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Connected Homes May 2017 Viewpoints

Technology Analyst: Michael Gold

The TV-Set-Sales Slump

Why is this topic significant?

Entertainment and technology companies will need to improve their offerings to stimulate an eroding market for TV sets.

Description

TV-set markets peaked at about 255 million units sold worldwide in 2011, according to IHS. Strategic Business Insights' (SBI's) researchers' analysis of multiple industry sources suggests that annual sales slumped again in 2016 and were down about 14% from the 2011 peak. And a 26-nation Accenture survey whose results appeared in April 2017 reportedly indicates that only 23% of people prefer to watch a full-length show on a TV set, with 42% preferring to watch on PCs. Accenture claims that a dramatic role reversal occurred since it performed a comparable survey a year earlier.

Statistics supplied by SBI's VALS™ service and its strategic partner GfK shed light on TV sets' loss of grace in the United States. Comparison of a VALS survey that occurred in fall 2016 with a similar survey in fall 2015 indicates that the number of US adults who personally made the decision to purchase a new TV set during the previous 12 months dropped by 1.4 million to about 39 million.

But the trend is far from uniform, with some customer segments increasing TV purchases dramatically and other segments decreasing even more dramatically. People in their thirties plus people who are age 21 and younger reported sustained demand plus increased purchases of new TV sets—about 2 million additional customers during the 12 months ending in fall 2016. Most other age groups decreased their purchases during that period. Reduced demand among forty-, fifty-, and sixty-somethings was more than enough to negate the growth in purchases among younger cohorts.

Implications

People's responses to the VALS questions about attitudes suggest a mix of motivations for purchasing or not purchasing a TV. A customer segment with strong needs for stimulation and entertainment—VALS calls that segment "Experiencers"—reported more than 50% increases in their TV-set purchases over their purchases in the previous year. Many Experiencers are console-game enthusiasts, and they may have bought TVs after delaying upgrades in recent years. But a smaller, related market segment that VALS calls "Innovators-Experiencers"—whose needs for stimulation often extend to dynamic real-world adventures and thrills, not just electronic media—reported nearly 50% decreases in TV purchases. And some large and normally TV-friendly VALS segments reduced TV purchases by double-digit percentages: Believers (many are religious) and Survivors (many are retired) are typically not early adopters of new technologies and likely saw no need to upgrade to late-model ultradefinition sets.

Impacts/Disruptions

Audiences will continue to value screens larger than those of typical computers and tablets. But preoccupations with smartphones and social media reduce the priority of TV-set purchases—somewhat like "video killed the radio star." As with radios, TV sets will be less prominent, but they will still be mass-market products. How much will TV markets suffer? In one alternative scenario, new viewing habits could contribute to a TV-set market crash comparable to the steep declines in CD and DVD sales. In another alternative scenario, TV-set markets could see improved prospects. Studios, distribution networks, and TV makers could stimulate new demand if they evolve their business models with an aim of greatly improving choice, connectivity, ease of use, customer service, and other attributes of healthy technology markets that big-screen audiences would reward.

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: Medium

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: Now to 5 Years

Opportunities in the following industry areas:

Electronics manufacturing, pay-TV services, film/TV production, software development

Relevant to the following Explorer Technology Areas:

Prospects for a Megamerger: AT&T and Time Warner

Why is this topic significant?

AT&T's proposed acquisition of Time Warner promises both to increase Ma Bell's competitiveness and to keep the company relevant to audiences as so-called cord cutters force multichannel video services to share markets with streaming services.

Description

During 2016, AT&T proposed to acquire Time Warner, which today consists largely of Warner Bros. film/TV studios plus many pay-TV networks, including CNN and HBO. During February, Time Warner shareholders voted to approve the merger. During April, Time Warner sold the last of its terrestrial TV stations, fully eliminating needs for US communications regulators to approve the merger. AT&T expects other regulators in the United States and elsewhere to approve the deal by the end of 2017.

AT&T has indicated that it is the largest multichannel pay-TV service in the world, with about 46 million subscribers in North, Central, and South America. Among all multichannel pay-TV services in the United States, AT&T has the largest base of subscribers—about 27 million households, according to Business Insider and Leichtman Research Group. Most of these subscribers receive satellite service from DirecTV, which AT&T fully acquired in 2015, with the balance (about 4 million) connecting to AT&T's fiber-enhanced U-verse service. As for Time Warner, it has the largest revenues of any entertainment production company worldwide, according to a 2016 analysis by Hollywood Reporter. One of its television networks—Turner Broadcasting System—operates in more than 200 nations.

Implications

Will AT&T have genuine business synergies with the producer of Harry Potter, Lord of the Rings, and Game of Thrones? Some analysts are skeptical. AT&T would still need to negotiate with many other studios to acquire distribution rights for a great majority of the video that it delivers via satellite and fiber. Nevertheless, consider the second-largest US pay-TV service, Comcast, which completed an acquisition of NBCUniversal in 2013. After the acquisition, Comcast became responsible for supplying Dreamworks movies and NBC TV networks to services worldwide—including becoming a vital supplier to its own competitors such as AT&T, Dish Networks, and Verizon. The merger also presumably reduced Comcast's overall cost of obtaining rights to distribute Universal Studios' movies and NBC's videos. AT&T will enjoy similar benefits if it acquires Time Warner. Privileged access to ultrapopular content would reward AT&T with royalties from competing networks and nations where the company has no infrastructure.

Impacts/Disruptions

During recent years, the number of US subscribers to multichannel pay-TV services (via coaxial cables, fiber-optic lines, or satellite dishes) has declined somewhat, though the great majority of US adults still live in households that do subscribe. With broadband and mobile communications services near market saturation, service providers such as AT&T need a growth opportunity that also hedges against further erosion of multichannel service penetration—possibly, major erosion. With Time Warner, AT&T could remain relevant in a disruptive scenario where so-called cord cutting prevails. (Presumably, pundits will find a better term than cord cutters to describe people who discontinue satellite service.) If audiences for multichannel services become the minority, many network infrastructure services could become commodities or "dumb pipes" for data. In that case, a merged AT&T plus Time Warner would still supply superlatively popular video to streaming services—including those that it operates itself; Time Warner's existing HBO Now service is a prime example.

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: Medium

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: 5 Years to 10 Years

Opportunities in the following industry areas:

Electronics manufacturing, pay-TV services, film/TV production, software development

Relevant to the following Explorer Technology Areas: