With a new administration coming into office, there will no doubt be changes to many policies. One area to watch is around the FCC and changes to existing net neutrality laws. Current net neutrality laws prevent internet service providers (ISPs) from blocking and slowing the transmission of content of any specific company. Advocates of the ruling say that removing these safeguards clears the way for ISPs to choose whose content they throttle and opens the door for them to charge companies for delivering their content at faster speeds. This would be especially impactful for a company like Netflix, which accounts for over one-third of all Internet traffic.
In a scenario like this, the additional fees that would have to be paid for faster speeds would increase operating costs for companies like Netflix, which in turn would likely pass some of that cost on to subscribers. Faced with higher entertainment costs, cost-conscious viewers would likely further consolidate their spending and be forced to choose between streaming video services like Netflix or their cable subscription. It’s tough to see how cable companies and networks win in a situation like this.
The continuing decline of cable subscribers has been well documented. In a November research report by Leichtman Research, Bruce Leichtman said that the largest 11 pay-TV providers lost 665,000 net video subscribers in this year's second quarter, a total of 120,000 more than Q2 2015. But the bad news doesn’t end there.
Business Insider recently noted that TV viewership is also in significant decline. According to the Pacific Crest research referenced in the article, the average viewership for the top 200 general entertainment series declined 20 percent year-over-year. Children’s networks fared even worse, with a 30 percent decline in Q3 vs last year.
It’s not just the content creators and cable operators who are feeling the impact of this trend—advertisers are as well. To compensate for viewership declines, ad rates are going up so advertisers are now spending more to reach fewer consumers, making their ad dollars less effective than before. Their planning and buying costs are going up as well due to more complex multichannel media plans with a greater distribution across networks, digital properties, search, social and native content.
We’re already beginning to see the impact of fewer viewers and ad dollars flowing to individual networks. Viacom’s and Disney’s recent earnings are proof of just that. And then Donald Trump was elected as the next president of the United States.
Based on his 100-day transition plan, President-elect Donald Trump’s policies will likely have a very negative impact on media and technology companies and advertisers, starting with net neutrality.
Trump has appointed Jeff Eisenach and Mark Jamison as advisors to oversee the FCC. Both are staunch opponents of net neutrality and if they remove the existing regulations in favor of a more deregulated industry, content will most likely get more expensive. For example, Trump’s administration could eliminate laws that protect content creators like CBS (All Access), Netflix, Google (YouTube) and Facebook, from having to pay higher fees to internet providers for faster speed connections to users. This would be a boon to broadband providers like Spectrum and Verizon, but the increased operating costs to content creators would most likely be shared with, or completely passed on to the consumer.
Which takes us full circle, back to where we started. Consumers are already spending less time with any individual network or VOD provider. They are opting out of higher-priced entertainment packages in favor of individual subscription video services like Netflix. They are viewing video content more and more on digital devices that utilize broadband connections—the very same ones that are poised to get more expensive if net neutrality regulations are removed.
Significant increases in the cost of services could prove to be the watershed moment that pushes consumers over the edge and begins a cycle of mass subscriber losses for content distributors. With significantly fewer viewers, reach, frequency, rating points, impressions and any other metric you care to buy on will plummet. Content creators/distributors lose as their revenue falls. Advertisers lose, as they will continue to pay more for less. And, even though they may enjoy a short period of boosted revenue, ultimately, broadband providers will likely lose too.
At this point, here’s to hoping the new administration keeps the existing net neutrality protections in place.