's, there's a couple ways you can do this, but my guess would be the hardware company would be first and then with Trade Desk os. But they've got to get the consumer to want to buy that. That's the part where I just can't wrap my head around why I work in this business. I'm not super excited to go out and buy a Trade Desk tv. I don't know why would my uncle want to buy.
- [38:04]
Fergus O'Carroll
They tend to be, I noticed from looking at these devices in the stores, they tend to be the cheapest ones, like a Roku TV, an Amazon TV. They are the Fire TV. They are the ones that are a buck 50 compared to 300 or 500 or 600. They tend to be the cheaper product. That seems to be their proposition. Get into the household as a value buy.
- [38:31]
Michael Beach
Yeah. And if you look at this, and we do the chapter in the book on this, but using a Vizio as an example, their average sales price is $300. So when you go and you buy a Vizio TV, it costs $300. They make $1.17 of profit on that TV. So less than 0.4% of the TV is profit. So very, very low profit margin. But then when you become a SmartCast customer, so you sign up and you actually use Vizio's operating system to stream, they make on average, $0.03 per hour of ad revenue for every hour that you watch streaming. And then they have a 62% profit margin on the advertising. So they're making.02 cents of profit every hour you watch on TV. Why does that matter? Well, the average Vizio customer watches 63 hours, or once they've watched 63 hours, they've made more money from the advertising you've watched in those 63 hours than they have from selling you the TV. And then they watch 21 hours of streaming a week. So within three weeks, if you open your TV, you connect to the Internet and you watch streaming through Vizio, within three weeks, they've made more money from the advertising than they have from selling you the tv. And then the average person keeps a TV for seven years. So that's the business Right to your point. Exactly. Like these TVs used to cost $10,000. Now they're 300 bucks. And that's because they're now data and advertising companies with a side of hardware.
- [40:11]
Fergus O'Carroll
So I guess the biggest story, and our last one here, is sports is finally moving to streaming. And in the last few weeks, we've heard about what's happening with the NFL. Games are going to be now streaming on Netflix. On Christmas Day, we've had the Tyson Logan Paul fight on Netflix. It's the idea that live sports are coming to Netflix and to streamers in ways that have never happened in the past. And how catastrophic this is going to be for linear tv. Tell us about this story.
- [40:48]
Michael Beach
Yeah, so you've got one thing happening at the national level and another having at the local level. So the Tyson Paul fight, national event, obviously a really big deal for the industry. You've seen the NFL move games onto streaming. The NBA just broke up part of their package to Amazon. Major League Baseball has kind of been playing around with this for a while. But then you go to the local level, which doesn't really have any impact on the NFL because it's Mostly a national media game. But for Major League Baseball, the National Hockey League and NBA they get more media dollars from local than they do from national. And so these deals are really important. And over the last 20 years they've primarily run on cable TV through what's called a Regional Sports Network or an RSN is the acronym. And it was a really good deal. Right, like the RSN gets exclusive access to all of the local teams games and then they go to the cable carrier and say in order to carry us, you've got to pay US$6 a month or $5 a month to carry our network on everybody. We're a must carry network for every single subscriber. And so you know, roughly 100 million households across the country were paying between 4 and $6 for each of these networks per month. But you know, only a small percentage of the audience in each market ever watched it one time. And so it was heavily, heavily subsidized by non sports viewers. And as the cable core cuttings happened that the number's gone down. So the, the regional sports network would make a 10 year guaranteed deal with a team and say well, we'll carry your games out into 2030 and we'll pay you this much per year. But then cord cutting happened faster than they could raise prices. So they actually got into a position where they were upside down, where they were paying more out and rights to the team than they were making from subscribers. And so you saw in the last two years the largest company, Bally Sports, which is part of Sinclair Broadcast Group, filed for bankruptcy. And then that allowed them to get out of these contracts. And so what happened was they then started to drop all the non profitable deals. And so all these sports teams are going to their season with no distribution. So one, they've lost a huge amount of guaranteed revenue, probably you know, their first or second largest revenue line along with you know, ticketing. And then two, they've got no way to reach their fans.
- [43:10]
Fergus O'Carroll
So what starts to happen then if we have most of. Because I think you've talked about the fact that coming up even at the NFL level that once the contracts expire with the, with NBC, CBS, ABC, the major networks here in the U.S. fox, that they, and they move to streaming, what then happens to the revenue models of NBC, abc, cbs, Fox? It's because isn't it true that their largest contributor in terms of ad revenue is live sports?
- [43:45]
Michael Beach
Yeah, they're going to lose their, their mass reach vehicle. Right. And so, and that could have a lot of, a lot of implications for the business one, you're seeing this right now with Warner Brothers Discovery, where they've lost the NBA, which was their largest reach driver. And then they would use that as leverage to say, well, if you want to carry the NBA Comcast, you've got to pay. You got to get every one of our channels, you know, USA and TNT and all the Discovery channels. We're going to raise the price 10% on all of them this year because we won't sell you just TNT by itself. To get tnt, which carries the NBA, you gotta buy all of our channels. Cnn, everybody. And now they've lost the NBA. And so they're actually in the process now negotiating renewals with some of these cable companies. It's interesting to see are they gonna actually, is their pricing any flat or slightly down? Because they've lost that leverage. And then, you know, you could see where the cable companies are gonna say, well, look, we don't want cable all 20 of these channels. We only want these three. And you saw that with Disney. I think they, they did a deal with Charter in the last, you know, 12 to 18 months where charter didn't want all their channels. Right. And so they, you know, some of the Disney networks are starting to shudder because they're no longer must carry, you know, kind of being forced bundling with ESPN and, and other networks.
- [45:07]
Fergus O'Carroll
So I remember the last time we talked, you mentioned that of your cable bill. For those still with a cable bundle package, 10 bucks of that goes to ESPN every month. So they had this massive amount. I think you talked about it being roughly $700 million a month in recurring revenue going to ESPN from the cable bundles. And if they begin to migrate a lot of that into streaming, if we get a big streaming offering from ESPN versus the cable, how do they balance that out? How did they become something that becomes more modern and streaming oriented while also maintaining that sort of cable revenue, that recurring cable revenue? They got to be, I mean, that's got to be a nightmare to try and manage those relationships.
- [45:56]
Michael Beach
Oh, a huge puzzle piece. I mean, one, you've got the relationship with the cable companies to where with ESPN going direct to consumer. Could those cable companies turn around and say, look, we are no longer going to put you as a must carry channel. Like if a consumer wants to add $10 to their bill every month, they will, but we're not going to bake you into the default package because that would allow a cable company to drop their service by $10 a month. And that, that's where that $700 million is at risk. And then, you know, two, can you. So they got to figure out a way to recreate new revenue from streaming faster than they lose it from the linear TV bundle. And that's been a known problem right now. But I think every year that's gone by, you know, the, the change is happening faster, that they've got to move on something. But it's definitely not an easy, you know, it's, there's a trade off in there for sure.
- [46:52]
Fergus O'Carroll
So it's an amazingly complex. And every time I talk with you, I'm fascinated by the complexity of it all. I try to keep it straight in my head, but it's, it's really tough to sort of balance out the fact that scale doesn't necessarily mean profit. You can have the largest amount of viewers, but you're not necessarily profitable because your content costs are significantly higher than your revenue costs. Then there's also the idea that the smaller brands we talked earlier about, Peacock, they've got more ad revenue, they've got their ad businesses bigger than a subscription business. So trying to understand what this looks like two, three, five years from now, I mean, it's clear to see that it's moving from linear to streaming. But is streaming, do you see five years from now that streaming is still going to be about subscription based vs ad based? Will it be both? Will it still have those sort of tiers or do you see a different kind of a future?
- [47:58]
Michael Beach
We see more streaming. So the way to look at it is that, you know, linear TV is around, you know, 80% of the time, you know, roughly is on ad supported time and about 20% is on premium. So HBO and things like that, that number kind of can eb and flow a little bit. But if you just use that as a proxy to say that's the most streaming will ever go, right? 8020 or 85, 15. And we're at, you know, 4060 or something like that right now in terms of ad dollars to subscriber somewhere in that neighborhood, then it's going to shift that way. And I think what will shift ad supported more is that you can make so much more per hour of advertising on streaming than you kind of linear even with a smaller ad load because of targeting measurement. And this is the biggest difference that we see in our business versus when we talk to national advertisers or kind of like larger New York advertisers that, you know, our customers are obsessed with their audience and are willing to pay a lot more for advertising to either reach their audience directly or to be able to measure that they reached a niche audience directly. And the old world is still built around mass reach and mass delivery. And so they're not willing to pay. They're always trying to, you know, they run a procurement model where they're trying to drive the price of media down. And so we see streaming being able to offer a much better model for, you know, the average, you know, tv. I think we did an example this in the book. I think it was about 27 cents an hour is what, you know, average hour of linear TV is. You know, we could see streaming 10 years from being double that. But that's kind of heresy to.
- [49:45]
Fergus O'Carroll
When you say 27 an hour, what do you, what do you mean by that? Revenue or.
- [49:50]
Michael Beach
Yeah, if you just took every ad that ran, you know, 16 minutes an hour, 32 spots, you know, assume 32, 30 second spots, what the average CPM is, you get a, you get an ad revenue per hour for linear tv, just an average. And it ranges, right? Like the NFL is about $2.50 an hour of ad revenue. If you sit on watching NFL game and there's stuff that's like remnant inventory that makes, you know, 10 cents an hour. Right. But it all, it kind of all evens out in roughly The, I think 27 cents an hour is the example we had in the book. And streaming's under that right now. Right. And it's mainly because the ad load on streaming is so much lower than what is on linear tv. But we only see increases in the long term, right. Of in CPMs with more measurement and more targeting. And then also the fact that there are so many advertisers that are sitting on the sideline that don't buy linear TV today that could come into streaming. And so there are over a million video advertisers in the US that are buying advertising on Facebook and Instagram. There are a couple thousand national TV advertisers. So there are a huge pool of people that are not buying inventory. And so, you know, we see a world where at the impression level, a direct consumer brand or a local advertiser or a smaller national brand is bidding on an impression against Procter and Gamble or Ford or whoever it is, and the more targeted and measurable it is that it can be sold, that group will pay a higher cpm. And so, and we see that, we see this heavily in US politics, right, which we think is a canary, the coal mine. But even in other local verticals, once they understand who their target audience is and what it costs to reach them on all their platforms, they're willing to pay a lot more than they, they were before they started. And so, you know, it's just, if you talk to the Madison Avenue types, they think this is total heresy because it's the inverse of how their business is built today. But we use Facebook as a proxy. Like the reason the boycotts against Facebook a couple years ago had no impact on their business is because the largest brands aren't the majority of their business. They've built this multi million advertiser long tail out. And so they've got way more demand than anybody else. And so, you know, a cpm, you know, Facebook makes more money per hour for advertising than broadcast primetime television does and a much lower quality product.
- [52:20]
Fergus O'Carroll
Right.
- [52:20]
Michael Beach
And it's all about how many people are in the demand side of their ad product. Like a little post you stamp out on your mobile phone makes more money than, you know, an hour of. Seeing those generates more money than seeing the highest produced content in television does, you know, in broadcast primetime. And that's just purely because the ad demand.
- [52:39]
Fergus O'Carroll
It's just amazing. It's fascinating to see how this thing is evolving. And I always, I've always sort of been, I always think it's important to remind folks out there that I think the, we talk a lot about, we hear a lot about TV is dead. And I think the impression is that literally TV is hanging on. Linear TV is hanging on by its fingernails, the cable and the cord cutting is just decimated cable. But it's also, I think, important to remind people that The Netflix has 75 million households. I don't know if that's increased much this year, but it seems to be sort of tapping out in the 70s in terms of the households that it, the penetration it has in the US Netflix cable still has 72 compared to Netflix is 75. So it's still a player, it's dramatically down, but it is not out.
- [53:33]
Michael Beach
No, not at all. And that's, that's why we use the term conversion tv, because it's, it's going to be, you know, at least a messy decade of transition. And today, you know, on most fronts, linear TV is still bigger than streaming. You know, it's just that, you know, reach is the first thing that is equaled out and then time spent will be probably the next thing it flips and then next couple years and then ad revenue later in the decade will probably flip just from linear to streaming. And the last thing to flip will be the number of Ad impressions or the share frequency. And that's just a function of linear TVs got more, a higher percent of its time is ad supported and it has more ads per hour. And so that, that will be the last thing to flip. And that might be in the early 2000 and 30s before that flips.
- [54:21]
Fergus O'Carroll
So last thing would be what are you looking out for to happen next year, 2025? What do you think the biggest story is going to be in this space?
- [54:31]
Michael Beach
I think these five trends we talked about for this year are all reflections of economic model. And we just look like economics is gravity for this industry. And the fact that the impact of the underlying economic model is just starting to be felt. And so we think it's going to have a huge impact on everything right to where you're going to see consolidation, you're going to see people completely change their businesses because the economics are basically forcing them to change their behavior. And sports is something where for years were like, there's no way this model can continue because it was totally upside down. It was like 1% of, you know, 98% of the cable TV subscribers were subsidizing 2% of the people that watched local sports every night. And you just, that couldn't go on forever. And then once it changed, it kind of wrecked the underlying model of sports right to where they are having to reinvent how they make most of their money. All the leagues outside the NFL right now are really, really scrambling. It's changing everything. It's changing the free agency markets, it's changing, you know, literally everything you've seen that news, right? Like how we consume news, how polarized we are. All of that is driven in part by the economic model of television, right? Like how, why you're seeing the content that you are and then just the fact that there is a global scaled company like Netflix out there that is clearly not going away. It's competition now. The, that's a reality, right? So they've got to play a game where they are basically playing for that second or third seat in the musical chairs. And the first seat is kind of to me that's baked. Like that's, that's done. And so what, you know, how do you do that when you're at best a number two or number three player in the space? You know, you kind of focus on a niche or whatever you want to do, but hoping kind of the company was going to blow up, which is what a lot of traditional media companies were hoping that that's over.
- [56:36]
Fergus O'Carroll
It is. Michael beach, he is CEO of Cross Screen Media. You can get his book on all of the major book platforms, Amazon, et cetera. It is called Screen Wars. He also has a newsletter, State of the Screens. You can subscribe to that@stateofthescreens.com It's a great newsletter. And Michael, thank you, man, for coming on and sort of wrapping up the year for us here. We appreciate it.
- [57:01]
Michael Beach
Oh, great for your time. Thank you.
- [57:03]
Fergus O'Carroll
And we will see everyone on the next episode.